Off market listings can be a bit like rainbows, everyone is chasing them and they think there is a pot of gold at the end of every single one.
Alas, like rainbows, they can often just be a mirage that are so attractive to buyers that they think it is the nirvana of property buying.
I often get asked by prospective clients if I have access to off market listings and while the answer is certainly “yes” – in fact, I have delivered some outstanding client outcomes by securing properties off market – I always take the time to clearly articulate my thoughts about off market listings.
You see, off markets are very hit and miss, ranging from genuine opportunities that are few and far between, through to absolute junk stock that are in plentiful supply.
Let me explain why by discussing the three different types of off market properties out there.
Genuine off market opportunities
These are properties that are not advertised on any real estate portals or marketed through agent databases. There are no professional photos or floorplans and they have not been presented for sale with cosmetic updates or staging.
Sometimes these genuine off market properties are due to the ‘3 D’s’ – being death, debt or divorce, or are sellers who are seeking a low-profile and quick sale.
Pre-market or “testing the waters” off market properties
These are properties that provide early access but are ones that are planned to go through to a full sales campaign which, of course, means they are not off market at all.
Sometimes sellers are testing the waters in terms of price positioning or even trying to jag a strong sales result by creating fake exclusivity about the property.
These properties are presented for sale, have staging, professional photos and heavy database marketing.
The only thing that is missing here is a listing on realestate.com.au or Domain, which just hasn’t gone live yet in most instances.
Often the vendor will only trade if they can secure a number above their initial expectations – this means that buyers may often overpay believing that it is a genuine off market opportunity.
In a very hot or rising market, it may be beneficial to gain early access to these properties to get a jump start on your due diligence or even get a deal done sooner.
But it usually doesn’t mean you will have it all your own way, and will still find yourself in a bidding war with other buyers.
In a flat or declining market there may be no benefit at all to purchasing these so-called off market properties because the market price is likely lower than the figure you are considering outlaying.
“Junk stock” off market properties
These properties are often investor stock that is marketed to property investors that are very average properties in very average areas which will always suffer from low buyer demand.
They are also often heavily compromised properties that are negatively impacted by warty features such as they are located on busy main roads or are in dire need of significant renovations.
The vendor isn’t confident in paying for a full marketing campaign because they know the property is a dud so they create a false off market opportunity to try to sell their junk stock.
They are often marketed via either savvy sales agents or inexperienced and often out of town buyers’ agents who then spruik and advertise to potential clients “we have access to off market properties” without the disclaimer that these properties are also complete rubbish.
What do property buyers need to know about off market listings?
As I have outlined, there are few genuine off-market opportunities and plenty of fake ones that are just using the terminology to try to off-load inferior and C-grade properties.
So, what sort of questions should you ask yourself if someone offers you an “off market opportunity?”
Firstly, you need to ascertain which classification of off market property it falls into. Is it a genuine off market, a pre-market, or a junk stock deal?
Always remember that not all off market listings are quality properties. Rather, off market simply relates to how the property is marketed for sale – it has nothing to do with the property itself.
Buyers always need to select a property that is the best match for their needs – regardless of whether it is on or off market.
You also need to always remember, that A grade or the best quality properties will always deliver better long-term capital growth than B or C grade ones, so you need to ask yourself if the off market listing an A grade property?
Personally, if I owned an A grade property, I would never sell it off market because I know it would always be in high demand from buyers.
Instead, I would put it through a full four-week auction sales campaign with a top local sales agent and let buyer competition generate the highest possible price.
Off market properties need to be assessed in the context of what else you could buy on market. Indeed, I have a saying, “Just because you can, doesn’t mean you should”, so, it’s vital that you don’t fall for the spin from either sales agents or inexperienced buyers’ agents.
You must conduct the appropriate due diligence on any off market deal just as you would for an advertised property, including comparable sales analysis to ensure you are not overpaying and building and pest/ strata search inspections to avoid buying a lemon. Never be rushed into making a quick decision or taking due diligence shortcuts, because this has every chance of coming back to bite you financially.
Off market listings won’t solve your budget problems, nor are they the silver bullet that you as a desperate property buyer may be looking for. Rather, off market properties can often be overpriced, so you are literally paying for an opportunity that was never there in the first place.
Be wary of buyers’ agents who promise to solve all your problems with access to off market properties. This is because lots of “off market” listings are very ordinary, are properties in areas with very little buyer demand, or can be overpriced.
In fact, I often see some buyers’ agents marketing messages along the lines of “we buy 80 per cent of our properties off market”. Does this mean that 80 per cent of their purchases for clients are therefore pretty average to poor, or overpriced?
The bottom line is to always aim to buy quality assets, regardless of the method of sale, rather than forever chasing property rainbows. Your future financial self will thank you for it.