Property Investment Melbourne

Behind the curtain of off-market properties

There are many ways to buy and sell a property – traditional outdoor auctions, expressions of interest, private sales, and in the wake of COVID-19 we’ve seen the widespread uptake of digital auctions.

However, a question we’re often asked from property investors is: ‘How do I gain access to off-market properties?’

It’s a good question to pose, as often there are some excellent and unique opportunities that present themselves for those in the know.

Given its nature, it’s an area that can seem a little mysterious for many property investors.

What’s an off-market property?

Basically an off-market property is one that is for sale, but without a formal campaign.

These won’t show up in online searches, advertisements, or outdoor sales boards.

That means there is usually no styling, presentation or publicity work conducted in preparation for the sale.  Instead the property relies on the agent’s database and networks to attract interest.

Off-market VS pre-market

In a pre-market sale vendors give a select group of buyers the opportunity to view a property before it is placed on the market. This differs significantly from an off-market sale, as eventually the sale will be released to the broader public.

Sometimes there is the opportunity to buy the property before it goes online, but quite often the method is used to test the market to gauge its value before it’s opened up to the public.

Selling off-market

There are a range of reasons vendors choose to sell off-market.

Maintaining privacy is a major factor for many vendors deciding to sell off-market. This could be due to financial circumstances, for example financial distress, which a vendor would rather keep away from prying eyes. Or they may be going through divorce, and again prefer to keep the process discrete.

Meanwhile, high profile vendors – whether they be entertainers, sports stars or business figures – often decide to sell off-market to avoid any unwanted publicity.

Or it could be as simple as a neighbourhood dispute, with a vendor concerned that it could disrupt the campaign and impact the potential price. Selling off-market can help to avoid unwanted interactions.

Those needing to sell promptly may also favour an off-market sale. A vendor who has purchased another property, may have buyers on hand thanks to the purchased home’s agent. Thus offering a quick sale that conveniently syncs together settlement arrangements.

Or perhaps the vendor needs a quick sale without a lengthy campaign, so they can use the proceeds to address an urgent debt or financial issue they are dealing with.

Another reason vendors choose to sell off market is to piggyback off a sale of a similar property in the same street or area. This may be a good opportunity to bring those unsuccessful buyers through to the next property, as they are qualified, motivated and ready to purchase.

For others, going off-market can be seen as a cheaper alternative to a long and expensive traditional sales campaign, removing the need to pay for photography, copywriting, floor plans, and styling, as well as costly online and print advertising.

Vendors who are not fully committed to selling may choose to test the market through the off-market avenue. This can be used as a cost effective method to gauge buyer interest before putting a home up for sale directly.

Selling off-market is an option considered if a vendor has been approached by an agent, who has promised a high selling price. An owner can give the agent the opportunity to prove themselves, without having to go through a more committed and expensive sales campaign.

A related party sale is a common reason for an off-market sale. It could entail one party buying out another, parents selling to children, or perhaps a transaction with a neighbour.

When off-market sales occur

Off-market sales often occur in the prestige property space. Usually that’s due to the privacy factor as previously mentioned.

Often in the prestige market, there’s a limited number of buyers, so going to market and advertising to all and sundry is not necessarily going to be beneficial.

Often for high end prestigious properties, there may only be two or three buyers at any one time active within each capital city. So if vendors have the right agent, buyers can be identified and approached directly, removing the need for advertising and broader promotion.

There can also be a significant discrepancy in buyers’ assessment of value within the prestige market. One may think a property is worth $10 million, while another may feel a home sits at $12 million. Selling off-market allows agents a greater degree of control when dealing with the associated property and market nuances.

Off-market sales typically occur in slower markets and are less common when the market is running hot. They do occur on the back of strong results from similar property types, as we’ve mentioned earlier. However, usually when the market is strong, vendors are eager to have their day in the sun. When the competition pushes prices to increase – not just monthly, but on a weekly basis – going to market is the method most likely to achieve a premium result. With new buyers hitting the market every week, selling off-market means agents won’t have contact with many market entrants. Advertising ensures vendors are connecting with a fresh and broader cross section of potential buyers.

Strong nearby results, as we’ve highlighted, piques vendor interest. Agents are often approached when they’ve achieved a great result in the same street or neighbourhood. A vendor may be interested in the underbidders who missed out on the nearby property, believing the same level of interest will lead to a similarly strong result for their property.

Risks for vendors

Vendors must determine if they are going to be leaving money on the table by selling off-market as a result of missing prospective buyers within the marketplace. It’s vital that a property is given an adequate level of exposure to potential buyers when selling off-market. There’s a heavy reliance on the agent’s network and presence. They must have a large market share and broad and strong relationships with key prospective buyers.

Not going to auction can sometimes be a mistake, particularly for certain types of properties, which can draw out buyers’ passions as they compete, and thus deliver strong emotionally driven sales results.

Another consideration is passive buyers. These are buyers who tend to sit back and only come to the market when the right property presents itself. Agents are often unaware of passive buyers, so vendors risk missing out on their interest if the property is kept off-market.

Buying off-market

Buyers certainly see off-market property as an opportunity, particularly when competition is fierce. This often comes with a feeling of exclusivity, as they are being provided with a unique opportunity.

Many buyers also have a perception that they will save money buying off-market, due to the reduced competition. There’s also a belief that vendors will pass on savings to the buyer as a result of non-existent advertising costs. However, that’s often not the mindset of a vendor, who typically believes they’ll be able to achieve the same price and instead pocket the savings.

Meanwhile, for many buyers, purchasing off-market isn’t so much a preference, but more a case of simply working in with the vendor’s method of sale.

To gain access to off-market properties buyers must develop a strong network. Identify the agents and property advisors dealing in the area and property type. There are particular agents who will have a near monopoly on the market, so it’s crucial buyers know who to keep in regular contact with.

Buyers need to give agents a clear understanding of the property type they are seeking and a rough guide on budget – obviously without giving anything away that could negatively impact future negotiations.

Buyers must be prepared and ready to pounce when the right opportunity presents itself. That means having the finance organised, so a deposit can be paid at short notice and unconditional offers can be made. Have a solicitor and conveyancer available to check the contract quickly, so the process can be fast-tracked, similarly with building inspections.

How it happens

If buyers follow the above instructions then agents will seek them out. Quite often buyers will be presented opportunities if they miss out on a similar property – particularly if it was a strong sale price.

Buyers need to be prepared to commit to the ongoing process, as keeping on top of the off-market sector can be quite labour intensive. It’s up to buyers to drive the relationship with agents, so they are front of mind when a suitable opportunity arises.

Risks for buyers 

A key area to assess for buyers is whether the vendor is truly motivated to sell. Agents regularly approach vendors to see if they’d be prepared to sell. Often the agent convinces an initially reluctant owner with a prospective sales price that can be well over market value. It’s important buyers consider whether the expectations and price for a property are realistic, as often off-market properties are overpriced based on an agent’s determination to secure the job.

Unfortunately sometimes buyers can be used as a tool by agents seeking to leverage the off-market space to condition a vendor’s expectations – taking several unsatisfied buyers through to demonstrate why a sale price needs to be lowered.

Buyers also risk paying above market levels for a property, if there’s not enough competition to bear out true market value.

A key question to ask is; does an agent have the authority to sell the property? Buyers don’t want to get caught up in time consuming negotiations with an owner who really doesn’t want to sell. This again comes back to the level of vendor motivation. Asking if they have a contract ready is usually a good indication that the vendor is ready and serious about selling.

As the off-market process can be less transparent compared to a property on the market, buyers must probe the agent to ensure they outline exactly how the process will play out.

Take home message

There’s no doubt understanding how the off-market space works, opens up some fantastic prospects for vendors and buyers alike.

As is often the case in the property market, each circumstance will present unique opportunities and challenges that need to be assessed independently and on merit.

This is especially true of the off-market space, which doesn’t have the same visibility and volume as the public property market.

Like always; research, relationships and agility will ensure you’re well positioned to seek out and take advantage of these property investment opportunities when they arise.

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