What Is An Off-Market Property?
An off-market property is simply one that isn’t listed for sale on the local multiple listing service, (MLS) or any other listing service such as CoStar or LoopNet.. There are several benefits of off-market real estate properties, both for buyers and sellers. In many markets around the country real estate inventory is limited, creating bidding wars and pushing up property values, so buying off-market properties can help you buy at a reasonable price without all the competition forcing you to make a hasty decision.
Benefits as a Buyer of Off-Market Deals
Many real estate investors love purchasing off-market properties for two main reasons. If you are looking to buy in a very hot market, off-market real estate listings may be the only way that you can actually purchase a home without getting into a bidding war. In regular markets, you can score a deal on off-market homes because the seller will not have to pay as much in commission.
Often the seller of off-market properties has an inventory available, such as a REIT or Private Portfolio of properties. This allows the buyer the luxury of leisurely sifting through the inventory without the pressure of a broker or competitive situations with multiple buyers. In a 1031 exchange situation this is a huge advantage and makes the exchange process far more relaxed.
Benefits as a Seller of Off-Market Deals
Some sellers choose to do an off-market listing to test the waters in terms of the housing market, while some prefer more privacy surrounding the sale of their property. Or, they may just want the opportunity to benefit from a lower sales commision, since there will usually only be one agent involved.
Additionally, if your property is for sale off the market, certain metrics like days on the market, views, saves, and so forth that are available online will not be available, which in some cases can create more mystery around a property and help prevent lowball offers. In the same vein, it can help sellers avoid wasting time liaising with potential buyers who are just feeling out the market and in fact aren’t qualified or serious about purchasing the property.
Privacy can also come into play if, for example, the owner of an apartment building wants to sell the building, but doesn’t want to spook all of the tenants. If the tenants move out, then the building won’t be performing as well as advertised, and the sale may not be lucrative or successful.
In the case of a portfolio of properties, the individual or group doesn’t want the hassle of dealing with individual buyers and their agents and doesn’t want it known they are liquidating part of their portfolio. Dealing with a few exclusive buyer’s brokers that can bring high quality investors and making it easy for the owner of the portfolio can be a great advantage as well.
Example of Potential Off-Market Properties
Latest Rule Changes
As of January 1, 2020, there was a new rule implemented that presents a roadblock to off-market listings.
MLS Statement 8.0 Clear Cooperation Policy
The National Association of Realtors passed the MLS Statement 8.0 Clear Cooperation Policy which requires any real estate agent who lists homes on an MLS to submit all of their listings to the MLS within one business day of marketing the property to the public. However, this doesn’t mean that off-market listings are no longer available.
The Practical Impact of MLS Statement 8.0
The MLS Statement 8.0 Clear Cooperation Policy is not technically a law, since the National Association of Realtors is a governing association rather than a legal entity of any kind, but all members of the association are bound by these rules.
There are real estate agents who are not Realtors (which simply means that they aren’t a member of the National Association of Realtors), but in practical terms, 89% of homebuyers used a real estate agent and almost 70% of real estate agents are Realtors, so essentially the policy applies to the majority of residential real estate transactions.
However, sellers can opt out of the MLS internet display or use office exclusive listings, where an agent can share the listing with other agents in the office or one-on-one with potential buyers.
1. Real Estate Agents
Non-Realtor real estate agents are not bound by MLS Statement 8.0, so they can still be a good source for off-market properties. Realtors also have one business day before they are required to publicly list a property, so you could have a short window of time in which to source an off-market property there as well. Some enterprising real estate agents will even cold call property owners in the area if they know that you are interested in a specific type of property, and they can sometimes turn those owners into sellers with the right offer.
Using an agent to find off-market properties can be somewhat difficult, unless you already have a good relationship with your agent and have established yourself as a serious buyer. If you are just beginning to work with a real estate agent, they may already have a long list of buyers and sellers, and you will probably find yourself at the bottom.
2. TFS Properties Markets
As a TFS Properties client, you will gain access to our marketplace, where we have access to exclusive off-market properties for our clients only. These properties will not be found on their local MLS and each property is pre-certified, inspected, and given a neighborhood rating and a financial pro forma to help you quickly evaluate the property.
We are dealing with groups that have sizable portfolios that they don’t want to expose to the open marketplace. They are far more comfortable dealing with TFS Properties as we have a long term working relationship with them and they know we will pre-qualify the clients. This drastically reduces the work for the sellers, eliminates any marketing for them and keeps what they are doing under the radar of the local market.
In addition, rarely will TFS recommend a rental property that doesn’t have a solid tenant or that is located in a strong rental market. We always make sure there is a strong management company overseeing your property as no matter how good a property it is, with poor management things can go south quickly.
In a normal MLS listing, the sellers may wait until a good amount of time has passed in order to get as many offers as possible. With multiple offers, there is more competition and generally a higher purchase price. Our established relations eliminates this tedious process.
3. Direct Mail Marketing
Direct mail marketing involves sending mail directly to the owner of a property that you wish to buy in the hopes of convincing them to sell to you. This tactic can be effective since the thought of selling may not have even crossed the owner’s mind until you brought it up with your direct mail. As a result, you can favorably position yourself as the only one in the running for the property sale.
Contractors not only build and improve homes, but they can also be excellent sources of information. They are usually working directly with the property owners, who often share their ultimate intentions for the property with the contractor, well before they have listed the property if they are planning to sell.
For instance, perhaps the owner hired a contractor to do some renovations in order to get a better sale price on their home, but they are still weeks or months away from listing the property. If you know a few contractors and put out feelers with them regarding what types of properties you are interested in, they may be able to scout the perfect property in the course of their work and put you in touch with the seller.
Plus, many owners will directly ask their contractors if they have any other clients who are looking to buy what they are selling. A contractor’s contacts can prove to be invaluable in sourcing off-market properties.
5. Networking with Fellow Investors
Other investors are also great to have in your network. They may be selling exactly what you are looking for or vice versa, or they may know someone who does. Networking with as many other real estate investors as you can will give you insight into their inventory, their investment strategy, and whether or not they are looking to sell a property you are interested in or buy a property that you want to sell. Knowing these details about other investors can put you in an excellent position to pick up off-market listings as they become available.
Additionally, carrying out a deal with someone in your network is beneficial for several reasons. You already know the person is interested and you have a relationship with them which can make negotiations smoother. You also may be able to make the transaction without the services of a real estate agent, which can save you thousands in commissions. Finally, making successful and positive business deals with those in your network will only bolster your good reputation and make other investors more likely to work with you in the future.
6. Driving for Dollars
This boots-on-the-ground tactic involves literally driving around the neighborhood in which you are looking to buy property, and scouting for appealing properties. You can then get in touch with the owner to get the conversation started or even make them an offer if they seem receptive.
Additionally, you can keep an eye out for properties that look a bit distressed, which could indicate the owner can no longer afford to maintain it or no longer lives at the property. These types of owners may be more open to selling their properties, especially if it will help them out financially.
Wholesalers are people who find off-market property deals, get them under contract, and then flip that contract to another buyer for a finder’s fee. If you have a good relationship with a wholesaler, they may be able to flip you a contract for an off-market property. Technically, since they already have it under contract, any property that you buy from a wholesaler will be off-market, regardless of whether it was initially listed.
Properties purchased from wholesalers often require significant rehab and maintenance, so be sure to run your own calculations to verify that the deal will be lucrative for you. Some less scrupulous wholesalers will purposely underestimate the necessary repair costs in order to score a better deal for themselves.
8. Real Estate Auctions
Properties at auction are usually sold because the owner fell behind on taxes and the house was repossessed, so they can be purchased for pennies on the dollar. In some cases, you can purchase the property for just the amount of back taxes owed. These properties are definitely not listed on any MLSs, but like wholesale properties, they often require a lot of work.
9. County or Public Records
County or public records can often reveal who owns a property, so this is a useful way to track down property owners, especially in conjunction with the ‘driving for dollars’ technique we outlined above.
10. Online Resources and Sites
There are many online sources for finding properties that aren’t listed on MLSs, such as Craigslist or Zillow. These sites aren’t bound by MLS Statement 8.0, but keep in mind that anyone can publish a listing so you’ll need to be more aware and diligent about avoiding scams.
11. Word of Mouth
Word of mouth is often the best free advertising! Tell your family and friends what you are looking for and they may just know the perfect property or person to get in touch with!