The multiple listing service (MLS) is a great place to find potential investment properties, but it's not the end-all, be-all by any means. In fact, millions of homes are sold every year without ever hitting the MLS or a single listing website out there.
They're called off-market listings, and they're a solid source for high-potential, bargain-priced deals when the open market seems to have few.
Are you looking for your next investment property? Here's what you need to know about off-market properties -- and where to find them.
What are off-market listings?
Off-market listings, also called off-market properties, non-MLS listings, or pocket listings, are properties that the owners are willing to sell, but not outright marketing for sale on the open market. These listings may or may not have a real estate agent attached.
Homeowners have a number of reasons for not marketing their properties. They might want:
- Privacy: The need for privacy is one of the biggest driving factors behind an off-market property. The sellers might be dealing with a divorce or financial issue they don't want publicized, or they could want to keep a low profile due to their names or line of business.
- To create the air of exclusivity: Keeping a home off-market can also create a feeling of exclusivity -- like it's a well-kept secret that only a select few know about. In a seller's eyes, this may justify asking a higher price point than they would get on the open market.
- To gauge interest and test the waters: In some cases, homeowners just might not be sure whether they want to sell. Opting for an off-market listing can help them gauge potential interest in the property before marketing it more widely.
- To save on agent commissions: Since pocket listings don't require any marketing or advertising, they're less work on the agent's part. This might qualify sellers for a lower commission or even a commission refund.
- To reduce foot traffic: Many sellers simply don't want all the foot traffic and attention that comes with listing on the open market. They aren't interested in constant showings or open houses, and they don't want potential buyers traipsing around their property at all hours.
Sellers may also be looking for more control over the deal. With off-market properties, homeowners generally have more say in the timing of the sale and how the entire transaction proceeds.
Why buy off-market listings?
From fewer competitors to easier negotiations, off-market properties offer a slew of perks for buyers and real estate investors. They're not perfect, though, and there are a few drawbacks you'll want to factor in before seeking out a pocket listing yourself.
Here's a quick look at both sides of the equation:
The pros of off-market listings
- Less competition: Since off-market properties are lesser-known, you'll come up against fewer competitors along the way. Bidding wars are less common, too.
- More room for negotiation: Fewer competitors means an upper hand in negotiations, too -- especially if the owner is motivated to sell.
- Added supply in a tight-inventory housing market: If inventory is limited in your local real estate market, off-market listings can offer a much-needed bump in supply.
- Potentially lower property prices: Since competition is lower on pocket listings, you might be able to score a great deal. Reduced listing agent commissions might help your case, too.
- More flexibility: Off-market sellers are more likely to be flexible on timelines and in negotiations.
The cons of off-market listings
- Difficult and more time-intensive to find: Off-market properties aren't as easy to locate as homes on the open market. They take a bit more leg work and creativity.
- Seller may have unreasonable expectations: If the seller has their home off-market in an effort to build exclusivity, they might have an unreasonable price point in mind or be unwilling to negotiate.
- Your deal may take longer: Since the sellers weren't in a rush to sell the property, they probably don't have a move-up home just yet. In a case like this, you may need to wait for the sellers to buy a new property before your deal can go through.
Where can you find off-market listings?
Now that you know what pocket listings are and all the benefits they can offer you as an investor, it's time for the big question: Where exactly can you find them?
In general, your best bet is going to be local real estate agents -- particularly ones with deep connections within the community. Agents might have their own portfolio of off-market properties, or they may know other agents who do. Either way, they'll have a direct line to many of your area's pocket listings.
You can also try:
- Wholesalers: Wholesalers make a living out of finding bargain-priced properties they can flip to investors or qualified buyers.
- Checking public records: Public records can give you great insights into local foreclosure, auction, and short sale activity. These properties may or may not be listed on the MLS eventually.
- Driving neighborhoods: Drive around and see if you spot any homes that look in disrepair or distressed. The homeowners may be willing to sell in order to avoid foreclosure or financial hardship.
- Marketing to property owners directly: Consider sending out mailers in any neighborhood where you see potential. You never know when a homeowner may be willing to sell.
- Networking: Attending local networking events can also help clue you into potential off-market properties -- particularly ones where real estate professionals and brokers may be present.
Finally, tap your social network. Someone you know may be on the fence about selling their home, or they might have a friend or acquaintance who is. Put out feelers and let your network know you're on the hunt.
The bottom line
Off-market properties can make great real estate deals, so they're typically in high demand among experienced investors. If you want the best shot at securing one in your area, you'll probably want to use several of the above strategies at once. The larger the net you cast, the more likely you'll find off-market deals with real potential.
And if you're on the hunt for other real estate investing options that aren't on the multiple listing service, make sure to check these lists of government foreclosures and REO properties. These non-foreclosure options are great resources, too.
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