What is a pocket listing? As we have discussed in the past, a pocket listing is a property that is available for sale but is not known to the general public. They are, many times, known only by top agents who share information privately amongst themselves. By seller’s requests, these properties don’t appear in the local Multiple Listing Services, and they generally aren’t advertised in the newspaper or on the Internet.
In 2012, more pocket sales took place than any time in the recent past. Virtually all the new construction homes have been sold in the framing stage or before they were completed. About 50% of all newly constructed homes were sold to buyers directly by the builder with the other 50% being represented by an agent. This recent trend of buyers approaching builders is more prevalent because of the scarcity of new projects being built today.
The current battles for lot value sales, for the most part, are being won by owner-users who are looking to build new homes for their families. Given their druthers, buyers of new homes would prefer to pay a premium to a builder for a completed home rather than build one themselves. Most people don’t have the time or the inclination to go to through the long and arduous process of building, especially in Santa Monica where the process often takes a minimum of 18 months to 36 months. The pressure for new construction is evident in Santa Monica, especially north of Montana Avenue where the number of homes currently being built is probably at an all-time low. This is due to lack of builder financing and the downturn in the housing market in 2008-2010. This void is being filled with private financing. As builders have become more confident and returned to the market, they have found stiff competition from a new breed of developer, investors teaming up with local builders. As I mentioned earlier, builders are facing a very aggressive owner-user populous who want to build their own home.
Pocket listings have become the alternative resource for inventory. We are seeing current housing inventory at near historic lows. In the coveted 90402 zip code there are fewer than nine homes available for sale, of the 2550 homes located north of Montana. I think we can expect pocket listings to rule for the foreseeable future, especially in new construction. I expect most new construction will be sold by the builder before they are completed. Some people have expressed concern that if the property isn’t fully exposed to the marketplace that the full value of the home may not be reached. This has not been the case. Quite the contrary, in many cases developers are getting higher values.
I think this is generally true because buyers are concerned about getting into a competitive situation, multiple offers, and being outbid as is the case currently. We’re seeing multiple offers on many of the pocket listings. I think the overall outlook for the real estate market in 2013 is going to be more of the same, meaning lower inventory, higher demand and probably prices reaching their all-time highs especially in the 90402 zip code.