We all love the thought of a bargain. It’s the reason why we get excited for the boxing day sales or buy the half-price cereal at the supermarket.
We all love the thought of a bargain.
It’s the reason why we get excited for the boxing day sales or buy the half-price cereal at the supermarket.
Being the biggest purchase most of us make in life, property is no different. Nabbing your dream home for under market price is the stuff we all fantasise about.
But how often is this a reality?
Buyers often get swept up in the romance of an off-market property without fully weighing up the value of what’s being offered.
Being able to identify the red flags of off-market properties is a vital skill to have when looking to invest or secure your dream home.
What is an off-market property?
Essentially, an off-market property listing describes a property up for sale that is not being marketed or advertised through the traditional real estate channels.
Instead of paying to promote their property to the public, the vendor may rely on the real estate agent to generate interest through a database of buyers.
‘Off market’ is a term that has become increasingly popular in the property landscape and is often used by agents to generate excitement for a home that they are selling.
Why do people sell their houses off-market?
Understanding why the vendor is choosing to sell off-market should be a crucial part of your decision making process.
The driving reason behind why a vendor would do this typically boils down into two categories.
The first one is a force of circumstance. This is when a vendor is pressured to sell their property off-market due to the situation they are in.
There are any number of factors that could influence this decision, but it usually means that selling the property is of higher importance than the sale price.
This could be because:
The vendor has recently bought another home and needs to sell their property before they move in to the new one. Whilst a typical auction requires 120 days of preparation before the big day, an off-market property can sell in days if an appropriate offer is made.
The vendors may not want to market or advertise the selling of their property for personal reasons, such as a divorce or death.
The vendor doesn’t have the time or money to undertake a long advertising campaign.
The vendor needs to sell due to financial pressures.
A property is tenanted and the vendor doesn’t want to risk losing the current tenants early by advertising the house is for sale.
A vendor just wants to avoid the stress and uncertainty of an auction. Selling it off-market lets them be in control of the sale.
The other force is one driven by opportunity. This is when the vendor or agent believes that selling the property off-market will deliver a better result than if it went to auction.
Sometimes, creating a smaller pool of buyers will generate a concentrated level of excitement which increases the chances of a buyer getting attached to a home.
This also could be because there are problems with the property and the vendor fears it won’t sell if it goes to auction. Marketing a compromised property as a seductive off-market opportunity can overshadow its flaws and appeal to a more forgiving pool of buyers. These are the ones that you should really be careful of.
On the occasions a vendor is being opportunistic, they will often refuse to sell their property for anything less than a great price.
A lot of the time, if a vendor doesn’t receive a suitable offer, they will proceed to advertise their property in an auction campaign anyway. Crucially, these properties are considered pre-market, not off-market.
Ask yourself; “is the agent trying to convince me to buy this property because it is off-market?”
If you’re able to identify an off-market property as a sale of circumstance or a sale of opportunity, you are already well ahead of the pack.
Is it cheaper to buy property off-market?
According to past data, off-market properties do sell for slightly less.
This makes sense… If they didn’t, no vendor would choose to splash out on an expensive advertising campaign in order to market their house.
Last year, research from realestate.com.au found that off-market houses sold for a price around 4% less in Melbourne than those that went to market.
The same research also found that the biggest differences in outcome came from properties that sold within the $250k-$500k range.
Yes, this is pretty significant, but there’s a few things to consider.
These statistics don’t factor in the true value of a property and what they may be worth in the long run.
Many off-market properties sell for less but don’t actually offer a good investment to the buyer.
The price of a property shouldn’t be your key metric when judging the quality of deal. To get a proper grasp on whether it’s a good buy, you must factor in the performance of the property over a long period of time.
There’s an adage you learn as a buyer’s agent from very early on; you’d rather buy a great property at a fair price than a fair property at a great price.
This is only to say that you shouldn’t miss out on a quality property because you’re chasing that bargain.
Let’s be clear; we don’t have anything against buying property off-market. These have been some of the proudest purchases that we’ve made for clients.
Just be careful not to value the price of a property above the value of the asset.
How do I know if an off-market property is a good price?
For buyers less experienced in the property market, purchasing off-market can be a far riskier investment.
A smaller pool of buyers suggests a wider range of variability. This can enable you to buy a house for less than market price, but it also makes you more susceptible to overpaying.
To guide your evaluation of a property, there are plenty of key factors that you need to keep in mind. These include the land size, quality of the neighbourhood, proximity to schools, shops and transport, condition of the property and many more.
Establish why the vendor is choosing to go off-market and how you are being sold the property. Doing the groundwork is the most important step when determining whether you’re getting a good deal for a property.
Ultimately, don’t fall in love with a property just because it’s off-market. If there are only a few buyers interested in a property, there may be a reason for it.
Seek advice that you trust to make sure you’re getting a quality home for a good price.
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Elephant Advisory is an accounting and mortgage broking firm based in Melbourne, with a successful history of helping our clients achieve their goals. With a little help from us, you'll be prepared to make the right decisions for your business or property journey, avoiding many of the potential mistakes along the way.