What is an off market sale, you may ask and why are they becoming more common in Melbourne during the coronavirus covid-19 crisis? Plus how to participate safely.
Is going off-market a good idea?
Peruse a few buyer agents’ sites and you’ll repeatedly see references to ‘off-market’ or ‘silent market’ properties. The allure of exclusive access to a sunlit world of properties for sale that aren’t listed on the open market is dangled; where you have the chance to secure a great asset that the unblessed will never know about, and possibly at a bargain price because there is little competition.
Too good to be true? Well, yes and no. Very occasionally, one does come across off-market properties, but the circumstances for this to arise are rare. Look at the reasoning for a vendor to go off-market and you’ll appreciate why.
You don’t need to be an economics professor to know that selling off-market will make it difficult to maximise the final sale price. Throttling the supply of potential buyers from the whole of the market down to one or even just a few parties is, well, courageous. It would only be rational if the agent is pretty confident they can identify and engage those who value the property highly.
That might be the case for exceptional properties. Say a trophy home on St George’s Road, Toorak or Wolseley Road, Point Piper where there are only a few people with the means to buy such a property. Or perhaps it’s a property that has an exemplary track record as an investment property, so the agent is confident he can achieve his goal by putting it to just two or three buyer’s agents.
But even in these circumstances, the likelihood of achieving the best result would be far greater with a transparent public process than via the off-market method. Consequently, we would be very wary of any estate agent who encourages a client to go off-market if maximising price is the objective.
There are more understandable reasons why vendors go off-market. Privacy, for example. The owner does not want to have to open their property to numerous potential suitors or, if they are famous, have the property highlighted in the real estate gossip pages. This may be particularly acute if the transaction has been triggered by a traumatic event such as a divorce or a death.
Similarly, some vendors are put off by the prospect of a four-week sales campaign and a stressful auction at the end. In some instances, the vendor needs to get the deal done quickly. Perhaps they’ve bought another property and its settlement date is nearing. They need to offload their current property quickly to avoid the cost of bridging finance.
An off-market campaign negates the need for advertising and photography. Some vendors like the idea of saving $20,000 or so on these marketing costs. Personally we see this as penny wise, pound foolish. A good real estate marketing campaign invariably delivers a large return on investment.
Off-market properties aren’t always the genuine article. Agents may present a property as something exclusive. But in reality, it’s a property that failed to sell a few months earlier and they are desperate to off-load it without the angst of another fully-fledged campaign.
There are also the half-hearted off-market specimens. Typically this can arise when a determined agent looking for new business faces a reluctant vendor. The owner, keen to shake off the persistent agent, finally says they’ll sell their property if the agent can secure them a premium without any fuss or marketing costs. No sales authority is signed; there’s just an understanding that one will be if the agent gets interest. The agent has little choice but to go off-market. The chances of finding someone willing to pay this premium is slim. But the agent has little to lose – he might get lucky or, in time, the owner may relent, and agree to a proper campaign down the track built on a more realistic price.
So be wary of someone who claims or intimates at having a pipeline of these off-market gems. Like finding a fifty-dollar note on the pavement, securing an off-market property is a wonderful thing. But it shouldn’t be the basis of your buying strategy. Conversely, as a vendor, you want to be asking some hard questions if an agent raises off-market as an option. They may have sound reasons. Or they may just want to complete the transaction quickly to earn their sales commission even if it risks you losing thousands from not achieving fair value.\
Next steps: Buyers, talk to Wakelin Property Advisory about selecting a property that will perform as a property investment. Click here to read the process we undertake. And prospective vendors, take a look at our vendor service.
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