Stump the Stammtisch: Why do an off-market deal?

This question came to me from Sophie, a very avid reader of both theFrontSteps and the sfnewsletter. I’m hoping we can provide some insight.

Dear Alex,

I’m very puzzled by something that happens more often than I can understand in the SF market.

Why would ANY party agree to an off-market deal? (VIP houses put aside.)

I dont get why the seller would agree to sell to the first [buyer], without trying to get more? And of course, the trick question of “one agent, or two agents in the deal?” If there is only one agent, you could badmouth that the agent gets the whole 6% without having to work? But if there are 2 agents, why would they agree not to put the sale out? Or is an off market deal hiding some % [of the] commission “arrangements”?

And to [expand on the topic]- are some properties sold FSBO in a deal with NO agents at all? Who would even consider to do so? [Taken out to keep the flow of this question.]

Anyway. WHY? I can understand the part of fixing/painting/staging yourself. I could understand the part of FSBO in some market out of San Francisco. But I can’t figure out the off-market deals.

Further more – do your ‘pocket listings’ cover this? If not – what is a pocket listing, and why should a seller learn about the option, and why should a buyer keep his ears open?

Holy hell Sophie, great questions. Lost me on a few of the tangents, but I think I got the gist. I’m hoping some other Stammtisch members will add their take in the comments. Me, I’ll do it here.

“Why would any party agree to an off-market deal?”

-The list of reasons for this could stretch a mile long. Some of the biggies for a seller: They might have to sell; They might like to sell to a friend/family member; The seller might have an amount they’d be willing to accept regardless of whether the home is on the market or not, and if they get it, they’re happy; The seller might not want to deal with marketing, painting, staging, open houses, hundreds of people walking through their door, moving to a rental in order to sell, renting storage for “clutter”, etc..

Some of the biggies for a buyer: Not having to compete with other buyers; Ending their house hunt and moving on; Feeling like they get a deal that is not available to anyone else; Getting a good price; buying from a friend; etc..

“If there is only one agent, you could badmouth that the agent gets the whole 6% without having to work?”

-Often one of the biggest reasons and something many people tend to forget with all transactions, COMMISSIONS ARE TOTALLY NEGOTIABLE. If an agent is representing both sides, they might do it for 4%..or less depending on many circumstances. To say there is no work involved is ludicrous. Often representing both sides is more work than representing one side and certainly much more “legally challenging”…meaning you have to protect the interest of both the buyer and seller and that can get tricky. Typically, if I represent both sides, I’ll often do it for 4-5%, and trust me, I earn every penny…IMO.

“Or is an off market deal hiding some % [of the] commission “arrangements”?

-It could, and this could be at the request of the buyer and seller.

“And to [expand on the topic]- are some properties sold FSBO in a deal with NO agents at all? Who would even consider to do so?”

-Many are. See reasons above for seller and buyer, and add to that saving on paying a commission.

“Furthermore – do your ‘pocket listings’ cover this? If not – what is a pocket listing, and why should a seller learn about the option, and why should a buyer keep his ears open?”

-Yes and no. Pocket listings are properties that an agent usually has an agreement with a seller to sell off the market. That usually means the property will not be in MLS, but it may be on agent or broker websites, and the agent is certainly trying to procure a ready and willing buyer. That often means telling other agents at other offices. It’s often a type of “Sure, you can sell my house if you get this price.” The seller is not willing to commit to an active listing, or doesn’t need/want to sell, but is willing to give an agent a shot at selling it, and would be happy to sell it should the opportunity present itself.

-A seller should learn about this option to satisfy any of the reasons stated above and know that typically great deals can be had as pocket listings. Some money could be left on the table, but a handsome profit could also be gained that might not happen on the open market.

-Buyers should keep their eyes out for these as they are not advertised or known on such a large scale as it would be on MLS, and they might just find the home of their dreams and satisfy any of the reasons stated previously, and usually that means not having to compete for the property with other buyers.

-We’re currently working on getting more agents to post pocket listings in one place (either here or on sfnewsletter) , but it ain’t easy, so tell the other agents you know to get in touch with us if they have one.

Hope this helps. I’m sure I missed a few things, but maybe my colleagues can add some insight.

9 thoughts on “Stump the Stammtisch: Why do an off-market deal?

  1. sophie,

    great questions, i currently have an “off market”” home for sale that is posted on craigslistand somebody called to ask me very similar questions. typically, my business partner and i will take a listing from our client. unlike some agents, we tell our clients a price we think we can get for the house that is realistic (in other words, we don’t tell them we can get X, just to get the listing and lower the price in three weeks) and once the seller agrees to such a price, they are typically comfortable with accepting the first clean offer at that price. we often take listings that need some preparation including painting, staging, remodeling, etc. and all of that takes time and money. since we don’t want to enter that listing into the MLS immediately and start the “days on market” meter, we use other means to get the word out and we try to sell it while we are “preparing.”

    anyway, long story short(er), just as soon as we get the listing, we try to sell it, even if it’s not ready for the MLS. if we can generate a clean offer at the price our sellers are happy with, often times they are excited not to have to pay for all the listing preparation, happy they don’t need to leave every sunday for open houses and private showings, happy they got an offer and know it will close.

    if we do not sell our “off market” listings, we put them in the MLS and open it up to everybody that uses the MLS.

    not all sellers want to go about it this way, but if your agent brought you an offer with a price you’re comfortable/excited with AND you don’t need to deal with the hassle or spend the time and money getting ready to go to market, wouldn’t you accept the offer and avoid the uncertainty of what may happen once on the open market? ultimately an early offer is more valuable because there is less time and money spent for the seller.

  2. Sometimes the margins are too thin. A buyer bought, decided they don’t want, and the likely price that the property will command does not support a 5%- 6% commission. The buyer wants to sell and at least make SOME money. That’s one reason to try to sell without an agent.

  3. Yea kenny..

    Great answer and great reason. In this inflated SF hot over the top market, lots of great houses will sell without an agent..or two…just cause theyre great houses and priced right.

    a little paperwork and cell phone hell isnt worth 6%..in my opinion.

  4. thanks guys.

    I’m glad I didnt learn anything new (I feared I was missing something) – but Alex and Garret, you make it clear it should not be overlooked either way.

    Another example of offmarket deal: a contractor drives by a property and makes an unsolicited offer with money on the table.

    ———————

    side question: when it’s a pre-MLS sale, we could assume the MLS is updated for historical records. But I guess some deals stay completely off the records [but the city paper catalogs]? Will this have any impact (+ or -) for a future transaction on the property?

  5. sophie, here is my side question answer:

    entering the sale into the MLS after an offer was accepted is a bit tricky . technically (and not all agents know this), a sale cannot be entered into the MLS unless certain documentation was completed by the agent and the seller. some agents want the sale to be entered so that they get “credit” for the sale. some folks (mostly agents) want the sale in the MLS to use for comp (comparable) purposes, but if an agent sells a home outside of the MLS, does not fill out the proper paperwork and still enters the property in the MLS, its an unethical act and is pretty self serving. so, to answer your question, not all pre-MLS sales are entered into the MLS and for those that are, only a fraction of them are supposed to be there.

    On a different note, the city records are always updated (though in SF and many cities, this is a slow process and not always accurate). when the deed transfers, it is recorded in the county recorders office and it becomes public record. hope that sheds some light…

  6. I’d add that if you have a good attorney and aren’t afraid of a little leg work; and have some common sense; the savvy seller can list their home on CL and hold an open house in an attempt to drive traffic and sell their house FSBO, not on MLS. This is a competitive market and a lot of buyers are already doing more than their agents in looking for properties anyway. Your agent is NOT looking on craigslist for you, so you should be if you are in the market. Nice properties come up there all the time as FSBO and never see an agent. Again, there are a LOT of buyers and everyone is looking for some edge. Listing your house on CL and factoring in the agent discount can actually garner a lot of traffic and maybe even a multiple bid situation. you just have to know how to deal with this situation. Best to also have a set of doc’s and legal help in advance to make sure you get clean offers or can work inteligently with a contingent offer. Most any agent will give you a standard offer sheet that you can copy and provide to your prospective buyers. You’ll also need a disclosure package. This is all pretty standard stuff and for a little effort you can save yourself a lot of work. Also if you do all that and are smart, and you ultimately end up working with an agent; having all of that documentation in hand will help you negotiate your selling commission down since all you really need them to do is put it on MLS.

    That said, a good agent can earn their commission if they work really hard. If you do unsuccessfully attempt FSBO and feel that it didn’t sell cause you didn’t get an audience (i.e., not becuase you priced it too high or have lousy ‘presentation’. Make your agent list the house at your list price + their commission price.

    Good luckto all!

  7. I totally agree with Eddy here. You can use craigslist to your advantage. Side note: I used to work with Craig Newmark. What a nice guy. Hard to believe he created a global phenomenon.

    Although I am an agent who scans craigslist regularly, many don’t. That said, and Dave’s recent find (still want to know where it is!) notwithstanding, craigslist has unfortunately been perverted by a bunch of chumps in the last year to year and a half. Too many agents fishing for clients. Too many scams. Too many out of town properties with little appeal. It’s a shame. It really used to be a great resource. I have done about four deals off craigslist. I once got a two unit fixer in Noe for 750K off craigslist! With permits! Nowadays it’s maybe one good property every other week, and most people don’t have time to separate wheat from chaff like that.

  8. I think garrettG said it best. There is considerable “hassle”, inconvenience, stress, and uncertainty that goes with selling your property. Obviously, every seller wants the highest price possible. They want the highest price possible in the shortest amount of time with the least amount of hassle – that is the ultimate goal of every seller.

    Sometimes, the “least-amount-of-hassle” takes over in the seller’s mind and takes precendence for any number of reasons – the seller (in fact ANY seller) would MUCH rather have an agent bring a buyer that is willing to pay the seller’s price rather than having weeks of open houses, staging hassles, cleaning and preparing property, carrying the mortgage payment on 2 homes or paying 1 mortgage payment and paying rent simultaneously, etc…

    The other reason off-market sales happen is that the property is getting prepared to being brought on the market and it’s sold BEFORE it gets on market (e.g., agent A tells some select group of agents or they may have some buyers already lined up, etc.)

    My 2 cents

    MC

  9. as it happened, I know of one property that sold off market since my question.
    the elderly owner died and the neighbors sent a nice polite letter requesting consideration of them buying the property.

    For sake of fairness – an agent was brought in to look at the property, talk to the potential buyers, compare with his list of potential buyers/current market and facilitate the transaction at the original price (the neighbors had done their research and offered a decent price – they were very motivated to close the deal). Closing price was potentially not the best possible, but knowing that closing would be a done deal pricewise and timewise, property never got ON the market. (zero staging was needed. The buyers paid the staged price regardless of picture frame shadows on the wall etc)

    For another property close by, that property’s neighbors also made an offer but the agent couldn’t make it work out – so property went on the market and sold about 40% higher than the neighbors offer.

    so it can go either way.

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