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Why Off-market Property Aren't Always A Good Investment

Why off-market properties aren’t always a good investment

In this blog, we talk about the pros and cons of buying off-market property, and why off-market properties aren’t always a good investment.

In the last couple of years, buyers would ask me about accessing off-market properties. Interstate buyers kept missing out on good Sunshine Coast properties – and prices were escalating very quickly – so they needed another avenue to access good properties with less competition. Off-markets were seen as the holy grail.

This was understandable in the competitive market conditions we faced particularly during the COVID period.

 

Why off-market properties aren’t always a good investment

‘Off-market’ involves purchasing a property that’s not widely publicly advertised. Selling agents will usually target individual buyers whose needs and wants match with the specific property,  and organise private inspections with those potential buyers.

Sometimes an off-market property is advertised on a selling agent’s website or are sent directly via email or SMS or word of mouth. But off-market properties are not advertised on major websites such as realestate.com.au or domain.com.au or widely publicised. Off-market properties are different to pre-market properties.

As a buyer’s agent, I still regularly see off-market opportunities flagged by selling agents (as well as directly by owners), but in reality only a small proportion of off-market opportunities can represent good opportunities from a buyers’ perspective. Here are three key factors to consider in determining if an off-market property is a real purchasing opportunity for you or not:

  1. Vendor’s motivation
  2. Benefits and risks of buying off-market
  3. Your motivation as the buyer

We cover each of these below.

1. Vendor’s motivation

The real motivation of a vendor to sell his/ her/ their property off-market will influence whether the property purchase will result in a fair transaction, or a bigger risk to the buyer of over-paying.  Vendor motivation can be broadly either:

  • Circumstantial or
  • Opportunistic

Circumstantial off-market property

This is when an individual owner’s circumstances may require their property to be sold without a big advertising campaign, for example:

  1. Privacy. The vendor may be a very private person and may not want a crowd of people, including the neighbours or total strangers, through their property (or it’s tenanted so need to respect the tenant’s privacy).
  2. Timing. The vendor might have already purchased another property with a 30 day settlement (which is the standard settlement timeframe in Queensland), so has a time constraint to sell which would impact running a normal full marketing campaign. Conversely, the vendor might plan to sell but not immediately – in which case their agent may recommend the property be put on the market quietly to attract a buyer who is happy with a long settlement period.
  3. Personal circumstances. A vendor may be going through a highly personal situation such as a separation or divorce or illness, so as such they don’t necessarily want to have the stress of a full marketing campaign happening for the sale of their property and people accessing their home while they go through this.
  4. Costs. The cost of advertising, staging, styling and photographing a property, as well as preparing a floor plan, etc can extend to many thousands of dollars. Many vendors may want to minimise or avoid additional expenses if they can.

Opportunistic off-market property

These are the off-market property situations where a seller may have high or unrealistic price expectations, and examples of these circumstances include:

  1. Not highly motivated vendors. Selling agents may encourage vendors who aren’t really that motivated or who have unrealistic price expectations to sell off-market, rather than pursuing a full marketing campaign if that may be unlikely to result in a sale.
  1. Stock levels. If there are a large number of comparable properties for sale, then there may be little value to a vendor of adding the property onto the market. This might only add to an already oversupplied market, thereby potentially further lowering sale prices.
  1. Quiet periods. Some selling agents may caution a seller against launching a full property advertising campaign at certain quiet periods of the year, and instead recommend an off-market approach (to potentially target an out-of-town holiday buyer for a property).

It is the circumstantial off-market opportunities that create genuine opportunities (or at least a market value transaction) for buyers. But often off-market properties fall in to the ‘opportunistic’ category.

2. Benefits and risks of buying off-market property

The benefits:

  • Less competition with other prospective buyers, so less pressure
  • Some potential to buy below / at the market (depending on the vendor’s reasons for selling as outlined above)
  • You can secure a property sooner than waiting for the right property to come ‘on market’

The risks:

  • As the buyer, you tend to be in the weaker negotiating position, especially if you don’t know the local real estate market well
  • Risk of rushing into buying the wrong property for fear of missing out
  • It is highly likely you’ll pay a premium / over the market value for a property to secure it (unless it’s a circumstantial sale)

 

3. Buyer motivation

Be really clear about what it is you’re looking for, your budget and your timeframe. It’s worth waiting for the right property and not making an expensive mistake that you may regret later by rushing into what may not in reality be a ‘good’ opportunity or quality asset. In addition, here are some key tips to help you make the right decision:

  1. Make sure you are clear that the off-market property is a quality asset before doing anything further. Do your due diligence on the property (or get someone to do it for you).
  2. Market value is critical – Do your own independent research on value by looking at recent comparable sales and  listings. Or talk to a local buyer’s advocate who can help.
  3. Remember that the selling agent only represents the vendor and their primary role is to achieve the highest price possible and most favourable terms for their vendor. They don’t represent you, the buyer.
  4. Consider engaging a buyer’s agent who is local and represents a buyer’s interests alone, to help you.
  5. Obtain an independent valuation to help you ensure the price is realistic for the property you’re looking to purchase.

Good luck, and if you need assistance with your purchase, we’re here to help and always on your side.

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