Off-Market Property: Hidden Opportunities or Costly Mistakes?

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There are plenty of buyers' agents out in the market whose major claim is their ability to secure off-market" property deals. The selling point is that you will secure a great property at a bargain price without any of the usual competition.

Now, don't get me wrong. Great buyers' agents indeed have a better chance than most to hear about homes coming silently to the market – but the assumption that every off-market property is going to be a sterling deal for the buyer just isn’t true.

Here's how off-market disasters unfold, and how you can avoid becoming a victim.

What does "off-market" really mean?

Essentially, "off-market" is used as a catch-all phrase in the property industry to refer to a property that isn't being actively marketed publicly via major portals at the time it’s purchased.

But this is where the first problematic assumption occurs.

A property doesn't have to appear on realestate.com.au or Domain to still be well exposed and have multiple buyers competing for it.

For instance, the vendor may agree to have their agent share the listing in a low-key way with, say, their prospective purchaser mailing list (which will include some buyers’ agents). In fact, many "off-market homes" are actually "pre-market", meaning the selling agent is exposing several potential buyers to gauge the level of interest in the property before launching it formally with open homes and full advertising.

The reason that matters is that you rarely get a true, no-competition, off-market opportunity as an everyday buyer.

A genuine off-market property is one where the owner is open to offers but won't expose it to a wide range of buyers. Actual off-market homes will change hands without hardly anyone else apart from the buyer being aware that it was for sale. They may occur because a buyer directly approaches an owner to inquire about the possibility of selling. It could be where the vendor instructs an agent to call specific buyers who are already on their books, in hopes of achieving a truly silent sale to a well-prepared buyer who is willing to act quickly.

Sellers may have a range of reasons to sell off-market. They may be very private individuals who don't want others, especially friends and neighbours to know they are looking to sell. They want to avoid the rubber-neckers and tyre-kickers traipsing through their open home. They may want a quick sale without the fuss and expense of a marketing campaign.

Off-market dangers

While buying a home without the pressure of competition may seem like a terrific option, there are some very real risks associated with purchasing off-market if you don't have experience in the property sector.

First up is the very real risk of overpaying for the home. Off-market might suggest the seller is offering you a bargain price – but that is not always the case.

Agents are adept at negotiating the highest possible price for their seller. Sometimes, they will call up prospective buyers with claims that they have an extraordinary off-market opportunity that will be just right for them. They'll paint the picture that the home is a steal and drive the narrative that the purchaser is getting a steep discount to help them move it quickly.

However, in truth, the price they're asking may well be above the market value the home would achieve if it were listed on the market as part of a comprehensive campaign. Unfortunately, in this instance, the buyer is unable to gauge the proper level of demand for the home because they can't see what other offers have been made or how many people are attending the open home inspections.

I have seen numerous times in my career where uneducated buyers pay too much money for a home, because they were convinced it was off-market and underpriced. In reality, it wasn't.

Off-market homes are also promoted by their agents as a quick sale, where the opportunity must be snapped up quickly, or the buyer will miss out. This can prompt many potential buyers to rush in and secure the home – sometimes even at a seemingly favourable price – without conducting adequate due diligence.

Unfortunately, price is only a good gauge of value if you have all the information you need, and haste can rob you of the chance to gather that information.

Again, I have seen situations where a seeming "bargain" was purchased off-market by an under-informed buyer. The contract contains limited conditions because, “It must be a steal? Right?!”

Only after it has passed the point of no return do the buyers discover severe structural issues, a town planning problem, or that it's in a flood zone. They might find out later that a petrol station or convenience store is planned for the block next door. They might find out their city view is about to be blocked by a new home construction.

Cheap is often cheap for a reason. Don’t let time pressures rush you into skipping crucial due diligence.

In a similar vein, undereducated off-market buyers can agree to contract terms that they wouldn't have in an open and transparent marketing program. These off-market buyers may have agreed to a quick settlement, or a larger-than-normal home deposit. They may have decided to waive their finance clause or building and pest. This can all come back to bite in a very painful way.

Avoiding the dangers

As you can see, not all off-market homes are a steal. So, how do we avoid this as buyers' agents?

Firstly, our relationships with selling agents are built on a reputational foundation forged over many years of completing deals. When we are presented with an off-market deal by these agents, we can be reasonably certain, due to our professional relationship, that they will only inform us about homes that are genuine prospects for our clients.

But, even if they don't, there are other ways we protect our clients from bad off-market deals.

Due diligence is the big one. By taking a clinical, unemotional approach to our due diligence, we can determine the viability of the off-market sale. We will be able to assess value based on our skills and all the comparable sales we've seen in our service areas. We will know the locations and understand the risks that can be presented by surrounding uses and town planning limitations being applied to the subject site.

We will know what to look for before proceeding. It could be related to titling issues or even Body Corporate matters with attached housing projects.

The fact remains that buyers' agents are uniquely positioned to quickly determine if an "off-market" prospect is a genuine opportunity or a chance for the seller to offload a substandard property at a premium price.

Remember, all that glitters is not gold when it comes to off-market property. Instead of risking it solo, seek out the representation of a buyers' agent. We are well placed to ensure you’re off-market dream deal isn’t a quiet disaster waiting to strike.

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