Every once in a while you hear about “pocket listings,” “in-house exclusives,” or “whisper listings” where a house sells off market and both the buyer and the seller are thrilled with the outcome. In an environment where houses are going to multiple bids and selling at generous premiums, the prospect of selling or buying a home without hitting the market sounds pretty compelling. However, despite the allure, happily-ever-after endings for off market sales are elusive.
The reasons sellers entertain off market sales are varied: sometimes sellers seek privacy, sometimes sellers want to test an aggressive price without accumulating days on market, and sometimes homeowners simply get a note in their mailbox.
The reason buyers seek off market listings is almost always because they cannot find a house on the open market and are hopeful they can buy something without having to compete.
While sometimes off market transactions sell without a hitch, more often both buyers and sellers struggle with the off-market approach. Here are some of the potential pitfalls.
Marketing (or lack thereof)
In 2019, the National Association of Realtors instituted a nationwide rule called the “Clear Cooperation Policy,” which (among other things) essentially prohibits off market listings from being advertised to the general public or realtor community. The nuances of the policy vary from market to market but in our market, agents responsible for off-market listings may only promote listings within their own firms, thereby significantly limiting the ability to generate widespread interest in a home. The end result to sellers? Fewer showings, fewer offers, and very often the house ultimately gets listed on the Multiple Listing Service after no one buys it off market.
Leaving Money “On the Table”
Unless the surrounding circumstances are extreme (you’re a celebrity, or you’re going through a life change you are reluctant to broadcast by publicly listing your house for sale) trying to sell off market usually means leaving money on the table. Without the ability to cast a wide net to potential buyers by listing on the MLS, off market listings rarely get competitive. In a market with so little inventory almost all new listings sell between 5-25% over asking price so there’s no reason not to list publicly and generate as much interest as possible.
Premium Paradox
Off-market sellers often ask a premium over where the market might be interested in their house, adopting a “make-me-move” mentality where they are largely indifferent to moving unless they get their inflated price. While on rare occasions buyers are willing to step up and pay a premium for not having to compete for a house, most buyers don’t want to operate in a vacuum and will often question the validity of an inflated price in the absence of competing offers. As a result, many off-market listings sit, eventually going on the public market at a lower price.
Lack of Urgency
In the absence of competing offers (or even competing showings) and because they are likely paying a premium for the house, off market buyers have a tendency to leisurely progress through a transaction. Whether in the form of numerous visits to the house, inspection-related requests, or general comfort that they can take their time, off market buyers often feel very comfortable making demands that they wouldn’t have the leverage to do in a competitive situation. This pattern almost always leads to the loss of goodwill and momentum and very often leads to one party walking away.
Cold Feet
Regardless of whether or not a house is on the market or off the market, very often buyers who are paying a premium for a house begin to question their decision at some point during the transaction. In an off-market listing this phenomenon is even more common because there are no backup offers to help validate value, and buyers begin to wonder if they are being stupid by paying whatever price they are paying. It isn’t uncommon for buyers to walk away from a transaction at the 11th hour, more often than not after going back and forth for weeks over contract or inspection items and asking for credits.
In light of the potential pitfalls for both buyers and sellers, it makes sense to talk to a real estate professional or a real estate attorney and walk through the pros and cons of an off market sale as they are rarely the dream sale they appear at first glance.
Amanda Bryan is a native New Canaan resident and full-time realtor serving New Canaan, Darien and Rowayton. After receiving her MBA and pursuing a career in financial services, Amanda pivoted to residential real estate 17 years ago. She is co-founder or Team Saxe + Bryan of Compass with business partner Christine Saxe. Amanda is the mother of 3 children, owner of too many pets and has a mild tennis addiction.
amandabryan(at)compass(dotted)com
