Why a 'Coming Soon' can cost a seller a LOT of money
Yes, 'Coming Soon' real estate marketing is often idealized as the best thing since sliced bread! It has connotations of nice, shiny, neon signs flashing and getting the attention of buyers out there. I can hear you say, right now, 'but advertising a home prior to it coming on the market is a really good thing, so how can it cost a seller a LOT of money?'
You're right. Advertising a home prior to it coming on the market can build up the anticipation of the home coming on the market IF, and that is a big IF, its done the right way.
So, let's explore what I mean by 'IF its done the right way' and to do this we need to consider some important characteristics of the real estate market, not only in the Sellers market we are in right now with double digit price appreciation and huge buyer demand, but this applies in any market whether its a buyers market, a sellers market, or a balanced market.
In today's market, we are seeing low inventory and very strong buyer demand resulting in some towns having more than 70% of the homes selling for over the asking price, and often well over. It's all about smart decisions being made, preparation, staging, marketing and working in partnership with your agent where we see results that far exceed sellers expectations.
So, why can Coming Soon cost the seller a LOT of money? To be honest, and this is why we do what we do (educate consumers), it depends on the ethics and motivations of the agent you hire to sell your home.
Lets talk a little about what happens when a Coming Soon sign is up out front of a home, or the agent markets the home as a 'Coming Soon' within their brokerage. For a buyer in this market where competition causes some buyers to pay far over market value for a home, having the opportunity to buy a home with no competition is very compelling. So, the buyer contacts the listing agent (the person with the sign out front of the home or who is advertising it as a Coming Soon) and asks to see the home before it comes on the market. If the agent is thinking of the sellers best interests they will thank the buyer for their interest and let them know when the home is coming on the market, and then contacts the buyer when the home comes on the market and is available for ALL to see. If the agent is thinking of what will put the most money in the agents pocket, then they will arrange to show the buyer the home while it is still a Coming Soon and then present the resultant offer from the buyers to the seller. More often than not when that is done, the seller will accept the offer before the larger buyer pool even knows that the home was available to buy.
Why is this a bad thing?
1) The seller already has contracted with the listing agent to pay a Professional Fee (the commission payable) for the sale of the home. This fee is generally split equally between the buyers agent company and the listing agent company. When the home is a Coming Soon and nobody knows it is on the market, then the WHOLE fee is paid to the Listing Agent. A 'double-deal' means more money in the listing agents pocket ! This is called a 'pocket listing'. This is such an unethical thing to do that the NAR (National Association of Realtors) has banned it from being used by Realtors. But, enforcement or penalties on agents that do this are almost non-existent.
In a slight variation on this theme, the listing agent lets agents in their office know about the home being available and one of the agents in their office has the buyer. Then the WHOLE fee is paid to the Listing agents brokerage. Again, more money in the agents and brokerage pocket!
2) How is a home considered exposed (marketed) to all of the buyers who want a home when its only shown to one buyer, or a few buyers within a brokerage? Anyone who understands marketing will tell you that the mantra of "exposure, exposure, exposure" is not happening when the home doesn't come on MLS (and subsequently hundreds of real estate portals eg Zillow, Redfin, Realtor.com etc) and is exposed to all the buyers who are out there looking for EXACTLY this home.
A recent study conducted over 2 years of a large MLS based in 6 mid-Atlantic states found that a home which was NOT exposed in MLS ('Coming Soon', 'Exclusively Marketed', 'Whisper Listing', or 'Office Exclusive') will sell for 16.98% LESS. For more information, check out the blog post from last month.
Let's look at the impact of losing 16.98% of the sale price as it relates to the distribution of sale price to list price ratio in Lexington in 2021. The red line of 16.98% below the asking price show's the impact compared to the statistical data for this town. What keeps us up at night is how do we prevent sellers from thinking that this scheme (aka scam) is a good thing, and the only way we can think of doing it is by putting out blog posts providing information to people of how much they could lose when selling their home this way...
It comes down to basic ratios. These ratios give the same result whether you're talking about 'Coming Soon' sales, or off market sales, or 'whisper sales'. Let's say that 10% of the people who see the home fall in love with the home, and want to buy it. Lets say that 5 people see the home as a Coming Soon or off-market sale, or whisper sale, then that is, at most, 1 buyer who will fall in love with the home. But, using the same ratios, if 100 people see the home because its on the market, then you have using the same ratios, 10 people who want to buy the home because they fell in love with it - we now get competition on the home and the price goes up.
So why are some agents able to convince sellers that selling their home off-market ( effectively what a Coming Soon is) is a good thing. I believe it comes down to the seller trusting the agent they are talking to, and not understanding that selling it this way benefits the agent/brokerage wholly and solely, rather than maximizing the sale price the seller could get. Unfortunately, this technique is gaining traction in the industry as agents are focused on the money in their pockets, rather than getting the highest price for their clients, which is sad reflection on the industry in which we belong.
In some rare instances, selling a Coming Soon, is acceptable. BUT, this is ONLY when the seller is a builder who sells homes day in, and day out, and who understands that they could get more if they waited until the home was completed. They are making a business decision based on their carrying & holding costs for, say, the remaining 6 months before the home is finished versus selling the home to a buyer 6 months prior to completion for a price the seller determines.
The shameful technique of the 'Coming Soon' in this industry where an unsuspecting consumer who may not have sold a home in the last 5 years or the last 50 years or anywhere in between, is unwittingly convinced to sell their home using this method. If you know of a colleague, or friend, or family member who is considering this approach, then please, please, please warn them.
We need to get the message out, far and wide, so that sellers DON'T LOSE A LOT OF MONEY WHEN THEY SELL THEIR HOME by being convinced to use this technique.