Clarifying Off-Markets

Prospective clients ask us all the time, “Do you get access to properties that aren’t advertised?”
We do.
All the time.
They are called Off-Market properties, and just over a quarter of our acquisitions are done off-market.

But not all off-markets are good.

The difference between a good off-market and a bad one comes down to understanding three key things;

• The quality of the property and location. Some properties are problematic due any number of factors including main roads, train lines, offensive neighbours, title issues affecting the land, etc. Vendors often elect to have an agent working behind the scenes with qualified buyers as opposed to a marketed effort with collateral and signage. Some buyers get so caught up in the excitement of an exclusive off-market opportunity that they neglect to realise that they are buying a compromised property.
• The vendor’s motivation for selling off-market. Some vendors are opportunistic, and some are trying to save advertising costs. If the motivation to sell is not strong, these types of off-markets could be a huge waste of time on everyone’s part.
• The agent’s plans for the sale process. Some agents bait the buyers with the mention of an off-market, when the reality is that the property is a pre-market property.

The difference between the two is distinct.

The latter is likely to revert to a fully advertised campaign, and the agent’s intention is for one of two things; to either sell the property prior to the campaign for a record price to an over-excited purchaser by telling them they need to make an offer so powerful that the vendor is prepared to stop the campaign, or the agent is like to be showing prospects initially to establish a clear idea of a keen buyer’s budget to underpin the reserve price.

So, why do Vendors choose to sell off-market?

And why would anyone do so in a hot market like the one we’re in now?

This is an interesting question to ponder. It can often be argued that a property would have sold for more in a seller’s market if the vendors had just gone to auction. The answer varies, but the commonality is that in most cases, it’s just too difficult for the vendors to contemplate an auction.

There are six categories of off-market reasons, and five of them are sound reasons. We don’t participate in the sixth.

1. The vendor has recently bought, and in order to settle their new purchase they must sell and settle their current home. This has become more prevalent in the tight-credit environment we’ve sustained over recent years. Only a limited number of buyers qualify for bridging finance. For the vast majority who need to sell and settle their existing home, an auction campaign requires that they have at least 120 days to prepare their home, select an agent, arrange photos and marketing, host four weeks’ of inspections and then auction their property with a 60 day settlement period on offer. If they have less than 120 days’ to settle their new purchase, an auction campaign won’t be viable. For this category of off-market, the vendors are more sensitive to the settlement date, not as much the price.
2. The property is tenanted and the vendor doesn’t want to flag that they are selling. Tenants hate it when landlords sell because it’s a terrible disruption to their lives to have to pack up and relocate. Tenants will often exercise their right to vacate when a landlord announces that they are selling, and this loss of rent between advertising and settling can be quite costly for the landlord. We sometimes acquire properties in this way.
3. The property is tenanted and the tenants are either messy, grumpy or both. If a tenant decides to block access and make it difficult for the agent to sell the property via the usual campaign, it may be easier for all involved if the agent just facilitates access for some Buyers Agents at a set time. We often get these opportunities. We do sometimes have to prepare our clients to look beyond the mess.
4. The vendors don’t want marketing and advertising for personal reasons. They could be in the media, high profile athletes, or a couple going through a separation to name a few. There are reasons why some vendors don’t want a board standing outside their home.
5. The vendors may have a quirky requirement that mainstream buyers won’t find acceptable, for example, a lease-back arrangement. Some vendors who are constructing a new home may wish to access their sale proceeds to fund the new build, but stay on in their existing home to maintain family continuity for their children. Not everyone is happy to rent during a transition period.
6. The vendor is being entirely opportunistic and will only sell if they get a ridiculously high price. We quiz the agents meticulously if we have reason to believe we’re dealing with an unrealistic, greedy vendor. We aren’t interested in dealing with vendors who want to win Powerball.

Being clear with the agent about our client’s briefs opens up exciting off-market opportunities, but being clear with our questions saves us from wasting our time on pre-markets and those off-markets in the sixth category.

Off-markets can be great, but it’s essential to understand the category.