Many real estate sales occur off-market. An off-market sale is one which is not publicly advertised to the open market.
Sales like this can happen in both rising and falling markets, but it is particularly common when markets are rising. To explore the merit of selling property off-market, it is imperative to look at this type of sale in the context of different market conditions.
Rising (strong) markets
A symptom of strong markets is low supply and excess demand. Essentially, this means that there are more active buyers than sellers. The main effect of this situation is that excess buyers drive prices higher by outbidding each other for limited housing stock.
When the market is like this, there can be advantages for both buyers and sellers in an off-market sale. Firstly, an off-market sale can save the seller both the effort and cost of a full sales campaign. Secondly, the buyer secures the home they desire without having to compete with multiple buyers.
One drawback from a seller’s point of view is that the competitive nature of an ‘open market’ sale is unlikely when selling off-market. This means that the major question facing vendors who consider selling off-market, is whether they could achieve a better result by listing on the open market.
Selling off-market for a good price in a boom is relatively easy. However, in a boom market, the difference between a good price and a great price can be tens of thousands of dollars, if not hundreds of thousands.
Falling (weak) markets
Selling off-market in a weak or falling market can be a great way to go. In a falling market, the supply of housing stock generally outnumbers active buyers. Knocking back a good offer in favour of going to the open market can be a risk not worth taking in tough markets.
In addition, during the Global Financial Crisis of 2008 when there was a sharp downturn in the market, there were a lot of prized homes listed quietly with agents. They were for sale, off-market.
The owners wanted (or needed) to sell but wanted the sale to be discrete.
Things to consider when setting up an off-market sale
If you want to sell off-market, there are several options open to you as well as a number of things to consider.
a) In a strong market – listing with an agent
The simplest method is to list with an agent but not allow them to advertise your home. In the pre-internet days of print when agents were sloppy with their data management, this would have been more difficult to execute.
Back then, agents chose to hit every home seller for the cost of a full advertising campaign. However, they were effectively advertising this week’s listings to last week’s buyers using the seller’s money.
While it was a complete waste of advertising expenditure, this policy was dismissed as nothing to worry about among agents, because it was paid for by the vendor -‘vendor paid advertising’ (VPA).
Nowadays though, it is relatively easy for good agents to search through a digital database of buyers and match them to the new listing.
Increasingly, there are agents across the country who actively promote the fact that they can sell your home ‘quietly’, ‘off-market’ or by ‘stealth’.
The best agents are those who can produce lists of qualified buyers on demand. An agent who cannot produce a list of genuine qualified buyers before being granted a listing, should not be given that listing.
b) In a strong market – Not selling through an agent
Sellers who have a low opinion of estate agents can fall into the trap where the sole aim is to avoid paying a commission. Selling off-market without an agent just to avoid paying a commission should not be the sole reason for selling off-market.
In a strong market, prices can easily exceed all expectations by 5% or 10% if the agent has abundant competition at hand.
In a strong market, some buyers, who are unwilling to compete with other buyers often resort to prospecting for a home. Whether it be by word of mouth, social media or leaflet drops, a determined buyer will often sniff out someone wanting to sell off-market.
The sheer frustration of constantly losing bidding wars and poor service from agents leads them down this path. A private buyer will usually promise a win/win situation for both the buyer and seller because the agent misses out on a commission!
‘We can both save’ they will claim. Be careful of this claim. It has some traps.
A seller should never enter into an off market contract with a buyer without having a very clear idea of the current market price for their property. The seller would be well advised to get a paid, independent, confidential valuation from a registered valuer prior to beginning negotiations.
Never show this to the buyer or an estate agent. Once you have the valuation report, then call in an estate agent whom you trust. Ask them what they believe the property could sell for in the current market.
Remember that a valuer’s price reflects what, in their opinion, the property would definitely sell for, today. An agent will give you a price that the property could sell for, if given the time to run a good sales campaign. There will be a difference in those two prices.
If the agent promises more than the private buyer offers you, ask the agent if they would be prepared to guarantee a higher price than what the buyer has offered. You could say something like, ‘as we have been offered $1 million privately, to justify listing with an agent we would need to get $1,025,000 or more. Are you prepared to agree to no commission below $1,025,000?’
Whilst this dialogue may be direct, it will quickly flush out the agent’s real belief in the price they promise you.
c) In a weak market
One of the most suitable and justifiable circumstances for an off-market sale is where there is an expensive prestige or unique home for sale in a slow, flat market. In real estate terms, unique is often defined as priceless by emotional home owners. Unique homes often require unique purchasers and they can be in short supply in a flat market.
Prestige homes in Sydney, Melbourne, and Perth often sell off-market because even in strong markets, the auction clearance rate of prestige homes generally under performs the broader auction clearance rate. This makes selling off-market a sensible option for iconic and unique homes, in all market conditions.
Is selling off-market advisable?
In a strong market, the agent’s job is to increase the seller’s price. In a falling market, the agent’s job (inadvertently) is to protect the seller’s price. If you are going to sell off market in a boom, you want the right buyer negotiating with the right agent on your behalf.
In a falling market, a good off market offer may well be the best offer you could see for some time.