How do you know if it’s a *good* off-market?

I’ve written about off-markets plenty of times, and in particular, the allure of off-markets. After all, many buyers think that a buyers agent is a ticket to a train of great off-market properties. The reality is, not all off-markets are good. In fact, right now, most are poor quality.

From mirage off-markets that ultimately run to auction, to badly-located, compromised assets, the abundance of horrible off-markets has increased of late. There are two reasons for this.

Buyers are more familiar with the concept of off-market. Not only can they spot new industry players splashing off-market stories around on social media, but agents are often informing prospective vendors that they have a unique marketing channel; one that requires less vendor commitment and less financial investment. They can ‘tap’ into their advocates and hot buyer markets and attract a crowd, merely with the press of a button.

The bulk sms pings on hundreds of phones and the campaign begins.

Sounds great? Unfortunately not many are actually great. The issues arise when;

• The vendor’s price expectations are too high,
• The property location is compromised,
• The dwelling itself is compromised, (ie. bad floor plan, significant building issues etc.),
• The vendor is just testing the market with a vague willingness to sell, and only when the price is significantly above market value,
• The property is actually listed for an auction campaign but the agent is happy to throw a fishing line out to see if a huge fish wants to bite the bait with a ridiculously high offer prior to going live with the marketing campaign,
• The agent has only a General Authority listing (as opposed to Exclusive Authority). When this is the case, multiple agents could be working on the property with various buyers. Problems strike when multiple buyers are involved and lack of visibility leads to underhanded tactics with offers. Agents can’t easily manage a fair process for a vendor when they are competing against each other for the same property.

In the case of the bulk-sms, off-market campaigns, there is little to zero buyer-matching involved. The vendors are often weakly-committed and in many cases, the vendors opt for this kind of platform in order to the usual marketing fees. Online search engine advertising costs have sky-rocketed, and while most vendors would view this as a necessary expense, those who aren’t keenly motivated to sell will avoid this expenditure.

The old days of “off-market” opportunity are quite different from what we see today. In past decades, agents would ‘buyer-match’ and make specific calls to underbidders and advocates.

The frequency of off-markets were far less, but the accuracy and vendor-motivation was high.

Back then, I’d take them all seriously. If I had a suitable buyer, the off-market opportunity would be inspected, assessed and analysed. These days, I check them all, but over 95% are rejected immediately. Main roads, poor locations, ridiculous asking prices, inferior zones… the list goes on.

The question is: are there any good off-markets?

Indeed, there are, but they are still infrequent. Situational off-markets can be fantastic. They are usually seasonal, (in response to a heightened selling season, reflecting motivated vendors who have just made a purchase and need to sell quickly), but they are also often prompted by other drivers.

We have had a recent uptick in situational off-markets throughout 2023 for an interesting reason. Victoria has experienced a higher proportion of investor-driven sales since the introduction of tougher rental laws and increased land tax.

We are now seeing a higher number of tenanted investment properties hitting the market, and in many cases, (particularly when the renter is resisting allowing regular open for inspections), vendors are turning to off-market transactions. Currently in Melbourne, it is reported that over 60% of new listings are investment properties. When sold off-market, agents can carefully target their ‘hot buyers’ and liaise privately with renters to arrange inspections.

Vendors can save on marketing costs and maintain a rental income stream.

In a lot of cases, these investment properties are high quality and priced fairly. What’s more, the vendors are usually motivated sellers.

As would be expected, most of these leased, off-market opportunities are units and apartments. It is rare for the property to be a house, but they do come up.

The challenge for owner-occupiers who are seeking these types of off-markets relates to the going concern; the renter and the lease in place. In many cases, vacant possession is not a guarantee. If the lease remainder is long, it may not be practicable to have a settlement date eclipsing the end of the lease. And now, in Victoria, a renter can vacate with just 14 days’ notice once a rented property is sold and notice to vacate is issued. Buyers need to be prepared for this twist if they are reliant on a period of rental payments prior to moving in.

Off-markets can be great, but the need for further analysis and due diligence is vital.

As the ‘Property Professor’, Pete Koulizos says, “What good is a bargain if it’s a rotten bag of apples?”