“Off-Market” Home Sales: Trade-Offs for Sellers, Benefits for Buyers.

April 6, 2010

On the Rise

When a home is sold from one party to another without listing that home on the Multiple Listing Service (MLS), it's what we refer to as an “off-market” sale (it doesn't matter whether a Realtor is involved in the transaction or not).  And while off-market sales still represent a small fraction of the total sales in San Carlos, they happen more often than you might think.   Probably the most common example of an off-market sale is when a person sells their home to another family member.   For obvious reasons, there's no reason to list that home on the MLS.

But what about more “traditional” home sales that are conducted off-market?  For example, a seller enlists the help of a real estate agent to sell their home (to anyone) – but chooses to keep the listing off the MLS.  These types of sales have been on the rise recently, and it may seem perplexing at first blush as to why.   After all, why not take advantage of the red-hot market in San Carlos right now by getting as many buyers as possible competing for your home? Multiple offers are back, and some homes are fetching prices 5-10% above list when they go to multiple offers.

The Reasons.

There are many reasons why sellers choose to sell their home off-market, and they're all very valid reasons.  Generally, they fall under three categories:

  1. Privacy.    For a variety of reasons, the seller doesn't want it widely known that they're selling their home.  This happens quite often with very wealthy or famous homeowners in some of the more well-heeled communities.  But in this economy, hardship and adversity are more likely the primary reasons why sellers want the sale kept on the quiet.    Sellers who are forced to sell their homes due to prolonged unemployment, divorce, or some other hardship may not want to broadcast their problems to their friends and neighbors by putting a “For Sale” sign in their yard.
  2. Convenience. If you've sold a home before, you know what a tremendous pain-in-the-butt it can be to get your house ready for sale.   Cleaning, de-cluttering, and fixing everything is just the start.  Once it's on the market, you then have to keep the home spotless 24/7, and tolerate countless inconvenient intrusions while agents show your home to prospective buyers.   It's especially tough for those families with young children.  And then there's the broker's tours and open houses.   For some people, the convenience of already having a buyer lined up who is willing to buy the house “as-is” means they can skip much of that process.
  3. Strategic.    For some, selling their house off-market is a strategic part of a bigger picture.  This is especially true for “move-up” buyers who need to sell their current home before they can purchase their next home.   Since they don't want to end up in “limbo” by selling their current house before they find a replacement (and possibly not having a roof over their head), selling their home off-market may offer some flexibility so they can line up all of the transactions in the same time-line.  Another benefit is that having a buyer already locked up for their current home makes the conditional offer on the new home that much more attractive.

Trade-Offs for Sellers Means an Opportunity for Buyers.

Privacy, convenience, or strategic value may come at a cost to the sellers, though.   The basic laws of economics state that when you have more people competing for fewer commodities, the value of the commodity goes up.   So by forgoing the MLS, off-market sellers will miss the vast majority of possible buyers — and more important, the possibility of multiple offers.  Here's a perfect example:  172 Lyndhurst Avenue in San Carlos just closed escrow today at $950,000 after being listed at $899,888 — a 6.1% premium over list.  It fetched that premium for one reason — it had 11 offers.  This was a great home, but does it get a 6.1% premium if it's sold off market?  No way.

On flip-side of this argument, if a buyer is lucky enough to find a seller who is willing to sell their home off-market, it enables them side-step that multiple-offer madhouse and possibly latch on to the home they want at a decent price.

Do Your Homework.

There's an old saying in this business  — it's not the agent or the seller that determines the value of a home; the market determines the value.    If you're considering selling your home off-market, be sure to do your homework and make sure you have a pretty good understanding of what your home is worth in the current market.  You won't be able to distinguish a good offer from a bad one if you don't.  That same advice applies for buyers, too.

And beware of listing agents who are hell-bent on only selling your home to their buyer.  I can assure you that in this economy there are agents and brokerages who are far more interested in snagging two commission checks in one transaction by selling your off-market listing in-house…rather than trying to sell your home for the best possible price on the open market.

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