There are fewer homes for sale on the market than ever before, but there are still good deals to find when you know where to look. 

A big mistake that many investors make is thinking that the MLS (multiple listing service) is the only place to look for homes for sale. The truth is that a growing number of buyers and sellers are doing transactions off-market and without paying a hefty real estate commission.

Here’s a closer look at how off-market properties work in case you’re interested in finding investment opportunities that are not on the MLS.

What is an Off-Market Property?

An off-market property – also known as a pocket listing or off-market listing – is a property for sale that is not being marketed to the general public. The first reaction of many people is to wonder why on earth a seller would try to “secretly” sell, but there are actually plenty of good reasons for buying and selling off-market properties.

Better deals

The first reason is to save money on commissions. 

Although real estate commissions are always negotiable, when you list a property for sale the traditional way on the MLS sellers usually pay a sales commission of 6%. With a normal commission split, half of the sales commission goes to the seller’s broker and half to the buyer’s broker. 

According to Zillow, the typical home value of homes in the U.S. is $287,148 (May 2021). The typical seller would pay a real estate sales commission of over $17,200. That’s an awful lot of potential profit to lose and money that could be better spent investing in more real estate. 

To save money on a sales commission, a growing number of homeowners and rental property investors are turning to online real estate marketplaces such as Roofstock, where the sales fee is 50% less than what a real estate agent would charge.

Private transactions

Another reason for buying or selling off-market properties is confidentiality. 

When you list a property on the MLS, everybody and their brother knows that your house is for sale, the asking price, and details like the age and size of the home, recent updates or needed repairs, and your property taxes. For normal homeowners who are selling to another normal homeowner, the more people know about the home the better. 

However, for people who value privacy and confidentiality, off-market property listings can make perfect sense. Celebrities and athletes obviously don’t want anybody and everybody looking at their houses. 

The same thing is true for real estate investors selling rental property. The main reason that investors buy homes is for the rental income. If a tenant knows you’re selling, they could be more apt to try to break the lease or stop taking good care of the house, which in turn lowers the home’s value and the price you’re likely to get. 

By selling and buying a property off-market, sellers can target the most qualified buyers, and buyers can avoid dealing with inexperienced listing agents who don’t understand investment real estate. 

Pros and Cons of Buying an Off Market Listing

While there are some potential drawbacks to selling or buying off-market properties, there are also some distinct advantages as well:

Pros of off-market properties

• Save money by paying a lower sales commission (or none at all if you choose to forego using any agents).
• Avoid having to deal with things like open houses and home staging that could waste valuable time and money.
• Transaction remains out of the public eye providing buyers and sellers with complete confidentiality and privacy.
• Target only the most qualified buyers when selling rental property to a global network of real estate investors.
• Tenants’ rights in turnkey rental property are respected with off-market property listings, helping to maximize the value of the home for sale.

Cons of off-market properties

• Limited exposure of not listing on the MLS may be a drawback for sellers who want to market their listing to the general public.
• More difficult to create a bidding war when you are marketing a property only to qualified buyers.
• Off-market property listings have been effectively banned by the National Association of Realtors (NAR), although you can still let real estate agents know about your interest in selling.
• Agent-assisted home sales sell for more, according to NAR research, although about 50% of the sellers surveyed who did not use an agent also said they did not actively market their house for sale.

Where to Find Off Market Property Listings

One way to try and find listings that aren’t being marketed to the public is by speaking with a real estate agent. Although the NAR technically prohibits REALTORS® from taking off-market property listings, they might still know if something is available.

While there are more commonly known tactics to finding off-market deals like direct mail marketing, auction websites, REOs, and short sales, there are several other ways to find off-market properties: 

1. Property management companies

Houses and multifamily properties taken care of by property managers are owned by real estate investors who might be willing to sell. 

The management company already knows the property condition, the tenant, and the financial performance of the home so that you know if the property is a good match for your investment objectives.

2. Real estate wholesalers

Professional real estate wholesalers spend their entire day finding undervalue property, estimating repairs, putting the home under contract, and assigning the contract to a real estate investor such as yourself. 

One of the biggest advantages to buying a wholesale property is that even after the money has been spent on repairs and updating, the house should still be below fair market value, creating instant equity for an investor.

3. HomeQT pocket listings

Pocket listing services such as HomeQT are an online option for finding off-market properties for sale. The website lists property for sale that is not on the MLS and facilitates communication between property owners and sellers. 

While the site may be a good place to look for private listings, the drawback is that you can’t complete the entire transaction online, which is a distinct disadvantage for remote real estate investors.

4. Roofstock Marketplace

The Roofstock Marketplace is the #1 website for buying and selling rental properties and investment real estate. Single-family homes and smaller multifamily properties are listed for sale on Roofstock. 

Many properties listed on their marketplace come with inspection reports, neighborhood ratings, and financial pro-formas to help you evaluate and compare properties.

The site also offers real estate portfolios to diversify rental property investments in a single transaction. 

Is An Off Market Deal Better Than The MLS?

For real estate investors, the fact that off-market properties are not listed on the MLS could lead to better deals when buying and selling. Because few people know about an off-market property listing, both buyers and sellers have more time to negotiate a better deal. 

Oftentimes a seller will receive an offer above the asking price from an inexperienced buyer from the MLS, only to have the deal fall through at the last minute because the property didn’t appraise for the sales price. On the flip side, off-market properties give both parties the ability to work through contract contingencies and structure the transaction to avoid unexpected surprises. 

Also, the fact that a property is being sold off-market could be an indication of a unique opportunity all real estate investors look for since fewer unqualified buyers are aware of the listing.

On the other hand, some potential buyers may not feel comfortable dealing directly with the seller. The negotiations, due diligence, and closing could be more drawn out without paying a real estate agent. 

However, investors who manage their rental properties through Stessa can quickly and easily generate financial reports (such as income and net cash flow statements) to help a sale go more smoothly. 

Final Thoughts

Off-market properties can offer a number of key advantages to both buyers and sellers compared to traditional listings on the MLS. Listings are private, which means there is less competition from unqualified buyers and both parties can take the time to put together a deal that makes sense.

Investors also benefit from the confidentiality of doing a deal away from the general public, since tenants are not disturbed by real estate agent showings or strangers knocking on the front door.