Finding “off market” properties

Savvy buyers know that finding properties with the highest return on investment potential often means researching and finding off-market deals. If you’ve been thinking about joining the ranks of investors taking advantage of hot fix and flip markets in your market and aren’t confident you know where to find the best deals or don’t know where to start, this should help.

Based on my experience, these are some of the best hacks used by people to find the best off-market deals in their market. While this certainly isn’t an exhaustive list, you’ll gain the insider’s view you need to get started in your search. Of course, if you don’t want to fly solo, that’s where we can help.

What Defines an “Off-Market” Property?

While the majority of sellers use a local real estate agent and the local Multiple Listing Service (MLS) to list and advertise their property to a wide pool of potential buyers and investors, this is not the only method of presenting a property for sale.

It is not uncommon for owners to market their properties off-market, making the decision to keep the sale of their property private for one reason or another. Sometimes called a “pocket listing,” an agent may represent the seller and their property, but they are not actively marketing the property online or within the MLS.

Off-market properties can also be in pre-foreclosure and not yet advertised publicly, or they can simply be a property that an investor is considering selling, but hasn’t made any grand efforts to do so.

Sometimes, it simply represents a property that has gone under contract, but has not yet hit the internet or multiple listing service. Listing agents often try to find buyers before that occurs, well, for the obvious reason…although we discourage that strategy simply because the Seller may never truly see what the property would have brought.

While the definition for “off-market” property varies widely, one thing remains the same—these are generally hot deals that investors are actively seeking out. Finding an off-market deal can mean less competition and a quick sale.

But if they’re not advertised publicly, how can you find hot off-market properties?

How to Find Off-Market Properties

At this point, it’s important to note that finding off-market properties takes time—and sometimes money—in order to find the best deals. Most importantly, however, it’s about finding a strategy that works for you, implementing it, and staying focused on your goals. The best fix and flip property deals require your patience, diligence and research…or a great agent that’s willing to put in the time. (wink)

THERE IS NO ONE SIZE FITS ALL

Too often times in our industry, owners and agents alike tend to treat every transaction the same…a sort of “cookie-cutter” approach that implies that one size fits all. It just isn’t so. Real estate transactions are inherently unique, as they should be. The owners are unique, the property is likely unique, and the circumstances surrounding the sale are most certainly unique.
So why treat them all the same? There are likely many reasons for this, but the one that screams out to me is “education.” Owners and agents alike are not informed about alternative strategies to sell a property. Some of this is by design, as large brokerages tend to streamline their processes to mitigate risk. Even those agents who understand these alternative strategies are often forbidden to use them for the same reason.
An example comes to mind. I look back at the short sale boom from 2006-2012, in which many homeowners endured the painful process of short-selling their homes, only to walk away with nothing but damaged credit. Many of those owners could have used alternative selling strategies and kept their home, rebuilt their equity, and preserved their credit rating. Not all, but many…particularly those that were upside down 30% or less. They just didn’t take the time to educate themselves, or talk to someone who could educate them.
The motivation for the move should always be considered. Are you being relocated for a job opportunity? How much time do you have to sell? How will you balance the need to sell, with the need to acquire a new property? What are the market conditions where you’re selling? Where you’re moving to? Do you need an agent, or can you sell it yourself?There are a great deal of factors that need to be considered before you decide how to sell your property.
The important lesson to take away from all of this is that there are always multiple ways to accomplish the mission, and the final decision should be based on which option gives you the best outcome, given the current circumstances.

SHOULD YOU WRITE A COVER LETTER FOR YOUR OFFER?

Absolutely. Will it make a difference? Hard to say. I can tell you that if you don’t write one, you will have 100% chance of making no difference…writing the letter will certainly increase those odds.
So why should you write one? Real estate transactions are emotional for all parties involved. However, they don’t start out that way. They begin their journey as a multi-page contract with a bunch of legalese and numbers on them. Often, the seller knows very little about the buyer, and the buyer knows very little about the seller. Most of that information is shared deeper in the transaction, if ever at all.
Telling your story, or informing the seller why you feel you would be a great fit for their home, and the neighborhood, will likely resonate with more sellers than you’d think. For sellers who have lived in a home for a long period of time, it will resonate even more. They want to know their home will be cared for, and that the neighbors won’t resent them for selling to someone who didn’t fit in to the neighborhood. Obviously we have laws preventing us from discriminating, but you get the point.
Tell your story…make your sale pitch. I can tell you that more often than not, it makes a difference.

Should you ask the Seller to complete any repairs?

It depends. Most “boiler-plate” contracts are written “as-is,” reserving the right of the buyer to complete due diligence, and to ask for repairs. Most also state that the Seller has no duty to agree to any repairs, complete any repairs, or even respond. So what is the right call?

In my opinion, it depends on two conditions. First and foremost, does either the buyer or seller have any leverage related to the market conditions themselves? In other words, is it a buyer’s market, a seller’s market, or a balanced market? If you’re buying, but it’s a seller’s market, it’s probably best to pick your battles or risk losing the deal. If it’s a buyer’s market, then exercise your leverage, but don’t be ridiculous. Just because you have some perceived leverage doesn’t meant the seller is desperate.

Second, what is the nature of the repairs that you seek assistance on? Are we talking light bulbs or major appliances? I tend to advise my clients as follows…”If the Seller is going to have to complete the repairs to sell it to a different buyer, then ask for it.” For example, if the home has termites, and the Seller now is aware (because you gave them the report), they’ll have a duty to disclose that material fact. It’s likely the Seller will agree to complete the repair. This condition also requires that you consider the first one…trying to project whether the Seller will likely need to complete the repairs to sell it to a different buyer may very well depend on the market conditions. If it’s a Seller’s market, the Seller will likely be more conservative when it comes to agreeing to repair requests, while if the leverage lies with the Buyer, more liberal.

As with any negotiation, or component of negotiation, it’s always best to consider both sides of the equation…not just yours.

Is it a Seller’s market?

In many areas it most certainly is, driven primarily by short supplies. However, a broad brush attempt to label a real estate market is a slippery slope. Recently I took a deep dive into many micro markets in my immediate area, and found a broad range of supply, from 0.7 months to 6.5 months of inventory. It really depends on your immediate area, as not all micro markets experience the same dynamics. Insist that your agent be able to tell you exactly what your market is doing, and if they cannot, call me…I can do it.

(Source CAR)
THIN HOUSING SUPPLY CONSTRAINS CALIFORNIA HOME SALES IN APRIL
While sales remained above the 400,000 benchmark level, California existing home sales fell from the previous year in April as tight housing inventory continues to impede the housing market, according to C.A.R. April marked the second worst start to a spring home-buying season since the housing recovery began in 2009.

Closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 406,800 units in April, according to information collected by C.A.R. from more than 90 local REALTOR® associations and MLSs statewide.

The April figure was down 2.6 percent from the revised 417,580 level in March and down 5.4 percent compared with home sales in April 2015 of a revised 430,030. The year-to-year decline was the first in five months and the largest sales drop since August 2014.

An imbalance between supply and demand pushed the median price of an existing, single-family detached California home 5.3 percent higher in April to $509,100 from $483,280 in March. April’s median price was 5.1 percent higher than the revised $484,370 recorded in April 2015. April marked the first time in nine years that the median price has risen above the $500,000 level; it is still below the pre-recession peak of $594,530 reached in May 2007.

Regulatory costs nearly 25% of a new home’s price

REGULATORY COSTS ACCOUNT FOR NEARLY A QUARTER OF THE PRICE OF A NEW HOME (Source: NAHB)

On average, regulations imposed by all levels of government account for 24.3 percent of the sales price of a new single-family home, according to a new study by the National Association of Home Builders (NAHB).

Breaking down the total regulatory costs further, the study revealed that three-fifths of this–14.6 percent of the final house price–is due to a higher price for a finished lot resulting from regulations imposed during the lot’s development. The other two-fifths–9.7 percent of the house price–is the result of costs incurred by the builder after purchasing the finished lot.

While NAHB’s previous regulatory estimates in a 2011 study were fairly similar, the price of new homes increased substantially in the interim. When applying these percentages to Census data on new home prices, the data show an estimate that regulatory costs in an average home built for sale went from $65,224 to $84,671–a 29.8 percent increase during the roughly five-year span between NAHB’s 2011 and 2016 estimates. Meanwhile, disposable income per capita in the U.S. increased 14.4 percent during that same time period, meaning that the average cost of regulation embodied in a new home is rising more than twice as fast as the average American’s ability to pay for it.

Finding clarity in the commission debate

The real estate industry in general, as well as the public, continues to wrestle with this topic, so I felt the need to provide some clarity.
Tenured national brands with massive overhead have failed to adapt to the changes taking place in the industry, including but not limited to the availability of information to the public. So-called “discount brokers” have emerged to provide property owners a different option, with limited success. Yet others scramble to position themselves somewhere in between.
The industry and it’s marketing teams use word smithing to create a public perception associated with each. Terms like “full service,” “limited service,” and “discount broker” to name a few, the latter intended to have you believe that a lower fee means a lower level of service. Perhaps, in some cases, but certainly not all. The same brokers use phrases like “the standard rate” to justify their fee, instead of describing how they’ll earn that fee. There is no standard rate.
What they’re not telling the public is that real estate fees are negotiable…they always have been. Generic terms like “full service” don’t really have any intrinsic value, for full service to one broker may be totally different to another. Every broker has different levels of experience, skill sets, technology, and work ethic. Additionally, every property is different. There is no “one size fits all,” although most agents will attempt to run their business that way. Not us, we treat every property in a unique way, simply because they are. Our fee is based on what resources we will need to use to sell your property…a market-ready property should command a lower fee than one which needs more preparation and marketing in order to draw a qualified buyer pool. It’s that simple.
I’ve charged as much as 10% on a listing, and as little as $1500…I only charge for what I intend to earn. Nothing more, nothing less.
The most prudent way to sift through the horse hockey, is to simply ask an agent what you’re getting for the money you’ll pay. Additionally, it’s a good idea to read past client testimonials, visit their website, and maybe even speak to a few of their recent clients.

Who has the leverage in your market?

How do you know whether you’re in a buyer’s market, a seller’s market, or a balanced market? You have to mine the data specific to the subject area to determine that…there is no magic algorithm or quick formula. Sure, you’ll find headlines that try to paint the real estate market with a broad brush, but the reality is that each neighborhood is unique, and therefore non-conforming.
Case in point, my office is in Riverbank, a small town in northern California. When I run the data for the entire city, I come up with 1.5 months of inventory…a definite seller’s market. However, when I run one particular neighborhood inside of Riverbank, I get a completely different picture…11.2 months of inventory. In this particular neighborhood, the buyers have the leverage.
Generally speaking, the leverage is defined as follows:
*1-3 months of inventory (supply)=Seller’s market
*4-6 months of supply=Neutral or balanced market
*7 months or more=Buyer’s market
In as much as we’ve become a “want it now” society, some things still require a bit of digging. Don’t rely on an “online evaluation” to determine your property’s value, and don’t rely on a headline to determine the market conditions. They can vary even within a few blocks.
If you want a custom evaluation of your individual market conditions, message me or call me. I can have that to you within hours, at no cost or obligation.

COMMISSION IS AN EXPENSE-TREAT IT AS SUCH.

The real estate industry has undergone some material changes in the past decade. Access to better information on both the part of the agent community, and the seller-buyer pool, has changed a lot about the way property is bought and sold. Unfortunately, there’s been little change in the way agents are paid.
Allow me to clear up a few things…first and foremost, commissions and fees are 100% negotiable…period. It’s an expense, and likely the largest expense you’ll have when it comes to selling your home. For that reason alone, you should educate yourself and truly compare what each agent can offer you before you sign a contract.
Nearly everyone knows someone who has a real estate license, and too many people blindly trust that their “friend” or relative is going to give the best service, for the best value. Not always the case.
You can pay too little and not get what you want, or pay too much and not get what you want. The agent that offers to sell your home for a low fee may offer you more, or less than the average agent. Conversely, there’s no guarantee that the agent who charges you “the going rate,” (which is a weak argument at best for justifying a fee) will deliver any more than the agent charging you 1%.
The bottom line, know exactly what you’re getting for that fee, and then hold that agent accountable. There is no “one size fits all” in real estate, as every transaction is unique. The fees paid should be commensurate with the job done…no more, no less. I’ve charged as little as $1500, and as much as 8.4%, and always earned every penny of it.