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Pricing Properties to Sell; Net and Pocket Pricing Dangers

USA

Net listing is illegal in many states in the USA because it represents a conflict of interest between the agent and the seller. The net listing agreement gives the agent an incentive to sell the property for as low as possible, rather than getting the best possible price for the seller.

And why is this the case? The agent should know a price range for the property based on the market, comps, and conditions. The seller may not know what the market price is for his property. An unethical agent can price it lower and add more commission for himself. This is a conflict of interest between the seller and the agent.

Net listings are frowned upon because they incentivize real estate agents to sell real property at unreasonably high prices. Net listings tempt real estate agents to put their interests above the client’s interest. A real estate agent’s fiduciary obligation is to keep the principal’s (client) interest above their own.

Respected real estate organizations outlaw net listings because they encourage agents to neglect their fiduciary duty to put a client’s goals ahead of their own.

Net listings, however, are legal in three notable states with large housing markets: California, Florida, and Texas. Even in these states, however, net listings are used sparingly and with regulations.

In California, net listings are legal; however, the following policy needs to be adhered to: Net listings can easily lead to a breach of the agent’s fiduciary obligations and should be used only with highly sophisticated clients or clients who are independently represented and, of course, with full disclosure of all.

Many states disfavor net listings because they tend to create a conflict of interest between the seller and the agent. The seller may unknowingly underestimate the value of the property, resulting in an unfair windfall for the agent.

Bad realtor behavior is tweaking contracts to decrease the purchase price by allocating a portion of this price to personal property rather than a home.

A net listing is agreeable if the seller gets the price desired for the property. The exclusive right to sell listing offers the MOST protection to the broker. The agency relationship between the seller (client) and the listing broker (agent) must be evidenced by a written agreement.

The most common reason for a home not selling is that the asking price has been set too high. The reasons for setting your price too high, to begin with, are many.

Ranging from over-enthusiastic listing agents to unrealistic seller expectations, as well as pocket listings instead of exclusive listings with professional brokers.

A pocket listing is an off-market listing, or a property marketed to potential buyers through private channels rather than on the multiple listing service (MLS)

Canada

Pocket listings and exclusive real estate listings are legal in Canada. Pocket listings are banned in the United States, where realtors must make listings available to the public within 24 hours. This gives only 24 hours for a pocket listing sale to be made before the listing is made public in the USA.

Net listings in Canada were not found in the material I reviewed.

Mexico offers a range of benefits for international investors, such as low property taxes compared to the U.S. and Canada. The Mexican peso is performing strongly, having appreciated by over 20% against the dollar in the last three years. (2020-2023).

Mexico has net, pocket, open listed, exclusive listing agreements but there is much less regulation of agents. This can be the Wild West. Find a good agent and a good attorney.

There is not the oversight of real estate agents as there is in the two northern countries of the same continent.

Foreigners can buy three ways depending on the location and purpose of the purchase of real estate. In the interior of the country, direct deed can be issued. Then you need to have a will.

Near the shoreline, residential property will be in a fideicomiso trust, a first 50 years, then 50 years renewable. And commercial property is in a registered company.

This article is based upon legal opinions, current practices, and my personal experiences. I recommend that each potential buyer or seller of real estate conduct his own due diligence and review.

Author

  • Harriet Cochran Murray

    Harriet was born and raised in Louisiana. She has a BA in Art Education and has lived in Vallarta since 1996, founding Cochran Real Estate a year later. She is also a Certified International Property Specialist and a long-time Realtor who travels the world to attend courses and give presentations.

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