Why off-market properties can be dangerous

“Off-market” is a popular way for buyers to purchase property right now. We’re in hot, seller’s market and buyers are feeling disadvantaged by the market conditions. So many buyers assume that the ‘secret sauce’ to buying well is to target off-market opportunities.

Little do they know that only a small proportion of off-market sales are actually good opportunities.

Many off-markets are bad. And some are just bait for an imminent auction campaign.

While there are multiple reasons why a vendor would sell off-market, off-market properties can be broadly categorised into two main camps;

Situational off-markets, (a method of sale that is determined by the circumstance that the vendor is in), and

Opportunistic off-markets, (a greedy vendor who is being, well… opportunistic. In other words, they are choosing to sell in an effort to capitalise on the market conditions).

The common characteristic of the motivation for this type of sale is two-fold. These vendors won’t be interested in selling for a market-value price. They will either expect a result that would eclipse a likely auction result, or they will be trying to offload a compromised property in a market that will likely be more forgiving.

Buying one of these is hardly a moment of valour for us.

Desperate buyers often make the serious mistake of searching for low-hanging fruit. The number of buyers I’ve met who have actively chosen to avoid competitive purchase scenarios, or worse still, have made a deliberate decision not to buy at auction are numerous. It seems the fear of missing out eclipses the excitement of potential success.

Buyers who avoid a good property because its popular are working counter to how they should.

A popular property is likely to be a crowd-pleasing, high-scoring asset. In many cases, it’s the apartment with the perfect floorplan, great balcony and well-run Owners Corporation. It can often be the beautiful three bedroom, period house in a great street with a northerly rear orientation. Whether it’s a villa unit, a family home or a pretty single fronted terrace, the beautiful properties command strong buyer interest for a reason.

They are quality assets.

When one of these properties hits an agent’s opportunistic off-market list, invariably one of two things will happen.

The vendor will quickly realise that the small handful of buyers that have been shown through the property all want to make an offer to purchase it. They will get greedy and wonder how many other buyers out there could also make strong offers. Within days, they will advise the agent that they’d actually like to spend the money to market their property and a campaign will commence. In many cases, they choose to engage a different agency altogether.

The vendor will adjust their price expectation upwards until the property’s price tag is laughable. They may not even sell. We call these vendors “powerball” vendors. They will only sell if they get a first division sort of price, otherwise they aren’t actually motivated to sell.

It’s only when one of these properties is a situational off-market that we get excited. A motivated vendor who cannot sell via the normal sale methods is the type of vendor we will deal with when it comes to off-market opportunities. Every now and then we can buy a quality off-market property at a bargain price, but the imperative motivation is to buy a quality asset, not a bargain.

If paying market value is what it takes to purchase a quality asset without competition in a hot market, then that’s what we will do.

An opportunistic vendor’s off-market ‘opportunity’ can actually cost buyers real opportunities. if a purchaser is introduced to one of these properties and believes the quoted price is genuine, they will likely skip past appropriately priced campaigns in an effort to prioritise buying the mirage. While they are waiting for the vendor to produce a contract and agree to their offer, other opportunities will pass them by. Opportunistic off-market sales can drag on for weeks, all the while the buyer is in the stranglehold of lost opportunity. Many don’t even realise this until the vendor’s contract finally comes through and the agent advises awkwardly that they have now decided to take the property to market with an auction campaign.

What we won’t do is allow an opportunistic off-market to spoil our purchase journey.

Being really clear on whether the off-market is a quality property is the first critical step. But being clear on whether the sale is situational or opportunistic is vital. Otherwise the chance of lost opportunity could become a genuine threat to success.