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Pocket Buyers?

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Workbox

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Elite Member
Joined
Mar 2, 2005
Professional Status
Certified Residential Appraiser
State
Colorado
Doing a refi home and the owner is a Realtor. They gave me a contract in which the home was on the market one day, and immediately withdrawn. But it is under contract and subject to close this week. Only sale in this neighborhood. I have to go to a similar competing neighborhood for sales. But this Realtor indicated that the folks that bought the house next door to her are Loan Officers and that the buyer was a Pocket Buyer. I guess that means "in-house-buyer".

I'm not saying that anything is wrong, but I have been seeing more and more of these type of sales, in which they do not put them on the market and then go on the market for one day and already have a contract. I get weary with these kind of sales, sometimes they stick out compared to the rest of the market. Others, just hot markets..........Sometimes I think they are being used to artificially create a market. But every market is different. What guy think?
 

hastalavista

Elite Member
Joined
May 16, 2005
Professional Status
Certified General Appraiser
State
California
I understand a pocket-buyer to be one that has expressed interest in a certain type of property, the characteristic of interest usually being a specific location, but can be other things too (must have this model, must have a tennis court, must have an in-law, etc.).
There is nothing nefarious in such cases but due diligence is prudent to ensure the transaction was arms-length. I think to the degree that one can verify this type of transaction's market-basis determines how much weight/consideration it should be given in a report.
I'd always mention it. I may use it in the grid. I may give it most weight. Which "may" I choose will be based on how much information I can get on the particular sale.

In your situation, it isn't easy as this is the only recent sale. You probably know all the things to do if it wasn't there. You'll have to do those things anyway; sounds like this sale will either strongly or weakly confirm your outside-the-development analysis (most troubling is if it contradicts the analysis).

Good luck!
 

Lee in L.A.

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Jan 24, 2002
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Certified Residential Appraiser
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California
I'd be looking at it with a skeptical eye. :unsure:
 

Walter Kirk

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Jun 24, 2003
Professional Status
Licensed Appraiser
State
New Jersey
Those buyers are not typically motivated. I would ignore such sales.
 

hastalavista

Elite Member
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May 16, 2005
Professional Status
Certified General Appraiser
State
California
Those buyers are not typically motivated. I would ignore such sales.

Walter-

While I think your assumption is correct much of the time I'm not sure I'd say it is true all of the time and wouldn't automatically ignore such sales.

Case in point: I had a situation a number of years ago where a friend of a Realtor asked her to keep an eye out for a house with a pool within a large part of San Jose. She passed on a few and finally found one she liked and made an offer (which was at market); the MLS showed "0" marketing time which is why I inquired into the circumstances of the sale.
So although the price was at market, the short exposure time was explained by the fact that this particular buyer was ready to purchase a home with a pool. :new_smile-l:
 

Mike Boyd

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Jan 18, 2002
Professional Status
Retired Appraiser
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California
Basically, I agree with Denis.

When I was selling real estate I would often come across a house where the owner would not list it but would tell you they would pay a commission if you brought in a buyer at their price and terms. We called them POCKET LISTINGS. In other words, you knew it was for sale but you would keep that information "in your pocket."

Often, these homes are over-priced and I would think that if a buyer was willing to pay a premium, he would have to be super motivated.
 

Pat Butler

Senior Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
Illinois
Most MLS's have regulations regarding this sort of activity. The problem is that when a real estate company joins the MLS they agree in writing to share all of their listings with the other MLS subscribers. That's a fundamental rule that make the MLS work. And there's almost always a deadline (24hrs is typical) in which the brokerage has to input a new listing into the MLS.

What happens with a pocket listing is that the broker usually hangs onto the new listing for far too long before inputting into the MLS. That's ripping off the other MLS subscribers and is likely violating his fiduciary responsibility to his seller. It is likely not in the best interest of the seller to not have their listing exposed to the other brokers.

There is usually a legal way around this however. The seller can sign an agreement that gives the broker a certain amount of time prior to inputting their listing to the MLS. In effect, the seller is giving permission to the broker to delay the MLS input in exchange for possibly a lower commission.

So this sort of activity may be legal or illegal. Usually it's illegal! Every so often a broker may have a buyer looking for a certain type of house. That broker may actually do some targeted prospecting to homeowners. If a particular homeowner responds then it's possible that the broker will pull together a deal between the 'pocket' buyer and 'pocket' listing. Even then, there's usually a requirement to fill out certain paperwork for the MLS showing why this transaction was a variance from the MLS rules.

From an appraisal standpoint, it usually doesn't matter unless the subject property sold for an obviously high or low price. The so called pocket buyer might already have been active in the market and is familiar with pricing. A seller who agrees to pull one of these deals together might already have been researching prices in order to be prepared to put their house on the market shortly. So it's very possible to have a knowledgeable buyer and seller who negotiated a 'market' price for the house.
 
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hastalavista

Elite Member
Joined
May 16, 2005
Professional Status
Certified General Appraiser
State
California
The OP is asking about "pocket buyers"; those ready to go on a specific house given certain parameters.

A Pocket Listing is where the agent has a property that is going to be listed but sells it without marketing it on MLS- many times for reasons that Mike and Pat describe.

A difference with a distinction. :new_smile-l:
 

ccooper

Junior Member
Joined
Mar 9, 2002
Professional Status
Certified General Appraiser
State
Missouri
I think many of the above posters are reading too much negativity into this scenario. This happens sometimes particularly in higher end homes. Agent knows the home and owner. Comes across a buyer and realizes said home would be perfect. Calls up owner and gets an authorization or a short listing. There is nothing unethical or nefarious here. Agent just happened to know the right property. Not trying to circumvent MLS and keep all the commission for themselves. Agent just happened to "know the perfect property".

I have a pocket buyer for one of my houses right now. Some friends we had over for a party once said, "we love your house, don't sell it without letting us have a shot at it". We moved in December and I immediately got a call from them. "Did you sell it without us?" I told them no that we were renting it now. I know if I wanted to sell the house tomorrow, I could probably do a deal with these friends. Nothing nefarious. I'm not trying to circumvent the MLS rules. This sounds like the exact scenario between the seller (agent) and the buyer (loan officer).

As with ALL comps, you must determine if this sale is in line with other market data. That's why we don't just use 1 comp in an appraisal report.
 

Mike Garrett RAA

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Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Yeah, who really cares?
 
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