Why Most Off-Market Properties Aren’t the Steals They Seem

When searching for investment properties, the concept of off-market deals often sounds appealing. They’re advertised as exclusive opportunities, sometimes promising less competition, and the idea of landing a deal before it goes public seems like a competitive advantage. However, as an investor, it’s crucial to approach off-market properties with caution, as the reality is that most of them aren’t as great of a deal as they may seem.

What Is an Off-Market Property?

An off-market property is a property that’s being sold privately, outside the realm of public real estate listings. It’s not posted on websites like Domain or Realestate.com.au, and there are no public inspections or open houses. These properties are often shared through exclusive networks, agents, or even directly from the owner to potential buyers, giving them a sense of exclusivity and an edge in terms of securing the deal.

In Australia, it’s estimated that up to 20% of all properties are sold off-market, and while that number is significant, the vast majority of these properties don’t come with the price discounts or deals many investors expect.

Why Do Vendors Sell Off-Market?

There are several reasons why a vendor may choose to sell off-market:

• To Avoid Marketing Costs: Listing a property on the market can be expensive, involving advertising, agent fees, and staging costs. Some sellers may prefer to avoid these costs by going off-market.
• Time Sensitivity: Some vendors may need a quick sale, so they seek to bypass the time it takes to list and market the property.
• Confidentiality: High-net-worth individuals or those with sensitive circumstances may want to sell their property quietly, without making a public announcement.

But here’s the crucial point: if the property is priced properly, why wouldn’t the vendor list it on the open market, where they could potentially attract more buyers and higher offers?

This is the question that every investor needs to ask themselves when evaluating off-market deals. It’s rare that a property that’s offered off-market is priced at a significant discount compared to what it would sell for on the open market. In fact, most off-market properties are priced similarly to or even higher than comparable properties on the market, and as such, may not represent the true “deal” that many investors believe they’re getting.

Why Most Off-Market Properties Aren’t Worth Your Time

Here’s why you should be cautious with off-market properties, particularly when investing:

1. Why Would the Vendor Sell Below Market Value? Off-market deals are often seen as a shortcut to securing a property before it hits the market, with the assumption that vendors will accept a lower offer to avoid public listing fees. The reality is, however, that vendors are usually reluctant to accept significantly less than the market value unless they are under significant pressure to sell. Why would a vendor give you a deal below market price when they know their agent can market it for a higher price? Most off-market sales are simply a test run to see if there’s interest at a certain price before taking it to the broader market. If they don’t get the offers they’re looking for, they’ll go ahead and list the property publicly.
2. Your Offer May Not Be Taken Seriously: While you might think you’re getting an inside scoop by submitting an offer on an off-market property, it’s essential to know that in many cases, your offer may simply be part of the agent’s negotiation strategy. Your bid could be used as a benchmark to see what kind of interest there is before the property is listed on the market. If it’s below the vendor’s expectations, they may choose to list the property at a higher price, with your offer acting as a baseline for setting the asking price. Even worse, your offer could be disregarded completely if it’s not in line with the vendor’s expectations, and they may later choose to market the property to a broader audience.
3. The Property May Still Hit the Market: Even after submitting an offer on an off-market property, there’s always a risk that the vendor will eventually bring it to the public market anyway. Vendors are often drawn to the potential for greater exposure and higher offers when they list on real estate platforms, which is why off-market offers can sometimes be just a way to test the waters. If your offer doesn’t meet their expectations, they may decide to list the property publicly with your bid used as leverage, pushing potential buyers to bid higher. Essentially, you could end up in a bidding war on a property that was once “exclusive” to you but now opens the door to more competition.
4. You’re Not Really Avoiding Competition: One of the key draws of off-market properties is the belief that there will be less competition. But this isn’t always the case. Off-market properties are typically offered to a select group of investors, buyer’s agents, or private buyers, so while there may be fewer people seeing the listing initially, that doesn’t necessarily mean you’re getting a unique opportunity. In fact, by going off-market, you might be up against just as many, if not more, competitive buyers—especially those who have inside access to the property.

What’s the Real Value in Off-Market Properties for Investors?

While it’s clear that most off-market properties are not automatically a great deal, it’s important to understand when and why they could still be worth pursuing:

• Exclusivity: If you have strong relationships with vendors or agents, off-market deals may allow you to access properties that aren’t available to the general public. This can give you an edge in highly competitive markets.
• Test the Market: In some cases, off-market properties are simply testing the waters to gauge interest. If the pricing is right, it can be worth making an offer early and negotiating directly.
• Opportunity for Negotiation: Without public competition, there may be room to negotiate more effectively, especially if the vendor is genuinely motivated to sell quickly. However, this relies heavily on your ability to understand the market, know your numbers, and recognise a motivated seller.

How Can You Secure the Best Deals for Investment Properties?

The best way to secure excellent deals is not to chase off-market properties based on the promise of an easy bargain, but rather to understand the broader market, build strong relationships with vendors and agents, and use data and research to guide your decisions.

Here are a few tips for securing great investment properties:

1. Research the Market: Understand the local market dynamics, including demand, rental yields, and price trends. The more informed you are, the better your negotiation position will be.
2. Build Relationships with Vendors and Agents: Having solid connections with local agents or even direct communication with property owners can sometimes lead to off-market opportunities. These relationships can also give you insights into properties before they’re listed.
3. Know Your Numbers: Always do your due diligence and run the numbers to ensure the property will meet your investment goals. Don’t let the “exclusivity” of an off-market property cloud your judgement; if the numbers don’t make sense, walk away.

In summary, off-market properties rarely offer the kind of deals investors expect. While they can sometimes be valuable in specific circumstances, most of the time they are simply another marketing tool to test the waters. The key is not to get swept up in the idea of an exclusive deal but to focus on finding a property that makes sense financially, whether it’s listed publicly or not.