Is Off-Market Property a Good Investment?

Buying off-market property refers to purchasing a property that is not listed on public real estate websites or multiple listing services. These properties are usually sold through word of mouth, private networks, or real estate agents. Buying off-plan property can be an excellent investment but it can also have its potential pitfalls.

Off-market property vs off-plan property

Off-market property is property that is not on the open market i.e., not openly listed as being for sale. Off-plan property is property that is sold before it is completed. Purchasers, therefore, buy it based on the plans rather than the finished product. Both off-market and off-plan properties can deliver good returns. They are, however, very different markets.

Why sellers choose to sell off-market

There are several reasons why sellers might choose to sell off-market. Probably the most common ones, however, are privacy and convenience. Sellers who are particularly concerned about security are unlikely to want to have their property shown on the internet. Even if they’ve left it, they might not want to give out any clues about their lifestyle.

Sellers may also want to avoid the hassle of routinely staging properties for public viewing. Real-estate agents will, generally, qualify buyers before showing them a property. In practical terms, however, this typically just means that they ensure the buyer is serious.

When a property is off-market, the seller or agent can qualify potential buyers much more rigorously. This means that buyers are only likely to get to see a property if the seller/agent is confident that they will buy it as long as it is confirmed as described. This is a much higher standard. Using this approach, therefore, cuts down on the number of viewings. (It also improves security).

Pros of buying off-market property

The key potential benefits of buying off-market property include access to exclusive properties, less competition, more negotiating power and more privacy for buyers and sellers.

Access to exclusive properties

This is probably the headline benefit of buying off-market properties. Run-of-the-mill properties are very rarely sold off-market. They are rarely worth the effort an off-market sale requires.

This means that off-market properties tend to be at the premium end of the market. They may also have distinctive features (that may feed into the seller’s desire for security).

Less competition

The whole point of marketing is to generate sales. It, therefore, follows that the less marketing you do, the harder it is likely to be to make a sale. Off-market properties, literally by definition, have less marketing than properties on the open market.

This means that fewer buyers are going to be aware of them, hence there is less competition between potential buyers. Per the laws of supply and demand, low demand often leads to lower prices. It, therefore, favours buyers.

More negotiating power

This follows from the previous point but there is more to it. Sellers have to make an active choice to sell off-market. They do so for a reason. This reason could become a negotiating point. For example, say a seller was particularly concerned about security. You could make an offer that specifically addressed their concerns (or at least some of them).

More privacy

The internet has brought many benefits, especially for the real-estate market. At the same time, it’s also brought privacy concerns. There are many reasons why people might prefer to avoid being featured on it in any capacity. There are particular reasons why people might prefer to avoid highlighting where they live and/or how much their home is worth.

Cons of buying off-market property

The key potential downsides of buying off-market property include more limited options, high prices, dealing with less motivated sellers and having issues with private sales.

Limited options

This is probably the most obvious downside of buying off-market property. Selling off-market is the exception rather than the rule. With that said, there is an obvious way to counter this disadvantage. That is to combine buying off-plan property with buying property on the open market.

You could diversify even more by buying in different markets. For example, in addition to regular open-market property, you could look at off-plan property and property sold at auctions.

High prices

There are three main reasons why you might end up paying higher prices for off-plan property compared to property on the open market. Firstly off-market property tends to be premium property. This means it's high-value property.

Secondly, off-plan property is often sold on more than just the bricks and mortar or even the location. There is often an element of prestige to owning it. This is factored into the price.

Thirdly, off-plan property can be hard to value accurately. Most property valuations are based on sales of comparable properties. Off-market property is more likely to have unique features. It’s therefore much harder to make fair comparisons with other properties in the area.

Less motivated sellers

People who choose to sell off-market generally understand the implications of doing so and are comfortable with them. This means that they are unlikely to be under any pressure to sell, or at least, no significant pressure.

They can therefore afford to be selective about potential buyers. They may also be in a position to turn down offers they consider to be too low.

In some cases, at least, there is also likely to be a higher risk of sellers changing their minds about the sale or at least its terms.

Issues with private sales

Owners selling properties without agents is certainly not unique to the off-market property sector. It does happen in open-market property sales too. It’s also worth pointing out that not all private sellers are difficult (just as not all real-estate agents are experts). Finally, it’s worth highlighting that not all off-market property sales are conducted by owners.

With all that said, however, selling properties without the use of agents is probably a lot more common in the off-market property market than in the regular property market. These types of sales can be challenging to manage. It can therefore be helpful for buyers to employ their own agents, especially if they are inexperienced with property (or at least off-market property).