Selling off-market is becoming a new buzz term for the DC Real Estate industry. Many Real Estate agents are urging sellers to consider off-market sales or private listings. Is this a good idea for the seller or is it a strategy being promoted to reduce competition or yield higher commissions for Real Estate agents? Whether a seller is downsizing, upgrading, relocating, or just moving across the street, each scenario holds unique constrains for the seller, some logistical and some emotional. Choosing the best selling strategy is key for a home owner because choosing the wrong plan can cost the seller thousands.
Selling a house off-market means that the seller has chosen to accept an offer without the home being listed in the Multiple Listing Service (MLS) used by Real Estate agents. This may mean they have engaged an agent and that agent found a buyer without listing the property in MLS or the seller and buyer have come to terms without advertising the property for sale. Either method of off-market sales involves either limited market competition or no market competition. Competition in the marketplace is what drives price. When supply (in this case the house for sale) remains constant, but demand (in this case the number of buyers) increases, price goes up. The simple economics of the situation would say that the more buyers interested, the greater the price will rise. This is what causes “bidding wars” or “price escalation”. If not enough buyers know about the property, then they can’t express their interest, therefore artificially restricting demand. This is the main reason why selling off-market is not a good idea. It does not allow the property to reach it’s full market value.
An off-market sale can be beneficial when a seller is seeking specific or unique contract terms. If a seller is less price sensitive, but is very sensitive to other terms of the contract, then an off-market sale might be ideal. Some sellers need extra time to prepare to move, find a new home, clear out family memories, etc. Other sellers might be looking to sell a property as part of a group of properties being sold and need flexibility from a buyer. When these terms are crucial for a seller, off-market buyers can provide these, but usually want an advantageous sales price to afford flexibility in terms to the seller.
A private, or pocket, listing are terms used to describe an agreement that a seller signs allowing a Real Estate agent to market the property without using MLS, but still entitles the listing agent to a commission. Since this usually leads to an off-market sale, it has the same downsides for a below market sales price. In addition to this downside, the seller may not even save on commission costs. Most listing agreements include a stated total commission. For this example, we will say 6%. That same agreement will state that a portion, for this example, we will say 3% is provide to the buyer’s agent, but only if a buyer’s agent is present. If one agent represents the seller and the buyer is unrepresented, then the seller’s agent receives the full 6% commission. This yield’s a listing agent twice the commission for a nominal increase in the level of work. If this is the case for a private listing agreement, then the seller restricted the sales price potential and didn’t reduce his or her selling costs, therefor costing the seller thousands on the sale.
There are some scenarios where a private listing agreement is best suited for a seller. In addition to the benefits of an off-market sale, a private listing can be helpful for properties that are difficult to show or for properties with high-profile sellers. Private listings have long been common for celebrities and high-profile sellers that didn’t or couldn’t announce publicly that they intend to sell their home. Also, homes with elderly residents or residents with medical conditions, may benefit from private listings so that the showing restrictions don’t cause the listing’s days on market to give buyers pause.
In our opinion, an off-market sale and a private listing are best to be avoided, since a seller is in a greater negotiating position when demand is at it’s greatest. The more demand is restricted, the greater price is affected. While the biggest benefit of off-market sales is contract terms, this can sometimes be negotiated to the seller’s advantage when multiple buyers have made offers. Every situation is different, so consult a Real Estate agent that you trust and be upfront about the most important goals of your sale to see what strategy is best for you.