Off-Market Sales Detrimental to Sellers Bottom Line

Mike Cooke May 30, 2018 Improvements

You want to sell your house. A friend or co-worker or a Nextdoor posting informs you about someone looking to buy in your area. The potential buyer looks at your place and wants to buy it.

This may sound like an appealing scenario. You can avoid the time and expense of hiring an agent, prepping your house for the market, having lots of buyers and their agents wander through your abode and other hassles of a normal home sale process.

Sellers choosing this private, off-market option, however, don’t realize that they are likely getting significantly less than full market value for their property. Sellers could hire an agent and put more money in their pocket at closing even after paying the agent fees … sometimes as much as 10% more net money to the seller.

In some very popular neighborhoods, more than 50% of all home sales may be happening in a private, off-market way. Large numbers of sellers may be leaving significant dollars on the table that should be in their pockets.

The experience of a seller recently represented by a CHR agent provides conclusive proof of this reality – names have been genericized to maintain client confidentiality and because we are not promoting a particular agent. Rather, we want to convey the concept of how sellers make the most money for themselves when selling.

Jane wanted to sell her house. She contacted John, a CHR agent she has known for a long time. She has used his services on other real estate transactions and wanted his help in selling her current property. She’s happy to pay his fee of 3% to handle the transaction.

Jane is not, however, delighted with the idea of paying an additional 2.8% in commission dollars to an agent working with a buyer. She asks John if there is any way he can find a buyer for her house without putting the house in the MLS and without having to pay a buyer’s agent. That way, she’d save $9,800 in commissions on her $350,000 asking price.

John told Jane that an “off-market” sale was possible but not advisable. By being in the MLS and paying agents to bring in their buyers, she’d probably net more money even after paying the fee of the buyer’s agent.

Nevertheless, Jane wanted to try to find a buyer without using the MLS and John agreed to give it a shot. Three weeks went by with no results. The for-sale sign in the yard along with targeted internet promotion and other marketing efforts by John had generated just two phone calls and no showings.

Jane decided it was time to go all in and agreed to submit her property to the MLS even though this obligated her to additional commission dollars.

Here property went into the MLS on a Friday morning. By late Saturday afternoon, she had 71 showings, 13 offers and went under contract for $398,000! The buyers agreed that they’d complete the purchase even if the appraisal came in lower than the contract sale price.

Let’s do the math. Imagine Jane sold had snagged a buyer at her $350k asking price without having to pay a buyer’s agent. She’d owe $10,500 in commissions to John and would have $339,500 left over before paying off her home loan and other expenses of selling.

In contrast, being the in the MLS obligated Jane to pay a few bucks over $23,000 in total commissions at her eventual sale price of $398k. Her net bottom line before other expenses and loan payoffs was right at $375,000 … an increase of $35,500 in her net proceeds!

What happened with Jane’s house is not an isolated incident. We can tell innumerable similar stories.

In any market, houses achieve their highest sale price when exposed to the broadest possible universe of buyers. Since 91% of buyers use an agent to assist with a home purchase, sellers must reach this important audience to attract the best and most motivated buyers.

This is even more critical in today’s real estate market environment with an over-supply of buyers chasing an under-supply of homes. Real estate agents and appraisers can estimate the likely market value of a home using the traditional comparative market analysis approach. However, with so many buyers chasing after so few sellers, many buyers are willing to pay in excess of this theoretical market value for a property. In a sense, normal methods of estimating market value are underestimating true market value.

True market value is ultimately what a willing buyer pays a willing seller. A seller, however, will never realize that higher value without getting the word out to lots of buyers and giving them the chance to compete to become the next owner of the property.

The private off-market seller may find “a buyer” but does not give himself the opportunity to find the “highest and best buyer” – the most motivated buyer that offers the highest price.

Don’t leave 10% of your equity on the table. Find a competent agent you know and trust and tap into their resources to maximize the sale price of your property.