One of the things that doesn’t often get talked about in Toronto is the exclusive listing. Today, I’ll reveal the truth about what an exclusive listing is and share with you the good, the bad and the ugly.
But first, let’s start with a look at what an MLS is ….
Long, long ago (the 1800’s), real estate agents would gather together to share what properties they had for sale. The hope was that one of the other agents would have a buyer for their property, and they would offer to pay the other agent to facilitate a sale. It was the truest form of cooperation between competitors – you help me sell my listings, and I’ll help you sell yours.
As technology improved, so did the ability to share information and today, there are thousands of MLS’s across the world. In Toronto, the private database known as the MLS is shared by over 44,000 real estate agents. It works in much the same way as it did in the 1800’s – the listing agent posts a property and an offer of compensation to their competitors, in the hopes of making the sale happen. The MLS works: most properties in Toronto are advertised on the MLS and sold with the help of 2 agents – one who represents the Seller and one who represents the Buyer.
But there is another option to listing your home for sale on the MLS: it’s called an exclusive listing.
An exclusive listing is when a Seller enters into a listing agreement with a brokerage, but the listing does not appear on the MLS. The listing agent (and everyone in their brokerage) has the exclusive right to find the Buyer. Some people refer to exclusive listings as “pocket listings”.
There are times when listing a home for sale exclusively makes sense:
1 – Privacy – Some Sellers don’t want their neighbours to know their house is for sale. They may be getting divorced, they may be the President of a big corporation, and their resignation hasn’t been announced yet, or they may be famous. Yes, famous people need to sell their houses too, but they don’t necessarily want us all traipsing through their homes.
2 – Speed of the sale is more important than the price. Sometimes, the length of time it would take a home to be prepared, staged and marketed is too long, and a Seller has reasons to want to sell quickly. An exclusive listing can bypass the prep time – of course, this only works if the agent hired to sell the house exclusively already has potential buyers for the home.
3 – The Seller and their agent want to keep the attempted sale off MLS in case it doesn’t sell. When something is listed on the MLS, there’s always a record of it and it tells a story to future buyers. We sometimes see exclusive listings when a Seller is testing a price (usually a lot higher than what the comparables indicate the home is worth), when the Sellers have just bought the property and want to re-sell it right away or when the market is slow.
4 – The Seller and the agent want to pre-market a home while it’s getting ready for sale. Having a signed exclusive listing agreement allows the listing agent to pre-market a home online and with a Coming-Soon sign. It’s an opportunity to let Buyers know that a house is coming up for sale even though it isn’t ready to be shown yet.
5 – The Seller wants to restrict showing access. When a property is listed on the MLS, it must be available to be shown to prospective Buyers. Sellers who want to restrict access (for example, until renovations are complete, while they are away on vacation or while someone in the home is sick) can still have their property ‘for sale’ without daily visits from would-be Buyers.
But listing a home exclusively also has some important downsides:
1 – True market value is really only determined when a home has been marketed and exposed to potential Buyers. Market value is the result of Buyers being exposed on the open market to a home and deciding what it’s worth. We often see Buyers bid up the price of an in-demand house in bidding wars, and we also see Buyers not making offers on homes they perceive as overpriced. There are dozens of examples every week in Toronto of homes that sell for more than what the comparable sales in the neighbourhood indicate those homes are worth. The highest price almost always comes as a result of exposing the property to as many Buyers as possible. [Related: Supply and Demand and Why the Market is Smarter Than You]
2 – Often the biggest winner in an exclusive listing is the real estate agent. Exclusive listings reduce the chances of cooperation(where one agent represents the Buyer, and another represents the Seller). If the Buyer and Seller are represented by the same person, the agent stands to make a greater commission. But did the exclusive listing really bring in the highest price for the Seller?
3 – Who works for who? Is the listing agent working for the Seller, the Buyer or both the Seller and the Buyer? Did the Seller get the highest price? Did the Buyer overpay? Are there things about the home and neighbourhood that an agent working for the Buyer (and not the Seller, or both) might discover? Trust me, this can get messy.
Except in very specific situations, it’s almost always beneficial to the Seller to list their home on the open market. Wondering what you should do in your situation? We’d be happy to discuss!