A quick summary
Finding off-market properties can be a game changer for real estate investors in a competitive housing market. What is an off-market property? It’s a property that has been listed on the market to the public, however it can still be sold privately. Here are some tips on how to find off-market properties.
If you’ve heard of the term “off-market” when it comes to real estate and you aren’t quite sure what it means, we’re here to demystify the concept for you. There can be conflicting information for those who have heard the term but still see properties being sold that are classified as off-market. So, it’s not as cut and dry as it may seem. Let’s take a closer look at what the phrase “off-market” means in real estate, and how to find off-market properties.
What does it mean when a house is off-market?
The simplest definition of an “off-market” house is a house that is not listed on the MLS (Multiple Listing Service) and not for sale to the public. However, if you’ve ever browsed a real estate website and seen homes labeled as “off-market” or heard a real estate investor talk about buying a home “off-market”, you’ll know that there is another context for the term. In this context, a property has been sold without being listed on the market to the public, and it can also be called a pocket listing.
For off-market sales to happen, the seller has notified buyers directly via an advert of sorts, but the property has never been advertised to the public. Off-market sales are more popular than you’d think, with 10% of all sellers finding a buyer without having to list their home on the MLS, according to the National Association of Realtors (NAR) 2019 Home Buyer and Seller Generational Trends Report.
Why are properties sold off-market?
There are a few reasons why a seller might keep their property off-market and one of the most common is that when it’s a seller’s market, sellers can’t sit around and wait for the right offer on their home. So, instead they will begin with the property off-market, or alternatively before they have even put the home on sale, they will be contacted by a real estate agent with a potential buyer.
Homeowners who are entering foreclosure but have tenants occupying the property may try to sell the house off-market first, so that the tenants aren’t made aware of the situation too early.
Sellers also sometimes prefer a real estate agent to sell the home as a pocket listing privately, and this is only shared with one agent or a small group of agents. These agents will not list the property, but instead they will use their own personal connections to find a buyer. This is often the route that wealthy or famous sellers will take, to avoid gaining too much attention.
A seller could also simply be gauging the level of interest in the home, before listing it, and the off-market route is a good way to do this.
How to find off-market properties
1. Local real estate agents
One of the easiest ways to find a house being sold off-market is to consult your local real estate agents. They will often know which properties are coming onto the market, before they’re on the market yet, or they may have off-market properties that haven’t been advertised already available. Agents who have the right connections might even be able to direct you towards neighborhoods and specific houses that you check up on, that aren’t yet selling but may be soon.
2. Online tools
There are a variety of websites where you can find off-market listings, such as Zillow’s off-market programs, real estate auction websites, and other pocket listing services. These services show homes that aren’t listed on the MLS, or potentially anywhere else. Foreclosure homes, short sales and bank owned properties are all considered off-market properties so bear this in mind when you’re looking.
3. Direct to homeowners
For buyers who know of a specific area where the chances are higher that properties may be sold off-market or the housing market is hot, approaching homeowners directly is another strategy. Either by going door to door or sending out mailers, serious buyers can contact homeowners who aren’t necessarily wanting to sell yet, with their pitch or an offer, to see if anyone bites.
4. FlipScout from New Silver
A useful tool from New Silver called FlipScout offers real estate investors the chance to find good deals on investment properties. This property portal gives you free access to many properties on and off the market, along with insights into each property, such as the return on investment, after-repair value and detailed information on the house itself.
5. Public records
A more tedious, but sometimes successful option is to check public records for homes that have failed to sell and have subsequently gone off-market. These homes offer buyers an opportunity to approach the seller with a deal which they probably be willing to take, since they’re struggling to sell their home. Going the public records route will require doing some homework but it can be a worthwhile endeavor for the right deal.
Benefits of off-market deals
Benefits For Buyers
For buyers, the drawcards for buying a property off-market are:
- They get access to homes that most people aren’t seeing and can therefore be ahead of the game with putting in an offer. For hot property markets this can be invaluable.
- The seller pays less commission so this can result in a better asking price for the buyer.
- For property investors, buying an off-market property in a good neighborhood to flip can be a great opportunity because there will be less competition.
- Sellers of off-market properties are not usually on a time-crunch which means that buyers get more time to mull it over and look at the house before making a final decision.
- The sale can be more negotiable as the seller has no time pressure and isn’t tied into any specific price or deal.
- Adding an off-market property search to your current search is also a strategy that will give you more inventory to browse and potentially help you find a property quicker.
- It’s less stressful buying a property off-market because buyers don’t need to make hasty decisions as there’s very little competition and the seller isn’t under market listing pressure.
Benefits for Sellers
For sellers, there are quite a few benefits to getting their house sold off-market that involve privacy and cost saving.
- It offers sellers the opportunity to have a private sales process, without the hustle of bustle of large volumes of people, which is particularly attractive to sellers who require discretion.
- There is only one agent involved so less sales commission will need to be paid.
- Sellers don’t run the risk of racking up time listed on the market and having to accept a lower price for the house.
- No open house costs need to be incurred, nor the hassle of having a lot of people coming in and out of the house to view it. Only serious buyers will be viewing the home.
- Sellers maintain control over the process and only need to show the house to buyers of their choosing, the asking price is completely up to them, and they can dictate when the house is available to be viewed.
- It can be a great way for sellers to test their house selling price and see what kind of interest it generates, without having to officially put it on the market.
Disadvantages of off-market deals
Some of the drawbacks to off-market deals are:
- Less buyers: The most obvious concern for sellers is that there are less buyers when going the off-market route. This means that sellers will be sitting with the house for longer, and the longer it sits, the more value it can lose, even if it’s off-market.
- Lower offers: Without bidding wars and a host of buyers, it’s likely that sellers will get less for their house when selling off-market.
- Setting a price is harder: It’s more difficult to determine the fair market value of a house that is off-market because it’s not as easy to compare with other properties on the market.
- Possible fees: To do a pocket listing, you may need to pay a fee for the pocket-listing services or off-market listing groups.
- Takes longer to close: Closing an off-market deal can take longer for two reasons. Firstly, it takes longer to find these properties because they’re not readily available. Secondly, off-market sellers aren’t in a rush, and it can be a slower sale than a listed property would be.
Buying a house off-market isn’t for everyone, but it certainly has its benefits for those who are looking for a sale that isn’t on a time limit and one that most other buyers won’t know about. For real estate investors this can be a great option, because the lack of competition can lead to good deals on investment properties. While finding off-market properties can be challenging, it can be worth your while to take your time and search because the deals that you find can make it all worthwhile.