Spotting a dodgy off-market

I’ve written many times about off-market properties; what defines them as good or bad, and what the differences are between off-markets and pre-markets. I’ve often advised prospective buyers to shift their framework from focusing on off-markets too, as they can sometimes be quite dangerous.

The sad reality is that off-markets have become quite a selling tool for some vendors who have unrealistic price expectations. Some agents find it easier to list off-market properties because they don’t require a vendor to commit to a marketing spend.

Buyers have become trained to ask for off-markets, putting an unwarranted value on them. They do this in the hope that they’re getting access to something secret and undervalued. And very occasionally, they are.

But what happens if the property isn’t a secret, and isn’t good value?

Unfortunately, this is the case for the vast majority of off-market listings at the moment. We’ve always broken off-markets down into two categories; situational and opportunistic.

Situational refers to those vendor’s listings that must be sold, either quickly or with some unusual conditions attached. They are typically properties that aren’t suited to an online, traditional sales campaign. Some reasons may include:

• A vendor who has purchased an upgrade or downsize property and requires the sale proceeds from their current home in order to settle. If they have insufficient time until the settlement date to run a full campaign, an off-market could be an appropriate solution. In this case, the vendor needs a fast and unconditional sale.
• A landlord who has decided to sell an investment with a fixed tenancy and a renter who doesn’t present the property well.
• A seller who is grappling with some unusual circumstances or requirements. For example, a vendor who is completing a new home construction and needs finances for a drawdown payment. They may want a leaseback clause so that they can continue living in their current home until the build is complete.
• An owner who wants an exceedingly long settlement.

There are many reasons for situational off-markets, but below are not them. The reasons below relate to opportunistic off-markets.

• A seller who isn’t particularly committed to selling, but would do so for an outrageous price.
• A vendor who knows their price expectations are far too high and hence they don’t wish to invest any of their own money in marketing the property.
• An owner who is fishing for an unsuspecting buyer who is prepared to pay a particularly high price. The absence of a price tag is often a giveaway in this situation, and this goes beyond selling property. It can relate to many items, including cars.

• A highly compromised property which would struggle in a private sale or auction campaign.

This latter reason is an issue that many agents are aware of. If a property is seriously compromised by one or more things, a vendor can anticipate buyers talking. Whether it be at the open for inspections, the auction, or online, plenty of buyers share their thoughts about properties. However, an unsuspecting buyer may fail to do the required due diligence and they won’t have any social proof to rely on either, as they’ll be considering the off-market as a secret opportunity.

So, how do buyers identify an opportunistic and compromised off-market?

Firstly, they should understand why the vendor is selling off-market. Is it for situational reasoms?

Secondly, they need to find out how broadly marketed this off-market really is. If it’s been sent via text message to hundreds of buyers, or if it’s appearing on the agency website, it’s less secret than the buyer may realise. If multiple agents are marketing it, time will be of the essence also, and competition could be hefty if it’s a popular property.

Thirdly, does the property have a fixed asking price? Or is the vendor dropping a lure in the water and hoping for agents to scramble around, finding buyers who will overpay?

Does the agent have a signed authority to sell the property? And if so, is it exclusive or general? This could determine how the process goes in relation to other competing buyers.

Is the property definitively selling via off-market, or could this be a prelude to an auction campaign? Many agents ‘float’ an auction property by masquerading it as an ‘off-market’ initially. They do this before marketing efforts to see if there is a buyer out there who will pay a ridiculous price.

And lastly, but most importantly, a buyer must do careful due diligence before signing the contract. The number of bad off-markets I field that have flood risk, poor zoning, illegal works, etc., is alarming.

Regardless of how ‘urgent’ the opportunity is, the buyer must ask themselves the most essential question.

“Is it a good property?”