Off-market property sales can offer great opportunities for bargain-hunters, but there are traps to be wary of.
Auction clearance rates and property listings are commonplace in the Australian news cycle, but not much attention is given to off-market property sales.
Although far less common than the two regular sale channels - auctions and private sales - off-market property sales can have a range of unique benefits.
Read on to see what they are, as well as how the process works, and potential risks.
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What is an off-market property sale?
Angela Carrick, founder of Air Design Australia, said an off-market property sale could be defined as a sale which hasn’t been officially marketed to the public.
“A property for sale off-market is selling or has been sold without any public advertising or public scheduled inspections,” Ms Carrick told Savings.com.au.
“Purchasing off-market occurs if an owner is presented with an acceptable offer. Buying on a public listing means that anyone can compete against you.”
Buyer’s agent Caleb Gray said an off-market sale occurs when the property hasn’t been traditionally advertised online.
“Off-market properties are properties that have not been marketed via the real estate portals,” Mr Gray told Savings.com.au.
“Some people also consider 'pre-market' to be off-market as well. This is where the agent will contact their database prior to listing the property in order to gain interest.”
Dr Diawati Mardiasmo, chief economist at PRD Real Estate, said off-market property sales were not a new thing and were fairly uncommon, but are slowly gaining in popularity.
“It's not a massive part of the market, less than 2% in total for Brisbane City for 2020 [to end of September], however, that is 154 sales in total. In 2019 there were only 73 sales in this category, roughly 0.6%,” Dr Diaswati told Savings.com.au.
“Brisbane would be the smallest market in terms of these types of sales, compared to Melbourne and Sydney, I wouldn’t be surprised if their numbers and level of growth is double [Melbourne] or triple [Sydney] in comparison.”
What’s the process of an off-market property sale?
Off-market property sales don’t follow the traditional model of selling and there’s no real concrete process to go through.
Ms Carrick said a successful off-market purchase typically came down to good relationships between parties.
“Often, off-market property purchases occur when a selling agent simply contacts a buyer’s agent to gauge if buyers are interested in purchasing properties similar to their own OR as a buyer you have developed a very strong relationship with every agent in the area in which you are looking and they know what your budget is and what it is you are looking for and can match a property to your needs before selling publicly,” Ms Carrick said.
Mr Gray said an off-market sale often came down to the buyer taking the initiative.
“Off-market properties can be sourced by having connections to local agents, letterbox dropping, door knocking or cold calling,” he said.
“An ideal scenario for the buyer is where the vendor is motivated to move (ie they've already bought elsewhere) and are really chasing a quick and easy sale.”
Domain recently launched alerts that notify potential buyers of new off-market properties in Victoria, New South Wales and Queensland.
Through the service, Domain members can create a property alert for what they're looking for that delivers notifications of off-market properties via email and the Domain app.
Why sell off-market?
A lot of focus is put on the costs of buying a home, but selling a home can also be very expensive.
Ms Carrick said sellers could save a huge amount of marketing and advertising costs by choosing to go off-market.
“Depending on property type, the owner will save $10,000-$50,000 in marketing and advertising costs by going off-market. This saving can be then passed onto the buyer’s purchase price,” she said.
Chief executive of Iridium Private, Akshya Naronikar, said off-market property sales often appeal to high profile sellers.
“Many influential clients prefer this as they do not want the news to spotlight their sale and speculate on the reasons thereof,” Ms Naronikar said.
Ms Carrick echoed this sentiment and said privacy was a big reason for selling off-market.
“Prestige property, divorce, death or a change in financial circumstances often leads to a need for an off-market sale.
“These vendors do not want to attract the attention of the general public with their sale, prefer confidentiality or do not want anyone just coming through an open house inspection for a sticky-beak.”
She added that going off-market eliminated the hassle of being open for inspections all the time.
“This eliminates constant cleaning, arranging children and pets to be out of the house and instead, you have a few serious buyers inspect the property.”
Benefits of off-market property sales
Dr Diaswati said the main benefit of off-market sales was not having to compete with other buyers, which in some cases could lead to a lower price.
“You are able to secure a property without competition, which is particularly useful if it is an area that has low number of new residential development, or current properties very rarely go for sale (usually due to the location of the area),” she said.
“Depending on the reason for the off-market sale (for example if the owner needs to sell due to financial distress or health reasons or anything else that requires a quick sale) you may be able to secure it for less/below market price.”
Mr Gray said an off-market sale could remove much of the stress of buying as you’re not in direct competition with anyone.
“The great thing about off-market properties is that you're getting first access to this property before everyone else.
“This means if you are willing to put forward a successful offer and move quickly, you can avoid getting into a bidding war with other potential buyers.”
Risks of off-market property sales
With a less traditional selling process comes less traditional selling and buying tricks.
Mr Gray said buyers could often be duped by sellers who didn’t actually want to sell or were asking way over market value.
“Some vendors may want to just 'test the waters' with an off-market property to avoid paying for marketing, and they may not actually be serious sellers.
“This means that the price that they are willing to accept is actually above market value.
“Some buyers may get sucked into the off-market spiel by the agent and quickly snap it up without realising they've actually paid overs for the property.”
Dr Diaswati also said there could be problems with unrealistic sellers, as well as a lack of information.
“Off-market properties are not on the usual sale portals, therefore, it may not have all of the information you need to make an informed decision, for example, photos, floor plans, further details on future developments or list of amenities.”
Ms Carrick said being the only buyer meant the process could be long and drawn out.
“The drawbacks are the obvious lack in competition for the property and no confined timeline as you would experience with an auction campaign or publicly-listed private treaty sale.”
Legal considerations of off-market property sales
Laura Vickers, principal lawyer at Nest Legal, said a lack of current online pictures meant you may not be protected in the event of a legal dispute.
“These pictures can otherwise be a goldmine for a solicitor reviewing your contract because they can compare the online pictures against what is the contract and makes sure it stacks up,” Ms Vickers said.
“For example, there might be some common property that has been illegally fenced in as a courtyard or a deck that has been built without permits or owner-builder works that haven't been disclosed.
“You can guard against this risk by taking lots of photos yourself and providing these to the solicitor or conveyancer who is reviewing your contract.”
She also highlighted issues with potentially not being able to make your offer subject to finance or building/pest inspection.
“You can guard against this risk by getting all this sorted before you make an offer or, worst case, doing your building inspection during the cooling-off period, noting you will pay a penalty if you terminate a contract under the cooling-off provisions rather than a property building clause.
“I would be particularly diligent about building inspections for an off-market property.
“If the vendor is cutting costs in terms of their choice of sale method, have they also been cutting costs in terms of home maintenance for the last few years?”
Savings.com.au’s two cents
An off-market property sale can be a great way to buy a property without having to compete with other buyers.
However, there are a number of risks, like paying over market-value or being duped by an unrealistic seller, along with various legal considerations.
Off-market sales arguably occur best when they’re serendipitous, or if you have a strong relationship with a real estate agent or a buyer’s agent.
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