When Does it Make Sense to Sell a Home “Off Market”?

The short answer to that question is: “Not very often.”

That being said, there are certainly reasons why selling a home off-market is absolutely the right decision for a seller, and I'll discuss a few of them below. I just don't believe the reasons apply to the vast majority of people who are trying to sell their home. I've listed well over 100 homes along the Peninsula, and I can count the number of times I sold a home off-market on a single hand.

Before we dive into the topic, it's important to define what the term “off-market” means. When a seller enlists a Realtor to sell their home, the Realtor is obligated to enter the home on the Multiple Listing Service (MLS) within two days of the listing contract being signed by all parties, unless otherwise instructed by the seller. This rule is intended to prevent an unscrupulous agent from only showing the listing to his or her own buyers, or maybe just the agents in their office, and ensuring that the listing is seen by the largest number of buyers possible. So when a home is sold before it hits the MLS (or it was never intended to be listed on the MLS), it's classified as an “off-market” sale. For the purpose of this post, the terms “off-market” and “off-MLS” are interchangeable.

It's All About the Seller's Goals.

If you were to ask everyone who is selling a house, or even thinking about selling a house, what their #1 goal is, this is the answer you will most likely hear: “I want to get the highest price and best terms possible“. Fair enough… that's a good goal to strive for when selling what is most likely your biggest financial asset.

It is simply a fact that the best way to ensure that a seller gets the highest possible price with the best terms is to maximize the exposure of the property. Putting that listing on the MLS is the most important step to achieve that exposure for two main reasons. First, every licensed agent who has access to the MLS can see it and share it with their clients. And second, when a listing is entered on the MLS, it automatically propagates to all of the popular third-party real estate portals like Zillow, Redfin, Homes.com, etc..

The more people who can see the house, the greater the chance of achieving that goal. The data proves this beyond any doubt.

But what if there are other goals that are equally important to the seller that may preempt putting the home on the MLS? There are two big ones that I see, and they can both be valid reasons to eschew the MLS and move the listing to the off-market world.

Privacy and Convenience.

The main drawback to going the full-exposure route (listing on the MLS) is that your home will essentially be laid bare to anyone and everyone who has a smartphone with a real estate app on it. For a seller who has already relocated, they may not care who comes through the house, whether it's legitimate buyers, curious neighbors, or the normal lookiloos.

But some sellers view the full-exposure option as a major invasion of their privacy, especially if they are trying to live in the home while it's for sale. The thought of having all of their neighbors (who have zero interest in buying the house) traipsing through the open house by itself is a big enough reason for the seller to elect to sell their home quietly.

I listed a home last year in the prime flatlands of San Carlos, where this exact situation applied. The sellers were adamant about having no sign in the yard, no open houses, and most importantly, no neighbors trolling through their home. Their desire for privacy was more important than testing the market. In that situation, I connected with an agent representing a highly qualified buyer and negotiated a price that met my seller's goal.

Other issues, like marital or financial distress, can mean that selling the house quickly and quietly is more important than getting the absolutely top dollar.

Convenience is another reason that people sell their homes off-market. Even with the nicest, most updated homes, it takes several weeks to prepare them for sale when you factor in painting, cleaning, staging, and marketing, and then another few weeks of marketing them publicly before getting the first offer. This is even more pronounced with older homes in need of serious updating. So in certain situations, rather than investing significant funds and time to update the home, with no guarantee of a return on that investment, it may be in the seller's best interest to accept an early offer before going to market.

This is exactly what I did recently with another San Carlos listing. This particular home needed an entire cosmetic upgrade – the paint, floors, light fixtures, bathrooms, and kitchen were all overdue for an upgrade. The cost of just tackling the paint and the floors was knocking on $50,000, and it was going to delay the market launch by at least four weeks.

An interested party floated us a very attractive offer to purchase the house as-is, with no prep work required. We sat down and crunched the numbers, and when we factored in the questionable return on investment of the improvements and the delay in getting the house to market, the seller decided that it made more sense for them to forgo the market and accept that offer.

Private Listing Networks.

The growth in the number and popularity of off-market listings has given birth to Private Listing Networks (PLNs). A PLN is basically a list of all of the off-market listings that a brokerage has, but are not visible to anyone outside of the brokerage. The brokerage's justification for getting its sellers to agree to participate in these PLNs and forgo the MLS is that they can “test the market” without accruing any days on market or price history that would normally be tracked in the MLS, thus giving sellers some sort of “choice”. There are a few very large nationwide brokerages that are aggressively trying to grow their PLNs, and I am not a fan of the practice.

There is a LOT of controversy around the proliferation of PLNs, and their very existence is being fought in the courtrooms. The topic of PLNs is such a significant issue that it warrants and entirely separate article. I'll have a lot more to say about this in a future post

Key Takeaways.

Off-market listings have been and will continue to be part of the real estate landscape here in San Carlos and in every market in California. The practice is more prominent in the more expensive zip codes because high-net-worth clients generally value privacy over exposure. Here are some of the key takeaways regarding off-market listings:

• Sellers have a choice in how their home is marketed and sold.
• The tried-and-true method for maximizing the exposure of a home listing is to put it on the MLS and allow it to propagate to the multitude of third-party real estate apps.
• There are a few scenarios where it makes sense to forgo the MLS and sell a home off-market, but it only applies to a fraction of the market.
• The decision to forgo the MLS and sell a home off-market MUST align with the seller's goals and must be the best method to achieve those goals. It should be the seller's decision, not the listing agent's.
• The seller must understand the potential trade-offs of not getting full exposure for their listing.

I'll publish a follow-on article about Private Listing Networks in the coming weeks.