Why the Hell Would Anyone Sell Off-Market?

Posted by Travis Farese on May 26, 2021
Travis Farese
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Every year, approximately half of all multifamily property transactions nationwide are considered ‘off market.’ The term is broadly applied, but it typically means the property will undergo a transfer of ownership without an exclusive listing agreement in place or without a full marketing campaign.

 

This still puzzles some in the industry. After all, don’t listing brokers have broad networks they can leverage to ensure the broadest possible customer base? Doesn’t the lack of a standard marketing campaign limit the appeal and viability of the asset? Does it lead to a discount?

 

Answers in order: Maybe, in certain cases; not really, no; and no, absolutely not.

 

In fact, the seller typically benefits handsomely in this arrangement. That’s just one reason why half of all deals follow this pattern—and while it doesn’t get talked about much, this has been happening for a long time, and may even be gaining in popularity.

 

Let’s go further: There are many firms that only buy off-market. They simply don’t like the complications associated with the traditional brokerage process, and don’t want to get into a bidding war on broadly marketed properties. They’ll pay top dollar, but want to close quickly. It’s also an open secret in the community that some equity partners don’t allow acquisition fees for marketed properties. And through all this, many top brokers sell pocket listings on a regular basis.

 

All in all, there’s absolutely no evidence that staying ‘off-market’ leads to price cuts. On the flip side, avoiding the listing process means no brokerage fees. That’s more money in the seller’s column.

 

So how does all this happen, and why does it still seem outside the mainstream?

 

First, understand that a traditional broker listing may bring a larger audience, but it’s not necessarily a better audience. Many in the larger group are ‘tire kickers,’ and some may be seeking confidential information to educate themselves, or help their own efforts elsewhere. It can delay and even impede the transaction process, as well as the closing.

 

Even the term ‘off-market’ is misleading: In the digital era, most of the information previously available only to a select few is now out there for everyone. That makes a traditional marketing campaign irrelevant.

 

We should know. At Offerd, we’ve pioneered the Acquisitions-as-a-Service (AaaS) model—we work with our partners to find assets that best suit specific criteria. To do this, we track not only listed properties but also 90,000 ‘off-market’ assets around the nation. We analyze data related to occupancy rates, demographic changes, personal incomes, home values, population growth forecasts, jobs proximity index, school proficiency and much more (over 10,000 different categories in all), across many geographic areas from the county to the zip code, and even to the census tract or block group.

 

By using this detailed knowledge, sophisticated technology and extensive experience, we can identify the best multifamily properties in the best locations—no discounts or underhanded tactics, full discretion, the ideal match between buyer and seller. As an integrated extension of the acquirer, Offerd is fully involved in every aspect of every deal, from preliminary search to evaluation, negotiation, closing and often beyond, as an investor in the deals we source for our partners.

 

It’s ideal for the seller too. We ensure that the multifamily property owner sees much less friction—no wasted marketing campaign, no unserious buyers, no visits from strangers touring the property (this often upsets tenants and/or management), no invasive access to financial records, no extended marketing and sales timeframe of three to six months. In our case, it’s more like two to three months. Every prospect is vetted, approved and engaged, with low overhead and no broker fees. The work is done before investors even start searching, and the entire process is undeniably faster and cheaper.

 

Again, this is a dynamic discipline perfectly attuned to the times. More than just ‘off-market,’ it’s the advanced incarnation of Principal-to-Principal (P2P) transaction: direct, pain-free and ideal for the modern acquisition environment. And isn’t that what principals want when transacting—to work directly with another principal?

 

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