|Pocket Listings -- Be an insider and Profit
One of the most frustrating things early in my real estate investing career was to see a "For Sale"
sign go up on a listed piece of property, call the agent that same day, and hear that the property went
under contract the day before the sign was even put out. Furthermore, these deals were
often great ones that I would have snapped up given the chance.
What is really going on here is that the agent obtains a "fixer-upper" listing. The agent then
"pockets" the listing, offering it to a few insider investor clients. One of these investors
sweeps it up, and the deal never hits the larger market. By the time you see the sign, itís too late.
In some areas, a surprisingly high percentage of the houses sold fall into this category, with the agent
selling the property before it is even on the market. Agents love to sell a house this way because they
make the whole commission (no splitting with the buyerís agent), and they keep their investor clients,
who have listings to give them in the future, loyal to them.
This practice MAY be slightly unethical for the agent, as it is really in the clientís best interest to
have the property out on the general market. For example, if the agent advertises the property on the
computer MLS (Multiple Listing) system, and places a sign in the yard, numerous parties may want
to make an offer, potentially bringing in a higher price. On the other hand, one might argue
that the agent helps the client by getting a quick sale, and that the client doesnít have to accept any
offer that is not high enough.
As an investor, we donít really care. We just want to be on the call-list for this type of deal. We want
to wrap these deals up before anyone even knows they are out there. Here is our game plan.
1) Select our agent:
When you have narrowed down the area you want to invest in, and you are familiar with the market, you
need to create ties to an agent. The agent that you want to select is an agent that does a lot of business
in our target area. You can find this agent by simply driving the neighborhood and seeing who has the
most "for sale" signs up.
2) Send a letter to that agent with the following:
a) A statement that you are interested in buying investment property in that neighborhood. You donít mind
fixer uppers, and are looking to buy, renovate, and resell properties. The agent will realize that you
are going to resell, and that you probably will need to list properties in the future. This gives the
agent two chances for profit: The first when you buy, the second if you list with them when it is time to
resell the property.
Include a business card with this letter. Optional: attach a magnet onto the back side of the card.
Magnets to stick on business cards are available at Office Depot/Staples for a reasonable cost. Your
cards can contain the information on which neighborhoods youíre looking for. (Example: "Interested
in buying homes in xyz neighborhood to renovate and resell.)"
b) Attach a letter from a mortgage broker showing that you are pre-qualified to buy an investment home
in the approximate price range of the homes in the target area. In the alternative, get one saying
that you have met with the mortgage broker, and the mortgage broker will be handling your financing
needs for rental properties. Feel free to let the mortgage broker include some PR about his firm in
your packet. The mortgage broker will bend over backwards for you in the future because he will see
that you are helping to build his business. This letter from the broker will make you seem like
a real player, i.e. someone who can close on the deal and pay the agent. Mortgage brokers are
happy to hand out letters like these to anyone with a pulse. Thatís a big secret that most sellers
donít know, but now you do.
c) Optional, but recommended: Attach a newsletter that you come up with each and every month. In it,
give information on helpful homeowner tips. You can get your raw information out of any number of
books on the subject at your library or local bookstore. Rewrite the content in your own words so you
donít violate any copyrights. For example, you might have one on how to fix a roof leak, or how to select a
contractor. The articles should be valuable to her clients. Tell her that she can copy these and
distribute them to her clients. (Leave the top blank so that there is space for her to insert her name
with a word processor). Get one to her each and every month. It will keep your name front and center.
Topics you can use include:
Question and answer format is great, i.e.:
- How to unclog plumbing leaks without a plumber.
- Replacing broken window panes.
- How to find good sub-contractors.
- How to avoid being ripped off by subcontractors.
- Why you should always keep gutters clean.
- How to select the right plants for your house.
- How to replace a cracked tile.
- How to paint a room.
- New loan programs and refinancing ideas (from your trusty mortgage broker!)
- Basic yard maintenance.
Q: "My house recently had a new roof put on. Unfortunately there are some old water stains on the
ceiling left over from the old leaky days. I tried to paint over them, but they keep coming back. What
would you suggest?"
A: Use a quality primer made to cover water stains, like Kilz. The oil or shellac based primer is
the product that you will need to use, as opposed to a water based primer. Either of these
products may be covered with oil or latex paint. (Check the packaging.) The odors on these primers are
extremely strong, so be sure to open as many windows as you can and ventilate the area. You will
want to make sure that any loose paint is removed before painting, and that the surface is totally dry.
If the stains are especially bad, 2 coats of primer may be required. Because it can take
up to 24 hours for old water stains to bleed through the primer, it is a good idea to wait before applying
your finish coat.
(There is a good magazine called Family Handyman that contains some great articles you can use
for inspiration and accurate content. It should be available at larger bookstores, and is available at Home
Depot. Also see This Old House Magazine).
3) If you buy or sell a property, let the agent know with a letter.
Note to her that you are still very interested in finding more properties in area x. This will demonstrate
that you are a serious investor, and move you up in the pecking order.
4) If you list the property, and donít have a particular reason to list with another agent, list with the
agent you are cultivating. This will bind you to them. Iíve personally listed properties with an agent
to establish a relationship even when I think I could have sold the house "by owner." If
that agent brings me 4 deals with $30,000 of profit each, the extra $7,000 I spent on a commission for one
deal was well worth it!
5) If you have good subs that you really like, make a list and give it to the agent. Explain that you have
used these folks in the past, and that their names might be helpful to her clients. Such lists are
super-valuable to the agent because they help her to sell houses. For example, a house may be
perfect for a buyer, but it needs repainting. The agent can tell the buyer that he knows a great painter who
can handle the job, and potentially close the sale. This will also make your subs loyal to you. If
your job or another clientís job must be delayed, yours wonít be if you are keeping a steady stream of
referral business going to the sub. These subs will see you as so important to their business that they will
also give you a great rate for your work.
I would use this technique with the top few agents in your target area. I now work with only a select handful
of agents. All are totally committed to the success of my business.
David Whisnant is a licensed real estate attorney in Georgia. He received his B.A. from
the University of North Carolina at Chapel Hill, and graduated from Law School at The University of Georgia
School of Law in Athens, Georgia. He is author of the
"The Complete Real Estate Investor
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