A Hidden Reason So Few Houses are For Sale in the MLS

Many real estate agents aren’t putting their sellers’ houses in the MLS system immediately.

During the last boom in 2005, the policy of the local MLS in Phoenix was that houses should be put into the MLS within 24 hours of the seller signing an agreement to have the agent sell the house. That’s not the MLS policy anymore.

There was a bit of a controversy among real estate agents in the late summer of 2005 when it came out that some large brokerages were NOT putting houses in the MLS immediately after they reached a written agreement with sellers to sell their houses.

Instead, agents were promoting the houses to all the other agents within the same brokerage for days or weeks before putting any unsold houses into the MLS. That greatly increased the odds the brokerage would be able to represent the buyer as well as the seller in the sale, which meant more commission income for the brokerage. At the time, the MLS said brokerages weren’t supposed to do that, but the MLS didn’t really enforce their 24-hour policy.

4 Bites of the “Just Hit the Market” Apple

Now, many years later, it’s MLS policy that brokerages CAN, with the seller’s permission, promote the seller’s house exclusively within the agent’s brokerage before putting it into the MLS.

In addition, last year the MLS let agents show houses as “Coming Soon” within the MLS and the MLS won’t count the house as being officially “for sale” until the agent changes the status of the house in the MLS from “Coming Soon” to “Active.”

So, with the seller’s permission, the real estate agent could market the house first to the agent’s own buyer clients. If it doesn’t sell, the agent could then market the house to all the other agents in the same brokerage. If it doesn’t sell, the agent could then market the house as “Coming Soon” in the MLS. If it doesn’t sell, the agent could then market the house as “Active” in the MLS, where it would finally be counted as being officially for sale in the MLS. It would finally show up in the number of houses listed for sale in the MLS.

This system is good for sellers. Buyers will pay more for a house when it first hits the market. After it’s been on the market a couple of weeks, buyers are a LOT less likely to pay over the asking price.

In the current system, the house has the appearance of being new to the market 4 times –1) first to the agent’s buyer clients, 2) then to the brokerage’s buyer clients, 3) then as a “Coming Soon” listing in the MLS, and finally 4) as an “Active” listing for sale in the MLS (when it’s finally counted in the stats as actually being for sale). At each step, buyers feel it’s a brand new listing and are more willing to pay more.

This system is NOT good for buyers, however, because it can make it look like the number of houses for sale is lower than it really is. It makes a buying frenzy worse.

Supply a Bit Larger Than Reported

A couple of days ago, I looked at the local MLS and found 3,824 single-family detached houses for sale. But there were also 666 single-family detached houses “Coming Soon”. The official number of houses for sale underestimated the real inventory of houses for sale by about 15%. Not huge, but significant.

I don’t know how many houses are currently being marketed exclusively to an agent’s clients or within an agent’s brokerage and aren’t in the MLS yet. I’d make a ballpark guess of 5%.

In addition, I’ve noticed more and more agents are NOT putting their listings into the MLS as “Active” immediately. Makes sense. As the market gets tighter and tighter, it’s more likely you’ll be able to sell a house for a premium price before making it “Active” in the MLS.

As the market gets more manic and more agents shift to this strategy of selling in stages, it lowers the number of houses for sale in the MLS.

Less Supply Leads to Even Less Supply

As the real estate market tightened up and supply fell, it became more advantageous for sellers and real estate agents to release their new supply onto the market in stages. This, in itself, lowered the supply shown online, making supply seem a bit tighter than it actually was.

More Supply Leads to Even More Supply

When the market eventually begins to loosen up and buyers have a larger selection of houses to choose from, it will become less advantageous to release new supply onto the market in stages. Supply will increase a bit just because more agents will put houses into the MLS within 24 hours of signing agreements with their sellers.

Once supply begins increasing, it could increase faster than we now expect.