Content of the material
- 1. Embrace networking
- Explore The Neighborhood
- Go Online
- It Just Got More Difficult to Find Houses Before They Hit the Market
- Benefits as a seller of off-market deals
- Pocket listings and the National Association of Realtors®
- Pocket listings
- 7. Drive around to look for telltale signs that a seller is motivated
- Know the Process
- 3. Build Your Inventory With Homebuilders
- 1. Know When & Where New Developments Are Being Built
- 2. List Builders’ Future Inventory on the MLS
- 3. Solicit a Local Builder to Create a Custom Home for Your Buyer
- 4. Take Advantage of the List-assist
- What about foreclosures and pre-foreclosures?
- Why do people sell off-market?
1. Embrace networking
Business is really about relationships. One of the best ways to find off-market real estate investing deals is by networking with people who are in the know.
The right networking approach gives you a proverbial crystal ball when it comes to off-market properties. There are many people you should keep in your inner networking circle for your business. For starters, you should have relationships with other property investors. This may seem counterintuitive because you often view other real estate investors as your competitors. However, they can also be your best resources if you know what you’re doing. You never know when another investor may be able to help you find and work through a deal that might feel above your pay grade. In addition, you may be able to get in on larger investments than you could find or do on your own if you’re invited to participate in a joint venture. Deals could quite literally come right to your doorstep if you know the right people.
In addition, mortgage brokers often know about homes that are about to go on the market long before anyone else does. This is because sellers often contact brokers before listing homes to see if they can qualify for new homes. Attorneys are also great networking partners because they usually know properties that will be sold due to foreclosure, divorce, and more. It’s smart to get to know some local plumbers, contractors, and carpenters in your area as well. These are the professionals who know when a home is being prepared for the market.
Explore The Neighborhood
One tried-and-true way to find off-market properties is to explore your desired neighborhood(s). Before you hit the road, make a wish list to get a good idea of your ideal home. Use that list to identify properties that meet your criteria.
Once you’ve identified a few properties of interest, identify the owners and ask if they’re willing to sell.
Pro Tip: Snail mail is a great method for approaching a conversation with a potential owner. Write a letter to the potential seller to express your interest in the home. They can read it on their own time, and it will catch their attention. You can use public county records to find an owner’s contact information.
In addition to contacting real estate agents directly, buyers have tools available to them online to find non-MLS listings such as For Sale by Owner (FSBO), newspaper classifieds, or even Craigslist. As noted above, the online website Zillow has several off-market programs available to potential sellers and buyers.
It Just Got More Difficult to Find Houses Before They Hit the Market
Finding houses before they hit the market got more challenging on January 1, 2020.
Well, there is a thing called Clear Cooperation Policy by the National Association of Realtors and its implementation became mandatory by May 1, 2020.
What needs to be implemented?
I better quote it to be more exact:
“MLS Participants must distribute exempt listings within (1) one business day once the listing is publicly marketed. See Section 1.01, Clear Cooperation.”
My first thought was “not so funny” for realtors that want to go with pocket listings.
But it’s not as bad as it sounds.
First, it’s not a law, but it’s binding for all brokerages, agents, and member MLSs of the association.
For example, this policy is not binding for licensed agents that are not members of the National Association of Realtors.
But if you take into consideration the fact that 88% of homebuyers use a real estate agent or broker in the U.S. and that most of these are members of the National Association of Realtors, you can conclude that at least getting access to residential home pocket listings via a realtor or broker got a bit more difficult.
Nevertheless, this new policy still allows brokers and agents in a limited way to have off-market listings.
So, there are still some loopholes.
According to statement 8.0, as a seller, you can have the respective agent not display your house on the MLS IDX or you can make the listing an “office exclusive”.
In the latter case, a realtor can share the property listing only with other agents or one-on-one with buyers.
Benefits as a seller of off-market deals
Many people may be asking, “why wouldn’t an agent list a property in the most visible place to attract the largest number of potential buyers and thus the greatest number of offers?”
The answer is often privacy. If the owner of an apartment building is looking to sell, they may not want to spook the tenants into moving out because then the building isn’t performing as well as advertised. If the building ultimately doesn’t sell, then the seller just shot themselves in the foot.
Additionally, many sellers’ agents will subsequently get a lot of interest from buyers, many of whom are simply kicking the tires and are not serious nor qualified to close on their property. Thus, keeping a property as a pocket listing will allow a seller’s agent to pick and choose whom to market the property to, which often makes the job of selling the property much easier for all parties involved.
In no particular order, let’s jump into all the various ways there are to find and source off-market deals.
Pocket listings and the National Association of Realtors®
In late 2019, the National Association of Realtors® (NAR) voted to prevent agents and brokers from keeping listings off the MLS, a reinforcement of NAR’s requirements that properties be listed on MLS within one business day of being marketed to the public.
Per NAR, agents can post a home as “coming soon” — but if they do so, the home must be put on the MLS within a certain number of hours. This is intended to keep information on available homes accurate, and to avoid any potential legal or ethical ramifications that might arise, such as a breach in the agent’s duties or violations of the Fair Housing Act.
Sellers desiring privacy or concerned about health issues can still sell a house off the MLS under the new NAR policy, but the property cannot be advertised publicly in any way, which can make it even more difficult for qualified buyers to find the home.
These are properties that an agent represents for sale but are specifically kept off the Multiple Listing Service. Often, the owners are either very wealthy, well-known, private, or all three. They don’t want curious people traipsing through their home either out of curiosity or with bad intentions, like scoping it out for a burglary.
To find out about these properties, you have to be in the right network. “If an agent is well connected, they can access these properties,” Ermen said.
7. Drive around to look for telltale signs that a seller is motivated
Tall grass, dull siding, missing shingles, overgrown landscaping, and a driveway that’s in desperate need of repair are all signs that a homeowner has checked out. You should be driving around to hunt for properties that don’t look very loved. You can often get some of the best deals on houses for sale by approaching owners who simply don’t have the desire, interest, or ability to care for their properties any longer. Don’t forget to look for vacant homes.
Know the Process
Finding an off-market listing is only half the battle. Seeing a deal go through is the endgame, which is why buyers of off-market listings have to know the ins and outs of the process. Once you get to contract, it is a standard deal, but as the agent is likely representing both of you, it can get a bit murky.
Known as a dual agency sale—while perfectly legal—it can be hard for the buyer to tell if the agent has their best interest in mind. The higher the sale price, the heftier the commission for the agent. If you are buying in a market with little inventory, it may not matter if you get the best deal as long as you get the home, but it pays to be aware of any conflicts of interest.
3. Build Your Inventory With Homebuilders
Homebuilders are another great hidden resource of listing inventory. Here’s why: Some builders don’t list any of their inventory on the MLS. Almost none list all of their inventory. Like an FSBO, many homebuilders rely on drive-by traffic and a website to drive buyers. To avoid oversupplying the market, they rarely list all of their inventory on the MLS. Therefore, homebuilders can be a great source of hidden inventory. Here are four ways to start working with homebuilders to get hidden listings:
1. Know When & Where New Developments Are Being Built
Many agents don’t know that most larger homebuilders plan communities three to five years in advance. Keeping apprised of the builder’s future communities will give you an advantage over the other uninformed agents. In some cases, they will presell homes long before the first shovel is placed in the ground. Ask your homebuilders about future projects and check with your city or county for newly filed zoning variances and permits, and then build relationships with these builders.
2. List Builders’ Future Inventory on the MLS
Another hidden listing opportunity is to list the builder’s future inventory on the MLS. Many larger homebuilders have onsite sales people who are not active real estate agents. Therefore, they either do not have any of their homes on the MLS or they are only listing some of them with a real estate agent. Even if the builder has properties being marketed by another real estate agent, in most states the agency agreement is property-specific. This means that you cannot solicit them on properties that are currently listed, but you can solicit them to list the properties that are not listed with an agent yet.
3. Solicit a Local Builder to Create a Custom Home for Your Buyer
Some homebuilders will build a custom home specifically for your client. In my market, Denver, Colorado, like many areas, there is very limited inventory in an extremely competitive market. So resourceful real estate agents work with local builders to build their clients a custom home where an obsolete home currently sits or on an unimproved lot.
Your buyer may not have even thought of having a new home built, or might have assumed it was out of their budget. If you develop relationships with builders, you can then educate your buyers on the process and offer them another option to get into a new home.
4. Take Advantage of the List-assist
Sometimes, homebuilders have buyers who have homes they need to sell in order to qualify to purchase one of their newly built or to-be-built homes. This technique is traditionally called a “list-assist.” The homebuilder pays an agent a commission on the home the buyer is purchasing and in return, the agent lists and sells the contingent home for a deeply discounted commission.
There are great rewards for agents who take the time to meet and develop relationships with homebuilders. Learn how to develop relationships with homebuilders in our course How to Survive and Thrive in a Shifting Market.
What about foreclosures and pre-foreclosures?
If a homeowner is no longer able to pay their mortgage, the property will most likely end up in foreclosure, which means the bank takes ownership of the property and (eventually) puts it on the market. A pre-foreclosure means the owner is in arrears on their payments, but the bank has not officially foreclosed on the property.
This might seem like an easy way to buy, but both foreclosures and pre-foreclosures are difficult to navigate, and closing can take a long time.
“Historically, a bank can’t schedule a foreclosure sale until [the property] is on MLS,” says Maraghy. “And pre-foreclosures are much more difficult. We have clients call us about houses in pre-foreclosure, but they aren’t technically on the market yet, and they may never be.”
Dominguez says that one positive aspect of looking at pre-foreclosures is that they are a matter of public record. “I do have access to pre-foreclosures, and I have reached out to owners to see if they were interested in selling, which I’ve done with success,” he says.
He also suggests looking at websites that promote available HUD homes, a home with FHA financing that went into foreclosure. These types of properties can be a great deal, but they also have fairly strict qualification requirements and often need of work.
Why do people sell off-market?
Sellers sell without listing their homes for many reasons. Yes, sometimes they might have a specific buyer in mind, like a friend or family member, but it’s not always for personal reasons. Some of the most common:
- They’re concerned about their privacy: Many celebrities use pocket listings to keep their identities and addresses confidential, but they’re not the only ones who care about privacy. Some sellers just don’t want it known that they’re moving.
- They don’t want to put in the work to make a home showing-ready: Selling through traditional channels requires some work to fix up your home and make it look great before putting it up for sale. That work ranges from little tasks like decluttering to major home maintenance projects. Some sellers would rather entertain off-market offers without putting in the work, even if that means selling for less.
- They want to test the market: A quiet pocket listing helps curious sellers gauge the demand by seeing what some specific buyers might pay for their home. That way, they can decide whether to continue with a pocket listing or go out to the open market.
- They believe there’s a great offer waiting: Some sellers believe that the exclusiveness of a pocket listing could lead to more serious offers. Of course, that could also happen on the open market but different sellers have different opinions.
Overall, off-market properties sales can offer various benefits for investors who know what they are doing. By offering less competition and flexible negotiations, off-market real estate can provide investors with wide profit margins. Despite not being listed on the MLS, there are several tactics investors can employ when they learn how to find off-market real estate deals. I often recommend investors utilize more than one strategy at a time. Investors should seek to add new deals to their portfolios, and off-market real estate should be no exception.
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