Off market home sales - what sellers need to know
Selling your home off-market is one route open to homeowners versus the more conventional on-market path of hiring a Realtor to list your property. As with most things in life, there are pros and cons of off-market home sales but they are definitely a good fit for some owners. This article explains what off-market home sales are, what they are not, how the process works plus the pros and cons of going this route.
What are off-market home sales?
The purest definition of an off-market home sale is a home sale that is conducted in private without the knowledge of the general public. The property is not advertised for sale on public forums like the local multiple listing service (MLS) or real estate websites. The sale of the home is conducted under the radar and only becomes public knowledge after the transaction closes and the details of the sale are recorded online on the county's tax records.
For Sale By Owner homes (FSBOs), should not be considered as off-market sales since today, most of these will be listed online, visible to the public and any buyer to free to make an offer on the home. In addition, many FSBO sellers end up agreeing to pay a commission to the buyer's agent.
Here's a common example of an off-market sale: as a Realtor, if often see new listings on the MLS that are obviously investor flip properties. After viewing the first 3 photos they are easy to spot, trust me, 90% of the look the same with the same unimaginative finishes. If you then look at the sales history of that home, you will see that the last time it sold, i.e. when the investor bought it, there will not be a corresponding MLS listing but the sale price and date will be recorded in the tax records. If the home had been sold with a Realtor, there would be a listing in the MLS with photos and other details.
For some off-market sales, you will see that the sale is on the multiple listing service but will be tagged as S-UL and have just one photo and only a few details about the home. This means that the home was Sold-Unlisted and was a private sale between the homeowner and a buyer that was coordinated by a real estate agent. In the Seattle area, the Realtor for this transaction can upload that sale to the NWMLS AFTER the sale has closed but not while the sale is in progress.
Examples of off-market Home Sales.
There are a number of different situations where homeowners sell their homes off-market.
- Selling to a family member. For example, sometimes parents will want to downsize from the family home and one of the kids wants to keep/buy the home.
- Selling to a neighbor. The seller may have a good relationship with a neighbor who hears that the owner will be selling their home and the two parties come to a mutual agreement to do a private off-market sale
- Selling to the tenants of your rental property. Owners of rental properties may offer the tenants the option to buy the property off-market or sometimes the tenants may hear that the landlord is thinking of selling and make an offer to buy the property.
- Owners of properties with multiple tenants units: it's frequently easier to sell it off Market so that the tenants are not hassled by multiple investors coming through the property and also make sure that the property stays fully occupied while the landlord is conducting the sale. Plus the new owners get a property with tenants in place already and have an immediate cash flow.
- Selling directly to an investor. If you own a home you have probably had multiple calls in the past or mailers in the mail trying to entice you to sell to a private investor. "WE PAY CASH FOR HOMES!" They promise a smooth transaction and to pay cash for your home. There are definite pros and cons to selling directly to an investor. In the plus column, you get to sell your home as-is and not have to spend time cleaning, decluttering, and doing repairs. In the cons column you might be getting a lot less for your home than it would on the open market and let's say, investors are probably a lot savvier than the average homeowner. Buying a home off-market for them can be a big win for them. Make sure you get some independent representation and advice!
- Selling to an iBuyer. These were going to be the next big thing until they weren't in a hurry and you can count Zillow as one of its victims. The iBuyer idea was to buy homes directly from homeowners, hold them briefly while doing some modest updates, and then put them back on the market and hope to turn a profit. It was supposed to be a win-win for sellers making the whole process a lot smoother. Unfortunately, companies like Zillow, who ironically were looking to get market deals, way overpaid for homes, and then when the real estate market went down they we left holding the bag and that is why they are no longer in the iBuyer business. Plenty of other companies also went down the iBuyer drain.
Why We Pay Cash for Homes is Meaningless Gibberish.
A quick side note about investors who send you those mailers proclaiming that they want to buy your home for cash. The thing is, EVERY seller gets paid in cash at closing (net proceeds) regardless of whether the investor is using all cash to buy your home or is getting a loan. You don't get to see any of that money until the sale actually closes. It's not as if they hand you a suitcase with $500,000 in cash today and you close 30 days from now. If the buyer is genuinely using cash to purchase the home then one potential benefit is that there is no appraisal to worry about. However, it is very unlikely that the investor is paying more than the home is actually worth so the chances of a failed appraisal are probably slim.
What is the process for selling a home off-market?
The process for selling a home off-market will probably vary on the type of sale you go with.
If you use the services of a Realtor or an attorney to coordinate the transaction then the sale will probably proceed the same as a conventional MLS sale. The contract and forms will be the same standardized versions for that part of the country. However, if you are selling the home to an investor they may come in with their own specific forms that are non-conventional and potentially skewed in their favor.
You will need to decide in advance of agreeing to sell whether the sale is contingent on the buyer during an inspection of the property or whether they are agreeing to buy the home as-is.
The sale should proceed through the standard Title and Escrow process as happens in the more conventional home selling process.
It is critical that you get some professional advice from an attorney or a realtor and have somebody review the contract for you. Know what you are getting yourself into and the consequences of what you are signing. You want to make sure you end up with a legally binding sale and don't get screwed in the process.
What is the fair market value when selling off-market?
If you are deciding to sell your home off the MLS then it is critical to know what is the fair market value of your home. The more reliable evaluation you have of the current market value of your property the better you will be positioned to negotiate and get what the home is worth.
In general, your home is worth the price it gets on the open market with full access to all prospective buyers and buyer competition for the home.
However, when you decide to go with a private sale, you will need to decide on a price with the buyer. The seller wants to get the most possible while the buyer would want to pay the least possible.
So how do you decide on the fair market value? The best way to determine what your home is worth is to either pay a real estate agent to do a comparative market analysis (CMA) or hire a professional appraiser. The latter will cost you about $600 the cost of which can be split between the buyer and seller.
Advantages of off-market sales for homeowners
For home sellers, there can be a number of advantages compared to going the conventional on-market route.
You don't have to fret about getting your home ready for market: when you list your home for sale on the open market you usually have to spend weeks or months cleaning, decluttering, and prepping your home so it looks its best. For off-market sales, the owner can frequently just sell it as-is without having to go through any of that hassle.
Off-market listings won't have to deal with the stampeding public: when you sell off-market there are no public open houses on the weekend or Realtors doing private showings of your home and you have to vacate the home when someone wants to view it.
If the sale falls through it does not taint your home: when the sale of a home that is listed on the open market falls through due to a failed inspection and has to go back on the market, the home can be perceived as having issues by other potential buyers. If that happens in a private sale, nobody is any the wiser.
Save on agent commissions. In a conventional sale, both the buyer's agent and the listing agent are paid a commission from the proceeds of the sale. For an off-market home sale, the seller will probably just have to pay one agent or an attorney to coordinate the sale.
Negotiations tend to be more relaxed and less rushed. Potentially simpler face-to-face negotiations than having to go through third parties like Realtors or attorneys.
Privacy. Some sellers don't want the world to know that they are selling their homes.
Need to sell in a hurry. Some homeowners are in financial trouble and desperately need money in a hurry and are looking for a way to unload their homes for cash.
The potential disadvantage of off-market home sales for sellers
The main potential disadvantage of selling a home off-market is that the seller risks not getting what their home is actually worth. By not listing their home to the open market the property does not get the full buyer exposure of a conventional sale and cannot leverage the market to get the best return on their investment.
The true market value of a home is what it will sell on the open market with full access to the public and potential buyers and leveraging the market including staging and marketing and setting an offer review data to get the most for a home. Sellers might argue that they are saving money on Realtor commissions but the question should be: which one will have the higher NET proceeds... going with a private sale versus listing on the open market. Are you willing to forego say, $50,000 for the convenience of not listing your home on the open market?
For off-market properties, sellers need to remember that although they can save on Realtor commissions they still have to pay federal excise tax plus escrow and title fees.
Some real estate investors will make the sale contingent on a feasibility study. The feasibility contingency gives the investor time to research items such as the property's zoning, the types of homes they can build on the land, can the lot be subdivided and the types of permits required. Frequently these feasibility periods can be three or more months which means the home cannot be sold to another buyer during that time Also at the end of that time period, the investor might come back and say based on what they've found that they are not willing to pay the original price.
Are you market-savvy enough to know the market value of your home? Are you just sticking your address into some online automated evaluation system like the Zestimate which can be wildly unreliable? Experienced property investors will be looking to take advantage of you and get your property for as little as possible.
Frequently asked questions.
Here are some additional questions that people have about off market home sales.
What is a pocket listing?
A pocket listing is a type of off-market listing, where a property is marketed and sold without being listed on the Multiple Listing Service (MLS). Essentially, it's a home sale that is kept "in the pocket" of the real estate agent and not advertised to the general public. Pocket listings are illegal in some states including Washing State since some real estate agents may use pocket listings as a way to steer buyers toward their own clients, which could be seen as unethical.
What does temporarily off-market mean?
Sometimes the owners of a home that is listed for sale on the open market and advertised on the multiple listing service, will want to take their property off the market for a short while before reactivating the listing again. Reasons for this include wanting to enjoy the holidays in peace and quiet or taking care of repairs discovered by a buyer who walked on the sale. The listing status of the home will be tagged as Temporarily Off The Market.
What does Off-Market mean on real estate websites?
When you search for an address on many of the big real estate websites like Zillow and Reffin it will usually pull up a page with information on that property. If that home is not currently for sale it will be tagged as Off Market. This does not mean that the home is available to purchase as an off-market home sale, it just means that the home sold in the past and is not currently listed for sale. But there's nothing stopping you from trying to contact the owner to see if they are open to an off market listing.
How many homes sell off-market?
The National Association of Realtors (NAR) estimates that about 10% of all homes are sold via For Sale By Owner (FSBO), pocket listings, and off-market sales.
This article was written by Seattle and Eastside Realtor Conor MacEvilly who has been in the business since 2008. I hope you enjoyed the post and thanks for visiting my website. If you have any questions about Puget Sounds area residential real estate feel free to contact me. I'm happy to help. My direct line (cell) is 206-349-8477.