Off-Market Transactions
In a low-inventory and high-interest market it’s no surprise that off-market sales have increased over the last couple of years. Let’s look at some potential scenarios and best practices & recommendations for each of those situations:
Scenario 1
You are representing the Seller and, while you are preparing the listing, you are approached by a potential off-market Buyer.
Best practices & recommendations:
- Provide both parties with a “Law of Real Estate Agency” pamphlet.
- Explain to both parties:
- That you represent the Seller and that it is always in the Buyer’s best interest to seek their own representation.
- How you would handle representation if the Seller were interested in considering an off-market sale. For example: If you are not comfortable with dual agency, you can write an offer for the Buyer without representing the Buyer (making them a “Customer” as opposed to a “Client”).
- Discuss the pros and cons of an off-market sale with the Seller. Ideally get something in writing that makes it clear that the Seller understands that most homes will sell for a higher price when they are exposed to the open market.
- IF the Seller is interested in pursuing the off-market sale, make sure to sign a NWMLS Form 47 (Seller Representation Agreement) with the Seller.
- If the two parties come to an agreement and the transaction goes pending, you may want to recommend to the Seller that you continue with the listing preparations, in case the off-market transaction falls through.
- If the off-market transaction closes, make sure to fill out the required NWMLS input sheets for an “Unlisted Sale” and submit those forms to listinginput@nwmls.com.
Scenario 2
You are representing the Seller and the Seller finds a potential off-market buyer for their home.
Best practices & recommendations:
- Same as Scenario 1.
Scenario 3
You are representing the Seller and the Seller wants you to find an off-market buyer for their home, because they don’t want to list the home on the NWMLS.
Best practices & recommendations:
- If you know someone who may be interested in the property, you can show it to them and if both parties are interested in moving forward with an off-market transaction, you can decide who you would represent: The Seller, the Buyer, or both parties.
- If you don’t know any potential Buyers for the property, explain to the Seller that you CANNOT market the listing to a limited audience per NWMLS & DOL rules.
- If the Seller identifies a potential off-market Buyer and asks you to facilitate the transaction, see Scenario 2.
- Explain to the Seller that most homes will sell for a higher price when they are exposed to the open market.
Scenario 4
A Buyer client of yours wants you to approach a homeowner and inquire about the possibility of an off-market sale.
Best practices & recommendations:
- Sign a buyer’s agency agreement with the Buyer and provide the Buyer with a “Law of Real Estate Agency” pamphlet as soon as you start working with the Buyer.
Important reminder: Starting on January 1, 2024, signing a buyer’s agency agreement is no longer optional, but a requirement. - Explain to the Buyer how you would handle representation if the Seller were interested in moving forward with an off-market sale. For example: What would you do/say if the Seller asked you to act as a dual agent?
- When presenting the offer to the Seller or the Seller’s representative (real estate broker, attorney, etc.), you should include the following items:
- “Law of Real Estate Agency” pamphlet (have both parties initial to confirm receipt of this pamphlet).
- Pre-approval letter and/or Buyer’s proof of funds.
- Any information that could help convince the Seller to accept the offer, for example:
- Information about the Buyer’s finances and possibly personal information.
- Information about you and your expertise, to assure the Seller that the transaction will be handled by a professional.
- Comps that support the offer price, possibly taking into consideration any savings the Seller may have due to the off-market sale. For example:
- Potential commission savings.
- Money the seller would have spent on listing preparation and/or staging.
Scenario 5
In some cases, the Seller and the Buyer already have a relationship (for example: landlord and tenant, family members, friends, business partners, etc.). It’s possible that they could approach you jointly and ask you to facilitate a transaction.
Best practices & recommendations:
- Provide both parties with a “Law of Real Estate Agency” pamphlet.
- Decide who you would represent: The Seller, the Buyer, or both parties.
- If the two parties want to be represented by the same person AND if you are not comfortable with dual agency, refer them to a real estate attorney.
Negotiating Commissions on Off-Market Transactions
Be prepared that Sellers and/or Buyers may ask you to reduce your commission for off-market transactions. A reduced listing broker and/or buyer broker commission results in higher net proceeds for the Seller, which makes the Buyer’s offer stronger and is obviously beneficial to the Seller. You may also be asked to reduce your commission due to lower expenses on your end (for example: marketing & staging costs you would have incurred as a listing broker) and the perception that you would spend less time / work less for your commission.
Be prepared! Know how much you would charge in each of the scenarios above and how you would negotiate your commission.
In addition to off-market transactions, we are also seeing other “creative” approaches to buying a home, like mortgage assumptions and seller-financing. We will be highlighting those in future newsletters.