Selling off market or on: what's the difference?

This post by Adelaide Polsinelli has been published on the 27 Feb, 2012 in Real Estate Weekly.

 

 

 

There are many ways to sell real estate today. The categories can range from open listings, exclusive listings, auctions, sealed bids, you name it. Lately, the news has been about "off market" transactions versus "market" transactions. Whatever method is used, it is generally done "on market" or 'off market." Here is a basic tip sheet to explain some of the pros and cons of each.

Sellers of real estate expect to utilize their brokers to secure the highest price and best terms from the largest pool of qualified buyers at any given point in time, from the industry's marketplace.

A "market" deal is a property that is placed on the market or selling arena. It is the easiest and most common way to sell property.

Most brokers automatically expose their listings to the marketplace. The marketplace is comprised of those who purchase a specific type of property in a certain location and in a targeted price range. The marketplace can realistically include thousands of potential purchasers.

Some of the selling techniques include auctions, sealed bids, and extensive advertising.

By creating a competitive environment, market forces will enable a broker to drive the price up to a level above where it would have reached through other methods.

The theory behind this approach is that by exposing the asset to a large audience, a competitive bidding will drive the price up. Bidders tend to get caught up in the frenzy of the bidding arena and overpay. This is usually achieved through the use of signs, advertising, direct marketing, etc. Any attention-getting methods should be used to get the word out that this asset is for sale.

 

In an unpredictable market, where pricing is volatile, "on market" selling is a suitable choice.

 

While this method works best in a competitive market, there are many purchasers who refuse to participate in auctions or the like; thereby narrowing the pool of potential bidders who may be instrumental in driving up the price. With a limited pool of buyers, it is questionable if you are getting adequate exposure to the "right" buyers.

 

Bidding arenas sometimes have a higher cost of admission with a lower success rate than that of an "off market" situation. Money has to be spent on attorneys, due diligence, engineers, architects etc. without any guarantees. Many buyers will shy away if they aren't sure they can be successful. This alone separates a large pool of bidders.

 

Some bidders will offer top prices merely to get into a strategic position from which they will ultimately chip away at the price through various excuses. If the seller returns the property to the market, it may be perceived as flawed and de-valued.

 

Placing a property on the market will cause a great deal of activity which will include possible disruption at the property. This disruption can affect the tenants, employees, vendors and service personnel. Learning that it is for sale can disturb rent collections, daily operations or instigate disputes. Some tenants tend to stray from properties in transition.

 

Some purchasers also tend to stay away from auctions, or other competitive sales methods. As one active buyer who no longer deals in auctions or bidding situations put it; "How do you congratulate yourself when you've outbid some of the smartest minds in real estate?"

 

This method describes the purchase or sale of investment property which takes place, or is negotiated, outside of a formal marketplace. The transaction is negotiated in a private environment that is controlled by the seller and or broker. When a property is said to have traded "off market", there is a certain secrecy or privacy about the transaction which is not for public knowledge.

 

There are many purchasers who only participate in "off market" transactions. While there are various reasons for this, the most obvious is so that the price is not driven out of control by speculators who may or may not be capable of finalizing the transaction.

 

The buyers who prefer "off market" trans actions will sometimes pay a premium for the privilege of receiving a private showing or first opportunity to bid.

 

In an "off market" deal all parties have more control over the privacy of the transaction. If the deal is complicated, has onerous terms, or is problematic, many sellers prefer to go "off market" to a handful of chosen candidates with experience in these issues.

 

"Off market" deals usually involve more qualified bids as well as higher bids in an effort to pre-empt an auction.

 

There are just as many purchasers who do not participate in auctions or competitive bidding environments. There is more certainty about the chances of acquiring the property "off market" than through an "on market" process.

 

At the same time, there are buyers who will try to pre-empt the deal from going on market so that they may benefit from an uneducated seller and secure a below market price.

 

Unless the seller and broker are certain of the market value of the property and can verify that the purchaser is paying a premium above that value, the price may not always be the highest achievable price if an alternate method had been used.

 

Some buyers will shy away from this method because they don't believe the owner is committed to selling.

 

In conclusion, knowledge is power. The better you know your seller, product and market the easier it will be to choose the appropriate method. Balancing both methods takes skill and expertise. An experienced sales broker will utilize both techniques by tailoring the marketing approach to the asset as well as the seller's tolerance for attention, exposure, privacy etc.

 

As one seasoned broker admitted, "You can have a very successful sale with just one buyer, especially if they don't know they are the only buyer!"

 

 

(The original article is not anymore available online )