April 2018 Edition
Story: Pam Walkley
Would you like to be able to secure the property of your dreams without having to compete with other buyers? Being able to acquire a property “off-market” is seen as the holy grail by many real estate buyers but it doesn’t always work that way. “More often than not you’re going to pay over the odds to secure a property before it goes public” says Patrick Bright, founder of buyers agent EPS Property Search and author of several books on real estate.
In Brights’ 18 years of experience, off-market or pre-market offerings – where the property is not publicly advertised on the open market – often occur when a vendor has an unrealistic price expectation for their property. The agent – realising this but not wanting to lose control of the listing – suggests trying a softly, softly approach, hoping to snare an ill-prepared or ill-informed buyer without wasting too much time. If the agent doesn’t get lucky, eventually the vendor may be willing to accept a lower price. But if the seller is unmotivated he or she may just withdraw their property from sale.
The number of properties selling off market is estimated at 10% to 20% and is on the rise, says Liane Fletcher, co-founder of Property Whispers, a matching site for buyers and off market property that real estate agents list on the site (propertywhispers.com.au). These listings can’t be browsed by prospective buyers but both the agent and buyer are contacted if a match occurs. The site has been likened to Tinder, the popular site for matching people looking to hook up. (See breakout.)
Bright agrees that the number of properties not going to open market has increased, and he says the more expensive the property the more likely the vendor is to opt for the strategy. He estimates that once the price gets to $5 million about 50% of those in Sydney’s inner ring are sold off market.
Another place where buyers can get access to off-market opportunities is Soho, a property discovery and management app, launched in Australia and Singapore last September by Jonathan Lui, who co-founded Airtasker in 2012. The idea came to Lui when selling his Sydney home and he realised the whole process of buying and selling was very restrictive. “The only time properties were visible to potential buyers was after owners made the decision to move and were 100% committed to selling,” he says. There were so many buyers who had no way of proactively contacting owners with their offers besides door-knocking; they just had to wait for the next property to come online, says Lui.
Soho’s approach is to enable owners and agents to use the app to create and manage online profiles for each of their properties.
The properties can be managed either privately or publicly, the latter allowing potential buyer and renters to reach out for details.
“Making a property discoverable on Soho is essentially just placing your front door online, allowing others to ask any questions regarding these properties,” says Lui. “You’re not explicitly asking for offers, in the same way as when you have a profile on LinkedIn you’re not saying you’re looking for a job. You’re simply saying ‘this is how you can contact me via a digital door knock about anything regarding my property’.” You can download the free Soho app at sohoapp.com
It’s usually vendors who suggest selling their properties off market because generally sales agents prefer the competition and promotion that come with a normal campaign.
Fletcher says there are myriad reasons sellers go off market. Some are worried auction clearance rates are falling, some don’t want their properties exposed to open inspections and neighbours trawling through, and others don’t want to spend the money on a big ad campaign. The cost of advertising on the two big real estate sites, realestate.com.au and domain.com.au, has risen over the years as they have tied up the market for online property.
As a buyer’s agent, Bright says he gets at least one or two calls or emails weekly from vendors who want to sell directly, not only avoiding advertising costs but also real estate agent commission. With these typically between 2% and 3%, this can represent a saving of between $20,000 and $30,000 on a $1 million sale.
If Bright thinks the property might be suitable for a client but feels the price is too high he’ll suggest to the vendor they get an independent valuation and negotiate around that price. The vendor and prospective buyer each pay half the valuer’s fee, which, says Bright, would usually be around $1000. The vendor saves their advertising and commission costs and the buyer pays a realistic price, so everyone wins, says Bright.
Of course as real estate agents warn, the competitive nature of an open market sale is unlikely when selling off market. A big decision facing vendors who consider selling this way is whether they could achieve a better result by listing on the open market.
Bright, however, is critical of just how well auctions work for many sellers, saying the “lotto outcome” is not known until auction day. Potential buyers are often enticed by agents underquoting, which can result in a dismal result for vendors, he says. Buyers who do decide to go on the open market should pick the actual real estate agent rather than the agency because a good agent can make a big difference to whether you are a winner or a loser, says Bright.
Some buyers, especially those who have had bad experiences at auctions and open houses, are desperate to buy a property and they’re keen to find out about property that are not exposed to the general market, says Fletcher.
Those who already know about off-market properties want to find out about them without having to go to every single agent in their area and they can do this through the Property Whispers site. And those who can’t afford or don’t want to pay for a buyer’s agent can access the whole secret world of off-market properties, says Fletcher.
Purchasers can also sometimes get more flexible terms on these properties, such as less rigid settlement times, says Bright.
And sometimes they do score a bargain but in their rush to not have to compete in the open market, buyers need to make sure they are not paying over the odds. You need to do a lot of detailed price research and also be confident you can negotiate a fair price. If you don’t have the time or inclination to do this, you might be better off using a buyer’s agent who will have access to both on- and off-market properties in your area.
There is over $550 million worth of property listed on Property Whispers, says co-founder Liane Fletcher. Since launching in April 2017 there have been over 4000 matches but how many have translated into sales is not known, as Fletcher says the matching platform’s job stops when a match takes place. But even if a sale doesn’t eventuate, the agent knows what a particular buyer wants and can add that to their database.
This is how it works: