The Dangers of Off-Market Sales
Some real estate agents love to sell homes without putting them on the market. This makes a lot of sense from the agents’ point of view for at least two reasons. First, they avoid the time and expense of marketing the house. Second, selling homes off-market dramatically increases the chances that the agents will get the commission from both sides of the transaction because they may be the only ones aware of this new “secret” or “pocket” listing. Even if the agents inform some other agents of the home, they are only reaching a small portion of the potential buyer pool.
As a real estate attorney, I never understood why people were willing to sell their homes without full exposure to the entire pool of potential buyers. While the temptation of a quick and easy transaction, especially in conjunction with a high price relative to what they paid for the home, may entice some sellers, these sellers likely do not realize how much money they are leaving on the table. To make matters worse, some agents actually lure potential sellers with this promise of a quick sale and they neglect to fully explain the downsides. For some reason, I have perceived a recent increasing trend of homes in Menlo Park selling off-market and I find myself wondering whether these sellers have actually received fair market value. I suspect that long-term residents may be more susceptible to agents who try to convince them to sell off-market because these sellers find it hard to believe how much their property value has increased over the past decades.
Nevertheless there may be specific circumstances under which the benefits associated with an off-market sale could outweigh the probability of a lower price. For example, some sellers have a strong desire for privacy and they do not want people to know that they are selling the property. Another example is when the sellers have already identified the buyer, and they will avoid commissions. If the commission savings is more than the difference in price, then it might make sense to sell off-market if a fair market value is determined.
As the top real estate team in the country, DeLeon Realty has access to one of the strongest networks of potential buyers in Silicon Valley. Yet we still think that most sellers would achieve a higher price by maximizing exposure. It is hard to imagine that individual agents could somehow bring about a better result without fully marketing the home.
If the sellers decide to pursue an off-market sale, they should request a written list of all steps the agent took to get the word out. This should include a list of all agents and potential buyers who were notified of the listing. Additionally, the client and agent may want to consider other opportunities to promote the property on a limited basis. For example, there are several private real estate “clubs” or networks in the area such as Producers’ Forum or Top Agent Network. Although these clubs do not provide as much exposure as the MLS, they are better than nothing.
Before entering any off-market contract, it is advisable that sellers speak with a qualified residential real estate attorney to make sure that they are not making a mistake.
Buyers, on the other hand, should be very open to off-market sales. They often represent good value opportunities and the reduced competition creates an environment in which sellers may be willing to demonstrate increased flexibility. When choosing a real estate agent to help with the purchase of a home, one of the factors that should be considered is the agent’s ability to uncover off-market listings. Although listing agents owe a fiduciary duty to their sellers and should be working to achieve the highest price, the buyer’s agent owes no similar duty to the seller.
