02 May Off market opportunities and traps – Michael Yardney
What is the secret behind finding ‘off market properties”? As the name implies, this type of property is one that is not listed for sale and as such offers some unique opportunities and some obvious problems for investors. Michael Yardney takes us through the pros and cons.
Kevin: You’ve probably heard of the term off-market property, and as the name implies, it’s giving you the opportunity to buy a property that’s not clearly advertised, so therefore you may get it at a good price and you certainly won’t go into competition with a lot of other people.
But is it a reality? Are they around and is this the time for the property cycle when you’ll be able to pick one up? That’s a question I want to ask Michael Yardney from Metropole Property Strategists.
Michael, I know that you’re in the market looking at properties on behalf of your clients all the time. Do you really ever come across many off-market properties, and if so, how do you find them?
Michael: Good question, Kevin. The answer is yes but they fall into two categories. Most are really pre-market opportunities. We get the opportunity to inspect and make an offer on a property before it hits the Internet. It’s really not off-market but it’s that period of time when an agent has to get their plans drawn up to put on the Internet, get the photos done. What they’ll often do is ring their A-class clients first and then their B clients on their list, and then they’ll tell the other people in the office about it, and eventually it’ll go on the Internet, but that’s a pre-market opportunity.
And Kevin, there are occasionally true off-market opportunities where, for various reasons, the vendor doesn’t want to make the sale of their property public knowledge.
Kevin: Wouldn’t an agent like to take a property to market because – a couple of reasons – one, it gives them a chance to maybe put it in competition with a few buyers, but also it gives them some publicity, Michael?
Michael: Yes. A lot of agents would prefer that, and in many instances, it’s the best way to sell a property because it’s going to have competition. But interestingly, some agents are keen to make a quick sale because they have complete control of the sale.
Let me explain it differently. If they run it in a normal campaign, the listing agent may get the initial commission but then they have to share it with somebody else in the office who brings in the client. That’s why I suggested that for the first few days, they don’t tell other people in the office about it and they give it to their A-list of clients and have complete control.
Kevin: Michael, in that case I’d really have to ask who the agent is working for. Are they working for the buyer, or are they working for the seller?
Michael: Or are they working for themselves, Kevin? A good agent will take the property to market, under most circumstances, get the best competition they can, and in this market, in Melbourne and Sydney in particular, it would often be at auction where you get a lot of competition facing each other and getting emotionally involved. In other areas, it may be private treaty. But I agree with you, Kevin, that the best opportunity is when you get lots of people there.
On the other hand, as buyer’s agents, we love buying off-market properties. Not all off-market properties are good properties or at a good price.
Kevin: Do you do any prospecting yourself, Michael – in other words, go looking for stock before it comes onto the market?
Michael: Kevin, we tend not to ring owners or knock on doors and say, “Would you like to sell?” because we really want motivated vendors, because most people will sell if you offer them a high enough price. What we do is we wait for those e-mails and calls from agents.
We get offered off-market opportunities a lot.
David, one of my buyer’s agents who has been with me for 10 years but has been in real estate for 10 years beforehand, is continuously bombarded with off-market opportunities. 80% of the properties he bought last year were off-market, and 43% of the properties Bryce bought last year were off-market.
Having said that, most of the properties we see that are off-market we don’t buy, but there are a number of reasons why people do not want to go to the public arena, Kevin.
Kevin: What are they, Michael?
Michael: For example, older people. A lot of the properties we buy are older people where it’s a bit run down – because we like to add value – and they don’t want people traipsing through their homes. Others are not in good health and they’re in the position that they may be going into a nursing home. So often it’s older people who are just a bit intimidated by the auction.
Kevin: Any other groups, Michael?
Michael: Yes. Often we find people inherit a property and they get stingy. There are two or three brothers and they don’t want to pay $20,000 for the marketing campaign and the auction campaign and the photos, and they just say, “Just sell the property at any price.” And they’re usually doing themselves out of $40,000, $50,000, $60,000.
The other group that tends to be put off-market are ones that are in poor condition, that are not well-presented, with a tenant with two big dogs, or that are totally cluttered and most people can’t see through that to see the opportunities there.
There are definitely some properties that are available on a pre-market or off-market opportunity. The trouble, Kevin, is being top of the list to be called about those.
Kevin: Thank you, Michael Yardney. Good comment, and we’ll talk to you again soon. Thank you.
Michael: My pleasure, Kevin.