Why do sellers prefer off-market deals over on market deals when they need the highest possible price?
I sell apartments in the south, and one of the biggest objections I get from people that want to sell is that they want to sell it off market. At the same time they also want the highest possible price. 
Ive heard: taxes will increase by the city if we put it on market. Which I tell them we don’t set a price, we don’t use LoopNet or CoStar to sell anything, we only call people in our database. 

“Our staff will get scared off if they know we’re selling” -I respond with: we don’t have to do full scale property tours, and we’ll only call people in our database that way only the people that need to know about it will see it.” 

Maybe it’s not paying commission? Or wanting as many brokers as possible to sell something off market, however the process takes forever to qualify each buyer that makes an offer and bring them in one by one. No one is going to fully work an off-market deal if their commission isn’t protected, and generally the property receives significantly less offers. 

So I genuinely want to know why a seller would prefer off-market when I can make the deal happen for them in a way that benefits them. I just would like for protected commission after spending 4+ months to get a deal done.
[{"id": "gsz8jtq", "text": "So I do a lot of multifamily and there are a few reasons:\n\n1) at this point, the market is so overheated that pitching something as \u201coff market\u201d to a buyer makes them take a SERIOUS look. Hell, on the buyside I will fly out the next day to tour an off market deal.\n\n2) Sellers are shooting for the moon right now, and if they don\u2019t hit their price on a widely marketed process, then the deal is \u201ctainted\u201d in a sense. So it makes sense to shop it around off market to see if you can quietly find a buyer that will hit your price, which might actually happen given reason (1) above.\n\n3) In major multifamily markets it is common to retain the same broker that sold you the deal, to sell it again for you. Otherwise you risk burning a bridge with this broker (fucked up, i know). We have a large deal right now but are not confident the broker who sold it to us 7 years ago will be able to execute (it was big for him at that time, and we really repositioned the asset). So as not to insult him, we hired a more institutional brokerage team to market it quietly to a handful of groups, in the hope that we can sell it without him finding out, and if he does we can say it was an off market opportunity we couldn\u2019t resist.", "replies": [{"id": "gsz9xli", "text": "Great points man, I need to work with my broker and figure out some type of agreement that\u2019s off market for a couple of months and if we can\u2019t get it under contract no harm no foul. Something that\u2019s better than an open fee agreement so I can full force work the deal for the seller", "replies": [{"id": "gszjq98", "text": "Would love to see a template of this agreement. Having a clear understanding from the start saves so much pain later.", "replies": [], "depth": 3}, {"id": "gt1s9dm", "text": "I\u2019ve put together a similar agreement which essentially gives me a 30 day window to bring an offer but with exclusivity so I can control the process better.", "replies": [{"id": "gta5iri", "text": "What are the main points your agreement covers?", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gsz8oii", "text": "I work in NYC and maybe it\u2019s different because I do large office/retail and hotels mainly but many times these buildings are owned by private families that do not want anyone to know they are selling because it makes them look like they need to sell it and need the money/ are desperate \nSame goes for many of the larger not publicly traded companies", "replies": [{"id": "gszgoc3", "text": "This might be true in some cases, but on average, you can\u2019t be further from the truth. \nMost of the times it\u2019s actually a relationship / connection that long-term ownership has / someone from outside had introduced them to and therefore those sellers choose to go that route.", "replies": [{"id": "gszgz3w", "text": "In NYC in the asset class I work in this is how it usually is, especially in midtown.\nI get it, most real estate isnt 100k+ office but that\u2019s what I\u2019m talking about\nBecause if people know that you need to sell you\u2019re not going to be receiving the deals first\n\nBrokers will start bringing the deals to other people who they think are in position", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gsza072", "text": "&gt; Which I tell them we don\u2019t set a price, we don\u2019t use LoopNet or CoStar to sell anything, we only call people in our database.\n\nThat's what we could call a targeted approach (we only call our top 10 buyers) vs a full marketing (we blast to the world and everyone knows it's for sale).\n\nEven if you do a targeted approach, you still have to be conscious that the onsite staff doesn't get wind. For a fully marketed deal, the seller should make the staff aware before it hits the market. It's harder to retain staff if they know the property is for sale so if you're not a market seller, you have to assume you need to retain your staff.\n\nAlso, just because we do a targeted approach, the sellers still want top price. They aren't taking a discount. We are in a niche field that's still generally hot (but not like conventional multifamily or industrial). But there are pockets of weakness. And maybe a property owner in one of those markets wants to sell. But he knows the chances of hitting his target price are slim (vs being a market seller). If it doesn't sell and only a few buyers knew this, no big deal. If it's fully marketed and it doesn't sell, it will certainly taint the deal next time it gets listed. Another reason for a targeted approach is there might only be 5-10 year buyers for this specific ask (size, location, portfolio composition). Rather than let all the competition get access to the info and spend a lot of time on tire kickers, you can target the highest probability closing buyers.\n\nTaxes would be more for the buyer, which I guess could impact the price the seller gets.\n\nTLDR, there are a number of reasons why a seller wouldn't want a fully marketed sale.", "replies": [{"id": "gszaop7", "text": "In the targeted approach, how do you protect your commission? Just a standard fee agreement?", "replies": [{"id": "gszbi6q", "text": "Yes nothing changes. We are also exclusive in anything we work on. But most of our clients are long time repeat clients so most of it is a formality at this point.", "replies": [{"id": "gt148ep", "text": "For new clients, would you have a 2-3 month exclusive contract with them but treat it as a pocket listing? At this point I don't mind off-market deals, however with 5 other brokers calling their best guys at the same time I don't want to waste my time on something when I can't guarantee I'll get paid if I close.", "replies": [{"id": "gt15g97", "text": "What we do wouldn't be a great example of what's market. Our firm works as one group vs having 10 guys call on the same people. I'd say 75% of what we work on has no formal agreement in place. The other 25% is only because there's an institutional partner that's requiring it. We've never gotten fucked once (well, I did have a recent closing where one of the analysts for the seller where we were recapping their asset with new equity forgot to add our fee for bringing in the new equity.. we just made it up on the next few closings). \n\nBut again, we are in a niche space where everyone knows everyone so it's 1. hard for someone to originate new business at our firm and 2. if someone fucked us, we'd bad mouth them to everyone in the space :).", "replies": [{"id": "gt16hpw", "text": "I'm not sure about what you do exactly... but my broker wouldn't even allow me to work a deal without something in writing. People would fuck us to the wall if they can get out of paying $100K+ commission on a deal", "replies": [{"id": "gt172i5", "text": "Yes we wouldn\u2019t be an example of what to do. You should get a fee agreement. I don\u2019t handle that part of the business but I believe ours is for 90 days and extends unless canceled. In our niche, no reputable person would work on something non-exclusive. Just too small of a space.", "replies": [{"id": "gt17928", "text": "Thanks for the guidance.. really appreciate it. Have a good one and best of luck!", "replies": [], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gszahad", "text": "Employees quitting is a very real concern. Most owners that self-manage have a very light org chart.\n\nDeal by deal dependent in may not lower the sales price at all, because the buyer pool is so small and known.\n\nFor land deals legacy can be important, so they might want more opportunity to pick the buyer.", "replies": [{"id": "gszcq49", "text": "All of these points are correct.  I will also add that they don't want their personal staff know it's on the market and they may be out of a job.  How would your motivation be if you know your boss is selling his business and you will probably be fired shortly.  I know I would start looking for another job right away", "replies": [], "depth": 2}, {"id": "gt1160f", "text": "For loopnet the tenants will find out too.  It isnt uncommon at all for prospective tenants to google around for reviews.  If there is something public for a sale listing the tenants find out and candidly many tenants are nuts.  Every tenant with an axe to grind is going to hassle the staff in various annoying ways and it impacts your ability to sign new leases and renewals.", "replies": [], "depth": 2}, {"id": "gtrmijk", "text": "Land is the best example because it really encapsulates all three but requires a strong development partner who can actually execute. So, sometimes makes sense off market", "replies": [], "depth": 2}], "depth": 1}, {"id": "gszcllv", "text": "I don\u2019t waste my time looking at properties on the market anymore and I know quite a few others of the same opinion. I\u2019ve seen listing agreements that say seller owes the listing broker money if it hits the ask price but they decline to sell. I\u2019ve seen folks overpay to try and get a deal to keep it from going into a perceived bidding war if it goes to market. I\u2019ve also seen sellers with multiple partners do this because other partners aren\u2019t willing to sell but maybe a partner thinks an unsolicited offer will shake the tree a bit.  I\u2019ve also seen sellers try off market because they know there\u2019s an issue but they hope/dream that off market will let them sneak it through without disclosing.", "replies": [], "depth": 1}, {"id": "gszdpu8", "text": "Tenants privacy matters. Some will take off leave their units vacant.", "replies": [], "depth": 1}, {"id": "gszhtns", "text": "An aside, but I swear everything is \"off market\" these days. It's probably the most watered down phrase in the industry currently.", "replies": [{"id": "gszig1i", "text": "\"Motivated seller\" is pretty watered down too.", "replies": [], "depth": 2}, {"id": "gszlt1w", "text": "Also value add", "replies": [], "depth": 2}, {"id": "gt1yfo5", "text": "Also \u201cAbsentee owner\u201d and \u201crental upside\u201d", "replies": [], "depth": 2}, {"id": "gtrm4xp", "text": "Off market to a small select group of 500 buyers", "replies": [], "depth": 2}], "depth": 1}, {"id": "gszkedd", "text": "Take what I say with a grain of salt because I've sold one small multifamily (I'm almost all retail and MOB). Are they always saying they're worried their staff will find out or are there other concerns, or are you not asking? My first thought is that if they won't risk their employees finding out they're not that committed to selling. That risk is real, however do they plan to hold forever to prevent that risk? If it were me I'd explore the concern further without trying to answer. \"I don't want my staff to find out\" \"what's your concern if they do?\" \"they will quit before the property sells\" \"are there any ways around that?\" Maybe they promise their employees a severance if the property sells. Maybe they bring in temporary third party management during the marketing process. Maybe they pay their employees for a month or two after the sale while they look for another job. If they can make it to where the employees are better off if the building does sell everyone wins. The conversation can be taken to where you help them think through around their own concern. Fact is that the employees could find out you're working on selling it privately and that result would be the same. That would mean either they take the risk or they keep it forever. Help them over the hump. They have to let go of the rope to grab the next.", "replies": [{"id": "gt0dc3p", "text": "In multifamily everyone that\u2019s concerned just lies. Say it\u2019s a bank required inspection for risk Mgmt, insurance, refi, etc. if you buy, unless there are known issues with current Mgmt, it\u2019s safe to assume you\u2019re keeping all or at least some of site staff.", "replies": [], "depth": 2}], "depth": 1}, {"id": "gszrso6", "text": "Also remember there are Off Market/unsolicited deals, and there are Pocket Listings. Neither hits the open market.\n\nThe last time I ran the numbers in my market (precovid), almost 50% of sales were not listed publicly.  I didn't do the math to figure how many were Pocket Listings vs true Off Market/unsolicited sales. Interesting, but time consuming with little return.  In the case of pocket listings, it is usually because the inside buyer can meet the sellers expected price, and everyone wants to avoid the drama of dealing with public advertising.\n\nNever underestimate a buyer and sellers desire for privacy. Especially in v active markets.\n\nThat said, I know of at least one large sale where the sellers really didn't want to sell, gave an exorbitant price to get the buyers broker off their back.... And the buyer agreed to it (for their own reasons).  There are a lot of reasons a property can change hands. The rhyme and reason can sometimes be odd.", "replies": [], "depth": 1}, {"id": "gt1phge", "text": "I acquired a SFH years ago in an excellent area of Arlington, VA just outside of DC.  The owners were the original and were moving to Washington State for retirement.  They did not want dozens of strangers walking through their home, even knowing they would receive a higher offer.  A realtor friend introduced us and I paid $650k cash.  I leased it for two years at $3400/mo, then sold it for $900k.  Just one example.\n\nThere are many reasons Sellers want their property \"off market\".  Often Sellers will find stronger buyers \"off market\".  I have banks, real estate agents, and investors come to me with \"off market\" properties regularly.  Also, some Sellers do not want neighbors to know.\n\nIn regards to commission, that sometimes comes into play.  More so in the commercial space.", "replies": [], "depth": 1}, {"id": "gt1rwck", "text": "If it\u2019s on market, that means the 4 off market offers they had weren\u2019t at their pricing. I sell apartments in FL and the market place is crazy right now.", "replies": [], "depth": 1}, {"id": "gt1yycg", "text": "Not sure how it works in other states, but in California the BOE will find out sales/transfers from state filings so trying to avoid assessments by selling off market will just lead to penalties and an assessment multiple years later (\u201cwhen\u201d they catch it, not \u201cif\u201d)", "replies": [], "depth": 1}, {"id": "gt29tay", "text": "As real estate person who specializes in off market deals I can say sellers prefer a lot of brokers to work on their deal and hope for the word to get out and buyers reach out to them directly. CA doesn\u2019t help. I only send to buyers I worked with in the past and absolutely trust. Even then there is a risk they\u2019ll show the listing to a relative who would reach out directly to the seller. I would concentrate on representing the buyers instead of sellers in off market deals.", "replies": [], "depth": 1}, {"id": "gt3b3ar", "text": "At least on the core/core+ properties I deal with on buy side, brokers aren\u2019t needed. Niche product type so you know who the all the big players are and what deals are going for these days. \n\nFor example just today, I know this one developer really well, toured his asset, had dinner etc. Been talking about his latest building with him for over a year and a half now. Get a call Monday from national group big name brokerage #1 about an off-market deal they\u2019re \u201ctaking to market\u201d soon. I bite and sign NDA/CA. Turns out it\u2019s this developers property...  national group w/ big name brokerage #1 says they\u2019re working with the local experts with big name brokerage #2 who did the leasing. Long story short, he wanted to get a BOV from national group w/ brokerage #1 so he could then sell it to me once he figured out the price. But brokerage #2 got wind of this and threw a fit so brokerage #1 &amp; #2 teamed up on this BOV/OM. Guess local market leasing experts w/ brokerage #2 also had him tied up for a right to lease/sell agreement that he wasn\u2019t aware of (he admits he fucked up now...). Since he got the BOV and wasn\u2019t signing a listing agreement or whatever w/ brokerage #1, brokerage #1 just decided to send it to off-market buyer (me) to see if an offer couldn\u2019t shake this developer loose. \n\nI get this OM and immediately call the developer. (side note: how many brokers does it take to sell a $40 million property? Apparently 10... got a good laugh out of that many names in the OM). He was pissed off I got it from a broker but once he realized he was tied up for a fee, he decided to make both brokerages earn their fee and have some fun with me. Ended up giving him 15 bps lower on cap rate to make up for the difference he was going to have to pay these brokers in commission because I want him to continue to let me buy every single one of his deals off-market. \n\nAnyways, fast forward to this AM and I get a call from one of the 10 brokers on the OM (this lady was with local big brokerage #2) asking if I was available for a buyer interview tomorrow AM and answer capital questions on how we underwrote the deal. I was stunned and said \u201ctell Billy (seller) it\u2019s 4:45 am or I\u2019m walking from the deal\u201d \n\nGet a call from Billy 15 minutes later saying he\u2019s instructed all brokers to sit on the sideline and get out of the way of the transaction or he will just wait out the listing agreement and sell it to me later. We now have a signed LOI and lawyers already flipping PSA. \n\nSo why off-market? Sellers know buyers and brokers just get in the way. Those local \u2018experts\u2019 with large brokerage #2 will never get a leasing assignment again from him given that stunt they pulled. \n\nTl;dr- brokers aren\u2019t needed in hot markets/asset classes when you have a core property.", "replies": [], "depth": 1}]