We’ve heard the stories about people who managed to make an offer on a house before it officially went up for sale, beating out all the other would-be buyers and scoring the home of their dreams. And in a fast-paced market, where houses often sell in less than a day and buyers have to be prepared to make top-dollar offers amidst what often turns into bidding wars, staying on top of both current homes for sale and potential listings can be one of the best ways to find the house you want. But if you don’t know how to buy a house before it’s listed on the MLS (multiple listing service), then you’ll miss out on this chance.
How do you buy a house before it’s listed on the MLS? And what is the process when it comes to buying? Most importantly, how can your real estate agent help you facilitate this?
HomeLight researched the ins and outs of what you, as a buyer, should know when it comes to buying a home before it’s listed on MLS; we spoke with top real estate agents in regards to buying a house before the “for sale” signs go up, where to look for those potential sales, and how they can help.
The MLS and how it works
The MLS, or multiple listing service, is a type of marketplace for selling homes. The MLS is used by real estate professionals to showcase homes for sellers and find homes for buyers, with the intent of displaying houses for sale to the widest possible pool of qualified buyers.
Originally developed in the 1800s by real estate brokers, the concept was born when brokers would gather together to share information about listed properties, eventually agreeing to pay for each other’s help in selling homes and finding buyers.
Today, there are nearly 600 MLS databases in existence around the U.S., providing agents with the ability to share information about listed properties with other brokers, and providing a wider range of opportunities for both buyers and sellers.
All publicly listed properties can be found on the MLS, from single-family homes and condos to foreclosures or pre-foreclosures. The MLS does not show FSBO homes (properties that are for sale by the owner), nor does it show homes that haven’t officially been listed.
The database provides information such as the home price, square footage, property taxes, and contact information for the listing agent. The MLS is only available to licensed agents, however. As a buyer, you won’t have access to the MLS and its listings without help from your real estate agent.
In late 2019, the National Association of Realtors (NAR) voted to prevent agents and brokers from keeping listings off the MLS, a reinforcement of NAR’s requirements that properties be listed on MLS within one business day of being marketed to the public.
While it makes sense for a motivated seller to list their house on the MLS as soon as possible, there are some situations where the seller doesn’t want to put their home on the database. For example sellers who are celebrities, people going through a divorce, or those who simply prefer to keep their home details private and might not want their home to be publicly advertised as “for sale.”
Sellers can still sell a house off the MLS under the new NAR policy, but the property cannot be advertised publicly in any way, which can make it even more difficult for buyers to find the home.
Finding a home before it’s listed
While pairing with a licensed real estate professional is always the best way to find a home before it goes on the market, there are some things you can do on your own as a buyer if you really want to try to get a jump on a house before it’s listed on the MLS.
If there’s a particular neighborhood you’re interested in, you might try reaching out to homeowners directly via postcard mailings, or even just knocking on a few doors and asking if they know of anyone in the area looking to sell.
If the community has a homeowners association (HOA), you can also contact them and ask whether they have information about residents who might be thinking of moving.
Social media can be a helpful resource as well; you can share your desire to buy with friends, family, and followers, which in turn could put the word out to a larger social circle. You can also research recent FSBO listings and contact homeowners who might not have had any luck with the FSBO option, but who may still be interested in selling.
If you’re driving through that coveted neighborhood and see a property that looks unoccupied or neglected, research the owners, then approach them and ask if they might consider selling. Neighborhood parenting or social clubs might also provide additional insight into members who have experienced recent life changes and are thinking of downsizing or upsizing.
How your agent can help
Trying to find that perfect, not-quite-listed house seems like a lot of work — and we won’t lie to you: it is. This is where a qualified real estate agent can make the process much easier.
A good agent doesn’t just peruse the MLS for you but can also access other databases and will do much of the legwork mentioned above to help you find your new home.
Real estate agent Holly Connors, based in Arlington Heights, Illinois, is a 20+ year veteran of the industry and often works with buyers to find homes that haven’t hit the market yet. “We call it a private market or pocket listing,” she says. “It can be advantageous to both buyers and sellers.”
In the Midwest, there is a back-end private listing network, or PLN, within the MLS. This allows agents to post their client’s home before it is officially on the market, and it also allows buyer’s agents to view homes before they are listed on the MLS.
“Sellers are using this private network to see how their property might fare on the public market, which gives buyers the opportunity to not only see what homes are coming up, but potentially make an offer on a house before it is ever officially listed on MLS,” says Connors.
Getting an edge on putting in an offer on the home of their dreams is a definite plus for buyers, and Connors says sellers like the PLN, too. “Sellers are better able to control access to their home, and they aren’t having to open their home up to so many people, which is a big consideration in regards to health and safety right now,” she explains.
Other states have similar private listing programs, such as Top Agent Network, or TAN, which has 33 chapters across the country and allows agents to showcase listings only between other TAN members when they have sellers who don’t want their home listed on the MLS.
For areas that don’t have private listing networks, many selling agents will rely on word-of-mouth information between associates: They have a listing that the sellers aren’t putting on the MLS yet, which can also bring in buyers.
Potential downsides for buyers
The advantage of buying a house off the MLS is that there’s less competition from other buyers — because there aren’t many other buyers who even know the house is for sale.
However, with that advantage comes a pretty significant disadvantage: Buyers won’t really know if they’re overpaying for a house, possibly significantly, until it’s appraised. And if the house appraises lower than the sales price, then either the buyer or the seller is going to have to help make up the difference.
You’ll also want to keep in mind that when you make an offer on a house that hasn’t been listed on the MLS yet, there are a few things that might be different.
For example, if purchase agreements in your area usually include an escalation clause, which automatically increases your offer up to a pre-set amount in case the seller receives multiple offers; you probably won’t need one because there aren’t any other buyers.
If you’re getting mortgage financing, you’ll still need an appraisal contingency, however, which could potentially derail the whole deal if the appraisal comes in lower than the agreed-upon purchase price.
Connors says one of the biggest issues with off-MLS home transactions is that buyers and sellers do not always understand the importance of pairing with a quality agent.
“If they go with their friend or their cousin, who might be a real estate agent but doesn’t have access to or know about private listing options, or simply doesn’t know the market in the area they want to buy, both parties can lose,” she says.
“The seller can lose money because less people are looking at their house, and the buyer might not even get a chance to see what could be their perfect home if it sells before it ever goes on the MLS.”
Connors adds that agents need to understand what it is their buyers want before they even start looking. Her company uses an intake form for clients that notes all their specific requirements, which helps the agents to better understand a buyer’s needs.
Putting properties on the PLN prior to listing them on the MLS can provide sellers with more information regarding the current market and their home value.
As a buyer, your biggest benefit is being able to make an offer on a home before anyone else even knows it’s for sale, which sounds appealing in today’s tight market. But you’ll also want to make sure you have a good agent to walk you through what can sometimes be a tricky process, and that you’re not paying more than you feel the house is truly worth.
Header Image Source: (Erik Mclean / Unsplash)