Deals: ON Market vs OFF Market
Realtor · Los Angeles, CA · Member since 2020 · 11 posts · 9 votes
Deals: ON Market vs OFF Market
Most Popular Reply
Lee RipmaPro Member
Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes@Brandon Chaney Clients who say they only want off-market deals don’t know what they are talking about. The skill isn’t having off market deals it’s knowing when a deal is a deal. The great thing about on market deals is that you know the seller will actually sell. I have found lots of great deals that were on the market. I’ve also found great deals that were off market. It’s not about where it is, it’s about if it’s a deal or not. There sometimes are on market deals sitting in plain sight on the mls, even in hot markets. I’ve bought many of my deals right off the mls.
One reason people may say this, which is legitimate, is when they are an agent. They don’t want to be setup with an mls search when they are already agents. In this case they would only want a deal that was off market OR a deal that has already been negotiated to a good deal.
29 Replies
- Investor · Miami, FL · Member since 2020 · 80 posts · 66 votes5y
I've never understood why people refuse to consider the MLS when deal hunting. The theory is that the target audience is much larger so the price should be higher. It's like selling an item on eBay vs selling at a garage sale; a larger audience should in theory drive up the price. With that being said there are plenty of deals out there on the MLS. Recently, I was able to get an offer accepted 15% below what the property appraised for and I found this one on the MLS. The young man had inherited the property from his parents who had tragically passed away. So I'd say plenty of deals are out there and it is a good starting point, even in a hot market!
- Investor · Atlanta GA · Member since 2018 · 188 posts · 71 votes5y
Those who say there is nothing on MLS, here you go..
I log on to Zillow after dinner (I am currently in India). I see a 30 min old listing that was in our target area in Atlanta (hot market!!) .
It was listed for 240K. Fair price was more like 230K. I call up my brother right away and he speaks to the seller. He was an out of state FSBO and was fairly motivated. We were able to negotiate it down to 215K - all cash and no contingencies.
House is in good shape and tenants are paying $1100/month.
We are looking at couple of exit strategies :
1- Sell as is at 230-235K
2- Build a pipeline for our next flip. Keep the rent coming in until we are ready. (We were able to bump up the rent from 1100 to 1200 as well in the new lease since the market rate is about 1300)
So deals are there, you just have to look for it. And when it comes, it gets picked up fast, so keep looking.
- 5yLee RipmaPro MemberRental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
@Brandon Chaney Clients who say they only want off-market deals don’t know what they are talking about. The skill isn’t having off market deals it’s knowing when a deal is a deal. The great thing about on market deals is that you know the seller will actually sell. I have found lots of great deals that were on the market. I’ve also found great deals that were off market. It’s not about where it is, it’s about if it’s a deal or not. There sometimes are on market deals sitting in plain sight on the mls, even in hot markets. I’ve bought many of my deals right off the mls.
One reason people may say this, which is legitimate, is when they are an agent. They don’t want to be setup with an mls search when they are already agents. In this case they would only want a deal that was off market OR a deal that has already been negotiated to a good deal. - Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes5y
@Brandon Chaney just recently on here there have been threads about wholesalers taking off market properties and putting them ON the MLS to find a buyer, and also threads about wholesalers taking deals FROM the MLS and marketing them "off market" to buyers. The line between on market and off market is blurry, and whether a property is listed on the MLS or being marketed "off market" should tell us nothing about whether it's a good deal or not. I think there must be a lot of gurus out there telling people that the only place they'll find a deal is off market. It's become something of a meaningless marketing term. In reality, 90% of transactions are made on the MLS, and the majority of FSBO listings are overpriced. Half of what listing agents do is convince sellers to list their property at a realistic price, right? There's a reason FSBO's take a lot longer to sell than if they were listed on the MLS. Part of it is exposure and professional marketing, but it's also because sellers almost always have an emotional attachment to their properties and think they're worth more than comps actually support. I see a lot of both on market and off market deals. Some are good deals and some are stinkers in both categories. The biggest advantage of finding something off market is not having to compete and drive the price up in a bidding war if it's a hot market. If you're prospecting yourself and truly finding sellers off market directly, that's a great strategy to avoid competition and create a situation where you can negotiate a good price. However many "off market" deals are not that. They may just be expired MLS listings or properties that have already been shopped around all over town anyway, so it's not like off market means it's automatically getting less competition than an MLS listing. I've bought quite a few properties right off the MLS, using negotiating to get a fair price, making aggressive offers after a price drop or right after a listing expires, etc. I've also seen many off market properties where the seller has a ridiculous expectation of price. It's important to look at the merits of the individual deal at face value, and not get side-tracked by whether it's "off market" or not.
- Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes5y
Think you can find good deals on RMLS, but as noted you gotta jump on them RIGHT NOW!!!
Something else to think about is stuff that has sat (for whatever reason) on RMLS for a while. The seller does want to sell since it's still posted.
Usual issues are either a lot of work needed or wrong pricing. I would write a goof-ball offer on those.
- Realtor · Los Angeles, CA · Member since 2020 · 11 posts · 9 votes5y
@Lee Ripma My thoughts exactly. A deal is a deal no matter where you found it. MLS deals do give you more assurance that your seller is serious, but it blows my mind how many times I've heard "I don't want to see anything on market" or, "I've already seen everything on the market". My question is usually, well...why didn't you buy it? Did you even make an offer? I don't mean to be argumentative, but I really try to understand that logic when the numbers "make sense". Real estate can be emotional for everyone involved, but I do my best to break through limiting factors in order to bring good deals to the table. Thanks for the insight!
- Realtor · Los Angeles, CA · Member since 2020 · 11 posts · 9 votes5y
@Shawn Bhatti I like that theory. I'm glad you're wheelin' and dealin' on the MLS. I'm always interested in how "set-in-stone" peoples opinions can be about real estate even when the market shows otherwise. 15% below list? That's a pretty decent discount. Especially for someone inheriting a property. He didn't "give it away", he probably needed it off of his hands, and you scored a good deal. Keep it up!
In LA, inventory is low and MLS deals are selling for way over, quickly, on the regular. FSBO sellers know what's going on so they're putting the squeeze on us too, but there's always a deal to be done. "There are no bad properties, only bad prices"
- Realtor · Los Angeles, CA · Member since 2020 · 11 posts · 9 votes5y
@Kaustubh Johri You're telling me you bought a FSBO off the MLS...ZILLOW, of all places and got a cash flowing deal for 11% under list price....all from your phone...in INDIA!? Great buy buddy. You could definitely turn around and sell to capture some of that equity. I'm assuming you'll sell it yourself? Selling fees may eat into that spread a bit?
How are tenant relations in Atlanta? (I grew up there). In LA it's a touchy subject for sure. With everything going on, there are no evictions and CA is infamous for our tenant friendly laws, so cash for keys is a pretty common thing. Were you able to get recent rent receipts, leases, etc?
- 5yAlex FiccoPro MemberFlipper/Rehabber · Reno, NV · Member since 2017 · 110 posts · 78 votes
Probably because a "deal" is subjective. Everyone's numbers and criteria are different. As a flipper, that FSBO deal mentioned above wouldn't even be close for us, but obviously worked for them as a rental in that market. I'm sure "deals" with those types of numbers are much more abundant on MLS vs inventory that works for us. Also, it's very market-specific. Here in Reno, we are in probably the strongest seller's market of all time for the area. We have an influx of California cash coming in from relocation and investors looking to get their money out of California and into Nevada. Their numbers are MUCH different than ours, and I'm sure much different than a NV based buy-and-hold investor. Even with inventory that is really distressed and probably would only make sense as a flip because of the rehab needed, we don't offer on. The flip competition is so stiff here, there are other buyers in town that can pay more than we can for many reasons, IE using their own cash, have their own crews, have other RE related businesses they can make a profit in on the same transaction etc. We pivoted to using my license to offer on behalf of these other buyers and represent them in the transaction, and only attempt to buy deals produced by our own marketing and relationships (wholesalers and agents - pre listing). We figure at least make a commission on deals we would have lost on anyway, and deals that would be tough to wholesale.
Long story long, yes there are deals on the MLS. I offer on about 5 of them per week in a metro area of about 500k. They just aren't deals for most investors, especially new ones that aren't quite ready to pull the trigger immediately when they see a potential deal. When you look at MLS inventory once a week, don't really know your numbers, and arent willing to offer on anything that has potential, it's easy to get into that anti-MLS mindset. - Realtor · Los Angeles, CA · Member since 2020 · 11 posts · 9 votes5y
@Steve K. I think it's one of those things where "it's what people say". On the flip side, even though I don't agree with that mentality, I wanted to get some additional perspectives on it since I'm hearing it a lot. I don't want to be the one who's not paying attention to the market. There are pretty solid deals on the MLS and as long as you're making reasonable offers with the intent/capacity to perform, you're in good shape. A good listing agent can be extremely valuable in a deal. You're spot on when you say half the job is to convince the seller to list at a realistic price. FSBO's can be risky when you haven't built a rapport with the seller. They usually "want what they want" and it takes a skilled professional to talk these people down (to earth). Also, you're never really sure if they're just testing the market or if they're the real deal. I appreciate your take!
- Realtor · Los Angeles, CA · Member since 2020 · 11 posts · 9 votes5y
Originally posted by @Steve Morris:
Think you can find good deals on RMLS, but as noted you gotta jump on them RIGHT NOW!!!
Something else to think about is stuff that has sat (for whatever reason) on RMLS for a while. The seller does want to sell since it's still posted.
Usual issues are either a lot of work needed or wrong pricing. I would write a goof-ball offer on those.
I love properties that have sat for a while. I think with the right mentality you can really provide value to the seller. Who in their right minds wants to "sit on market" for a long time. It's disheartening to be honest. Anybody who tells you otherwise probably isn't serious about selling. Its a big red sign on your forehead saying "I WAS WRONG". Just like you said, if it's still posted, it means they still want to sell. That's when I come in to save the day!.... until I discover the house is a complete tear down and the seller still won't budge because he went to Zillow and got a Zestimate. lol
- Real Estate Agent · New York City · Member since 2020 · 818 posts · 639 votes5y
Yeah, it's dumb. I know many investors who truly believe off market is the only way to make a buck, But who is more motivated to make a deal than someone who has actually listed the property!
- 5yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Properties listed on the MLS have been viewed by many prospective buyers. This does not mean there are not great purchases off the MLS. It does imply that the purchaser may have to look a little deeper to find the best purchases off the MLS. Look at expiring listings. Look for less obvious value adds such as under utilized zoning. Look for properties that have issues that would turn off most perspective buyers.
Off market properties have the advantage of much less competition. Ideally, there is no competition for the purchase and you can strive to satisfy the needs of the seller while obtaining a property at a good price.
My last 2 purchases have been off market, but I continue to look at properties listed on the MLS recognizing there are sometimes gems on the MLS.
- 5yWale LawalBusiness MemberReal Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
@Brandon Chaney
As a Realtor and Investor Myself, have received several inquiries from clients with this same mindset and I always try my best to educate them that it doesn't matter where they find the deal either MLS or Off-Market it's all about the numbers.
Many of these clients don't fully understand what wholesaling entails.
I have received 2 different calls from New investors that over paid for Off-Market deals and eventually lost around $20,000 all because they think the best deals are Off-Market Deals.
Education is what these type of clients need.
NETWORTH BUILDERS5236 Reviews - Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes5y
No need to waste your time or thoughts on those folks. If you are sourcing 65% ARV opportunities, you should have a closers list who can buy your property on the drive home from signing the purchase contract.
- Realtor · Lakeland, FL · Member since 2020 · 73 posts · 72 votes5y
@Brandon Chaney I think at some point those people were convinced that the only way to get a deal is to purchase off-market and then they just refuse to look at market listings. They may also think that if something is on the market and under priced, it’s a sales tactic to create a bidding war and that the price will eventually come up (and over) market value and they don’t want to put themselves in that position. Not sure, just my guess!
- Rental Property Investor · Cambridge, MA · Member since 2020 · 32 posts · 45 votes5y
I think the mindset is that, if you're pulling something off market, you've created a deal or got something more exclusive. My opinion is that it is more psychological than anything else. I tend to like off market deals because I have time to get in and talk with the seller, figure out what they want and try to solve whatever "problem" they have if the deal makes sense for me. But the most of my deals have been MLS.
Also, if you read through the books or some podcasts, the hype around finding deals outside of the MLS is glorified. The MLS is considered picked over.
- Rental Property Investor · Hummelstown, PA · Member since 2015 · 638 posts · 653 votes5y
First of all, Merry Christmas!
Second of all, this thread is driving me crazy and now I feel compelled to respond. I apologize preemptively for being a buzz kill.
Let's get this out of the way, of course you can find deals on the MLS. People have at least a little motivation to sell or else they wouldn't have listed their property. Of course.
But you need to get ridiculously lucky, or be willing to take on a property with so many issues that everybody else (can be literally hundreds or thousands of other buyers) aren't willing to do it. If it's that bad, then you will be taking on either a HUGE headache and/or a HUGE risk.
Let's talk about the example that was praised above. Property listed for $240k, buyer negotiated down to $215k and got a "deal". Is this really a deal???? NO
Option 1 was to sell for market value of "230k-235k". Let's run the numbers, and I'll even give the benefit of the doubt that you don't have interest/loan costs since you claim you're purchasing with cash.
Buy for $215k plus $3k closing costs. Assume hold for 3 months until it sells. Utilities $500, taxes $1000(?) insurance $300. You collect $1200X3 = $3600 in rent. Sell for (best case) $235k. Commissions at 6% would be $14,100. You'll have another $1000 or so in closing costs on the sale.
Total credits = $235k + $3600 = $238,600
Total debits = $215k + $3k +$1800 + $14,100 + $1,000 = $234,900
If you used hard money then you lost money, for sure, but let's assume you didn't. You just tied up over $220k for 3 months to make $3,700, best case. This assumes there's no maintenance issues, the renter pays you all the rent, and you get the max asking price. If that's a return that excites you, cool (and maybe you plan to do FSBO and save commissions?), but chances are not everything will go perfectly and you'll end up losing money. You have to factor in your risks as well as the potential reward.
Here's the other thing, you buy it for $215k cash and do nothing, then expect to get $235k. First of all, what are buyers going to think? Hmmm, this sold for $215k a month ago, the pictures look the same, it must be worth $215k! Even worse, appraisers will (correctly) think the same thing. The property was presented on the open market to hundreds of potential buyers, and the seller took the best offer presented to him which was $215k. Nothing was done to the property, and how much did the market change in 1 month? (probably not much) Most appraisers will say it's worth $215k and use you're last purchase to justify that price.
This is all not to mention who is going to want to buy a house for $235k with a renter in it paying $1200? Rent to value is abysmal, less than .5%, so most investors won't accept that. If it's a primary home buyer, they won't like that there's a renter in there.
Sorry for the diatribe, I really am. I feel like a Grinch. I just could help myself.
Let's bring this back to the original post, regarding why people want off market deals. If it's truly off market, and I mean that you've contacted the seller directly and are the only buyer who knows about the deal (not a "wholesale" deal that's listed on the MLS), you have a MUCH higher chance of getting a real deal. The definition of going under contract with a seller is that you have the highest/most acceptable terms that a seller is willing to accept. If you're the only buyer, there's zero competition. If the property is "on market", then literally thousands of buyers could have looked at the property, and dozens could offer on it. If you win the contract it literally means you were the highest bidder. By definition, in a liquid market with plenty of buyers and sellers (on-market), whatever the property sells for is market value. It's only in an illiquid market (limited buyers and sellers, i.e. off market) where a deal can be made below market value.
- Investor · Member since 2020 · 401 posts · 86 votes5y
Originally posted by @Kyle McCorkel:
First of all, Merry Christmas!
Second of all, this thread is driving me crazy and now I feel compelled to respond. I apologize preemptively for being a buzz kill.
Let's get this out of the way, of course you can find deals on the MLS. People have at least a little motivation to sell or else they wouldn't have listed their property. Of course.
But you need to get ridiculously lucky, or be willing to take on a property with so many issues that everybody else (can be literally hundreds or thousands of other buyers) aren't willing to do it. If it's that bad, then you will be taking on either a HUGE headache and/or a HUGE risk.
Let's talk about the example that was praised above. Property listed for $240k, buyer negotiated down to $215k and got a "deal". Is this really a deal???? NO
Option 1 was to sell for market value of "230k-235k". Let's run the numbers, and I'll even give the benefit of the doubt that you don't have interest/loan costs since you claim you're purchasing with cash.
Buy for $215k plus $3k closing costs. Assume hold for 3 months until it sells. Utilities $500, taxes $1000(?) insurance $300. You collect $1200X3 = $3600 in rent. Sell for (best case) $235k. Commissions at 6% would be $14,100. You'll have another $1000 or so in closing costs on the sale.
Total credits = $235k + $3600 = $238,600
Total debits = $215k + $3k +$1800 + $14,100 + $1,000 = $234,900
If you used hard money then you lost money, for sure, but let's assume you didn't. You just tied up over $220k for 3 months to make $3,700, best case. This assumes there's no maintenance issues, the renter pays you all the rent, and you get the max asking price. If that's a return that excites you, cool (and maybe you plan to do FSBO and save commissions?), but chances are not everything will go perfectly and you'll end up losing money. You have to factor in your risks as well as the potential reward.
Here's the other thing, you buy it for $215k cash and do nothing, then expect to get $235k. First of all, what are buyers going to think? Hmmm, this sold for $215k a month ago, the pictures look the same, it must be worth $215k! Even worse, appraisers will (correctly) think the same thing. The property was presented on the open market to hundreds of potential buyers, and the seller took the best offer presented to him which was $215k. Nothing was done to the property, and how much did the market change in 1 month? (probably not much) Most appraisers will say it's worth $215k and use you're last purchase to justify that price.
This is all not to mention who is going to want to buy a house for $235k with a renter in it paying $1200? Rent to value is abysmal, less than .5%, so most investors won't accept that. If it's a primary home buyer, they won't like that there's a renter in there.
Sorry for the diatribe, I really am. I feel like a Grinch. I just could help myself.
Let's bring this back to the original post, regarding why people want off market deals. If it's truly off market, and I mean that you've contacted the seller directly and are the only buyer who knows about the deal (not a "wholesale" deal that's listed on the MLS), you have a MUCH higher chance of getting a real deal. The definition of going under contract with a seller is that you have the highest/most acceptable terms that a seller is willing to accept. If you're the only buyer, there's zero competition. If the property is "on market", then literally thousands of buyers could have looked at the property, and dozens could offer on it. If you win the contract it literally means you were the highest bidder. By definition, in a liquid market with plenty of buyers and sellers (on-market), whatever the property sells for is market value. It's only in an illiquid market (limited buyers and sellers, i.e. off market) where a deal can be made below market value.
The motivated sellers list are open to everyone and it's rare that you find a selker without a competition because a usual motivated seller gets many letters about his house and he can negotiate and get the best price and terms just like the off the mls...
- Rental Property Investor · Hummelstown, PA · Member since 2015 · 638 posts · 653 votes5y
@Ari Hadar
All of my best deals have been precisely since there was no competition. There’s not a list of “motivated sellers”. There’s probate, tax delinquent, preforeclosure, absentee, etc etc.
But nowhere is there a list that reads everyone’s minds to determine the perfect list of all the motivated sellers.
- Denver, CO · Member since 2019 · 24 posts · 8 votes5y
@Brandon Chaney I'm currently in the process of closing my first out of state property. It was listed on the MLS. After talking to my agent i offered 10% below the asking. This was also the first property I offered on.
- Investor · Tampa, FL · Member since 2017 · 123 posts · 109 votes5y
Originally posted by @Kaustubh Johri:
Those who say there is nothing on MLS, here you go..
I log on to Zillow after dinner (I am currently in India). I see a 30 min old listing that was in our target area in Atlanta (hot market!!) .
It was listed for 240K. Fair price was more like 230K. I call up my brother right away and he speaks to the seller. He was an out of state FSBO and was fairly motivated. We were able to negotiate it down to 215K - all cash and no contingencies.
House is in good shape and tenants are paying $1100/month.
We are looking at couple of exit strategies :
1- Sell as is at 230-235K
2- Build a pipeline for our next flip. Keep the rent coming in until we are ready. (We were able to bump up the rent from 1100 to 1200 as well in the new lease since the market rate is about 1300)
So deals are there, you just have to look for it. And when it comes, it gets picked up fast, so keep looking.
Stories like this happen often, perhaps not reported on BiggerPockets, however many are making money on the MLS.
- Investor · CA · Member since 2017 · 91 posts · 16 votes5y
Originally posted by @Kaustubh Johri:
Those who say there is nothing on MLS, here you go..
I log on to Zillow after dinner (I am currently in India). I see a 30 min old listing that was in our target area in Atlanta (hot market!!) .
It was listed for 240K. Fair price was more like 230K. I call up my brother right away and he speaks to the seller. He was an out of state FSBO and was fairly motivated. We were able to negotiate it down to 215K - all cash and no contingencies.
House is in good shape and tenants are paying $1100/month.
We are looking at couple of exit strategies :
1- Sell as is at 230-235K
2- Build a pipeline for our next flip. Keep the rent coming in until we are ready. (We were able to bump up the rent from 1100 to 1200 as well in the new lease since the market rate is about 1300)
So deals are there, you just have to look for it. And when it comes, it gets picked up fast, so keep looking.
$215 k has only $1100 /month rent? It reminds me of the 1% rule.
- Investor · Atlanta GA · Member since 2018 · 188 posts · 71 votes5y
Yes, we will be listing as a FSBO. We bought 3 homes just before the pandemic and rented them out since we did not want to rehab in midst of the pandemic. We have had all tenants pay the rent. NO problems at all.
We did ask for recent rent rolls and leases.
Originally posted by @Brandon Chaney:@Kaustubh Johri You're telling me you bought a FSBO off the MLS...ZILLOW, of all places and got a cash flowing deal for 11% under list price....all from your phone...in INDIA!? Great buy buddy. You could definitely turn around and sell to capture some of that equity. I'm assuming you'll sell it yourself? Selling fees may eat into that spread a bit?
How are tenant relations in Atlanta? (I grew up there). In LA it's a touchy subject for sure. With everything going on, there are no evictions and CA is infamous for our tenant friendly laws, so cash for keys is a pretty common thing. Were you able to get recent rent receipts, leases
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