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In real estate investing, conversations often center around “the market.” We often hear terms like market value, seller’s market, rental market, on the market, and more.
But what about the term “off-market”? With so much focus on the market, what does being off-market have to do with real estate investing?
By consulting national data, current policies, and market trends, we’ll take a comprehensive look at off-market properties and determine the best way to tap into these near-secret real estate investment deals.
A property that is “off market” means that it is not publicly listed for sale. However, there’s a bit of nuance to the term depending on the context. It is important to understand how different people and platforms describe off-market properties.
On front-facing property search websites like Zillow or Realtor, a home is categorized as off-market when there is no for-sale data available.
Home search websites pull their data from the Multiple Listing Service (MLS), from real estate agents, from public records, and from sellers themselves (for sale by owner), but those sources can present an incomplete picture of what’s possible for sale.
So Zillow’s “off-market” categorization doesn’t necessarily mean a home is unavailable for purchase.
Investors often find the best deals by actively searching for properties beyond those listed on the MLS. Closing on a home purchase transaction that was never listed on the MLS is called an “off-market” deal by investors.
The implementation of the National Association of Realtors (NAR) 8.0 Clear Cooperation Policy means that traditional sales are almost always listed on the MLS. But there are instances where real estate investment deals can happen without a real estate broker listing the property on the MLS. We’ll discuss how to find these off-market deals below.
All active listings in the MLS must be available for showings by definition. If there’s a portion of time when the seller does not wish for their property to be shown, their real estate agent can change the status to “temporarily off-market”.
This status change does not mean that the property can be considered for an off-market sale, as far as investment buyers go. It usually just means that the seller is making some repairs, or perhaps they’re entertaining house guests on holiday. The seller is still in contract with their listing agent; they’re just taking a break from active showings.
Pocket listing is a term that’s sometimes used interchangeably with off-market, but the focus is a little different. Pocket listing usually refers to a property that’s marketed privately by a real estate agent. Rather than publicly listing the property on the MLS, the agent will try to sell it directly to clients within their brokerage.
The NAR 8.0 Clear Cooperation policy now prohibits agents from advertising pocket listings outside their brokerage, so with the right connections, these private offerings can present a great opportunity for select investors. (Hint: make connections with local agents so this can be you!)
Coming soon in real estate means the property is not available for showing or purchase for a designated period of time. Sometimes agents will first post a house as “coming soon” to generate interest.
Realtors use “coming soon” to avoid increasing days on the market. This strategy can be effective for luxury homes that typically take longer to sell.
With the scope and reach of the MLS, one may wonder why a homeowner would be motivated to sell off-market. Every situation is different, but here are a few of the more common reasons:
As with any investment decision, the advantages should be weighed against the disadvantages before jumping in.
Off-market properties can absolutely make good real estate investments, as long as a buyer does their due diligence. Investors need to be well-acquainted with determining fair market values, capitalization rates, rates of return, and after repair values prior to offering on an off-market property.
According to NAR data, 90% of homes are sold via the MLS, so finding good off-market properties isn’t easy.
Image source: National Association of Realtors, 2019
Given the scarcity of off-market properties, investors must utilize creative strategies to optimize their success. Often it’s best to employ a few different strategies at the same time in order to increase your chances of finding a viable off-market property.
When balanced with other investment strategies, off market properties can be an effective way to grow a real estate portfolio, especially in a hot seller’s market when traditional purchases can become more frustrating. Off market properties are not without headaches, but some additional work up front can pay off in big discounts at the closing table.
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