Keeping your real estate business private: Pocket Listings and Drop and Swaps
Social media and oversharing may be on the rise, but when it comes to real estate, there is an increasing trend for buyers and sellers to keep their business private. There are arguments to be made for privacy in listings, privacy in buying and privacy in selling, and it can make sense in certain circumstances.
For any number of reasons, sellers may not want to announce to the world that they are selling their home. Maybe they don't want their neighbors to know they are moving. Maybe they don't want strangers with no intention of buying, perusing through an open house. Maybe they are concerned with privacy and/or security. On the flip side, a buyer may want to keep the purchase price a secret. Maybe they want to remain anonymous. Maybe they got a great deal they want to keep private. Maybe they don't want to announce to the local taxing authority that it should rush right over and reassess (read "increase") property taxes. So how to you move this transaction through to closing without announcing it to the world on the multiple listing service?
First, a seller can consider a pocket listing. According to the National Association of Realtors, a pocket listing "generally refers to a listing in which an agent has a listing agreement and the seller does not authorize the placement of the listing on the MLS." An agent or broker can market the listing to his or her own network of agents, clients, or buyers to solicit an offer. With access to ever improving real estate technology, this way of marketing is becoming easier and easier. Obviously, there are pros and cons to this idea from the perspective of the client and the real estate market as a whole, but it is legal. So if a seller wants, a seller can get.
DROP AND SWAP
The next step is to "drop and swap" the property. Although historically used for 1031 tax free exchanges, see Jumping Through Hoops of the 1031 Exchange, the drop and swap can be used for personal residential transactions. The seller drops her ownership interest in the property into a limited liability company and then sells the interest in the company to the buyer. Because it is a transfer of interest in an LLC, there is no conveyance fee to pay and no notice to the auditor that there has been a sale. Even more, if the buyer pays cash for the property, there is no mortgage to be recorded, no notice to the world someone new is in the property, the deal is closed and no one is the wiser.
So if you have been considering selling, but want to keep your business to yourself, know there are options. Your neighbor sure will be surprised when the moving truck arrives, but hey, it's none of their business anyway.
Cheers to real estate!