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The Rationale Behind the Off-Market Sale.

April 3, 2012 San Carlos Real Estate 4 Comments
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The Hot Topic.

As the inventory of homes for sale continues to be stuck at historic lows, and stories of multiple offers just seem to get crazier by the day, the specter of the “off-market” listing has created quite a buzz in the world of San Carlos real estate.    For those of you not familiar with the term, an off-market listing one where the home is listed for sale with a broker but not put on the Multiple Listing Service (MLS).  Instead, the broker tries to sell the home by quietly passing the word around his or her network of trusted agents.   With a market as hot as the one we’re in now, just about every agent already has a handful of well-qualified buyers, so it usually doesn’t take very long to have several anxious parties camped out on the front door.

The most common question I hear from buyers, aside from “Do you know of any off-market listings in San Carlos?” is this:  “Why would anyone want to sell their home off of the MLS with market conditions as hot as they are now?”   Aren’t they leaving piles of money on the table by not letting buyers beat each other senseless over their home?

The Reasons.

There are a number of reasons why a seller would consider selling off market that we’ve discussed before on this site, and one you may not have thought of…

In the past few years, the usual motivation behind selling a home off-market revolved around privacy.   The sellers may have been going through a divorce, or had encountered financial difficulties that necessitated the sale of the home.   They would just rather their friends and neighbors not know right away that they’re moving, and more importantly, why they’re moving.

In some of the more tony communities on the Peninsula, people of extreme wealth or celebrity cherish their privacy and simply don’t want every lookiloo trampling through their house with no intention of buying it.  But even at that rarified air, there seems to be a waiting list of extremely well qualified buyers lining up to get into Atherton, Palo Alto, and Los Altos Hills, so even homes in this price range get snatched up quickly in the off-market world.

But not everyone selling their home off-market is going through a contentious divorce (isn’t that redundant?), or is a Silicon Valley CEO, or both.   So why would the rest of those people sell off-market?   The answer can be found in one word:

eBay.

Not the company, but the pricing strategy.

“Buy It Now.”

If you’ve ever bought an item on eBay, you’ll often see that you have two possible avenues to purchase the product that you want.  The first avenue is the auction, where you throw your bid in and then watch your computer non-stop as the price gets jacked up to a much higher number by the countless others who want the exact same item.  Kinda sounds like a multiple-offer, doesn’t it?  Except with home purchases, you don’t often get the opportunity to increase your bid as the “auction” progresses, and you rarely get a last look.

The second avenue is simply to click the convenient “Buy It Now” button next to the item.  This allows you to skip the whole auction drama, and simply buy the item at a price that’s determined by the seller (usually a premium.)   The sellers gets a price that they’re happy with, and the buyer doesn’t lose 8 hours of productivity staring at their computer screen…unless they really like that kind of stress.

As strange as it may seem, the home sale process today in San Carlos is starting to mirror this type of sales model.

Price is Everything.

Back to the question posed earlier — Aren’t the sellers leaving piles of money on the table by selling off market?   The answer is no — IF the seller and agent have done their homework.   And the key to this lies in the fact that the price that the seller is asking off-market is NOT the same price that had it been put on the MLS.

Here’s a typical example:  The seller and their agent have determined that a good price to list their 3 bedroom home in White Oaks is about $900,000.   However, in this market they determine that it’s possible that demand may drive it up as high as $950,000 with multiple offers.  So they offer the house off-market at around $950,000.  The rationale?  The buyer can pay a premium to buy the house ahead of everyone else at a price that it may likely hit anyway.   The seller gets a premium and doesn’t have tolerate the hassle of having their home on the market, and the buyer avoids the stress of the auction environment.

Sounds kinda like eBay, right?

Know the Risks.

If it were this simple, why isn’t everyone doing it?  Well, with any strategy there are risks involved.   For the seller, no matter how thoroughly you do your homework, there’s always the possibility of leaving money on the table.  I can cite several homes that I listed last year that sold far higher than what I would have thought would have been a great off-market price.   You can’t forget that fierce competition has a way of delivering a home-run of an offer.

For buyers, it’s important that you and your agent thoroughly analyze the off-market asking price to make sure the premium isn’t so high that it simply doesn’t make sense.   It’s easy to get carried away in the pressure of the situation, especially if you feel that you have to “buy it now” or lose it.

The bottom line is that the euphoria of winning a home is always much shorter than the hangover for paying too much.
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Currently there are "4 comments" on this Article:

  1. Marky says:

    Chuck,

    any idea what happened with 1033 Walnut St? Was that an off-market sale? Seemed like it happened pretty recently and your blog didn’t tweet about it.

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    • I’m not familiar with that address as being a local sale – are you sure it’s not 1009 Walnut you were thinking of? That was a bank-owned property.

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  2. Marky says:

    Take a look at this: http://www.redfin.com/CA/San-Carlos/1033-Walnut-St-94070/home/802488

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    • From what I can tell by looking at the tax record, this was a private sale — quite possibly between members of the same family. Which is yet another reason, albeit an obvious one, why some homes are sold off-market. In the course of reporting any home sales on this site, I pull the information from the MLS, so it’s always important for the listing agent in an off-market transaction to load the sale information into the MLS to enable Realtors and appraisers to use that as a comparable sale. 1033 Walnut was not on the MLS.

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