Off-market home sales usually result in lower prices, research finds

An off-market sale may be attractive to save marketing expenses, but research suggests it could end up costing more through a lower sale price.

The new data comes from PropTrack, the analytics division of REA Group, which runs Australia’s biggest real estate advertising portal and therefore loses potential business whenever someone sells off-market.

PropTrack’s economists compared the prices of properties sold after being listed on REA’s platform to the sale prices of comparable properties not listed with it, which may also include some properties advertised exclusively on other websites.

Many properties for sale are listed on multiple platforms, although a significant number of properties are now sold “off-market”, where a seller or their agent does not advertise publicly but offers the property through a network of known prospective buyers and/or buyer’s agents.

The report’s author, PropTrack senior economist Paul Ryan, said he found homes sold that had been listed on REA’s website fetched an average of 4.3 per cent more than those that had not.

“While some sellers might try to save money by not advertising online, this analysis shows the potential earnings lost in the final sale price far outweighs the initial cost of advertising,” the former RBA economist argued.

At current property prices, Mr Ryan estimated the average lost value to be more than $60,000 in Sydney and close to $30,000 in Melbourne, with the dollar figures lower in cheaper markets.

The gap tended to be higher, relative to the property’s value, in regional markets.

PropTrack estimated sellers received around 10 per cent less for a home sold off-market in regional New South Wales, and around 6 per cent less in regional Victoria and Western Australia, with a smaller differential between the capitals and regions in Queensland and South Australia.

Real Estate agency Ray White’s chief economist Nerida Conisbee, who was not involved with PropTrack’s research, said the findings match her firm’s experience and internal data.

“In general, we do recommend that Ray White agents advertise,” she told ABC News.

She said it also makes sense that the link between advertising and sales price is stronger in regional markets.

“Broadly speaking, advertising for regional areas is critical because people don’t necessarily drive past the properties to know that they’re available,” she added.

Ms Conisbee said a fairly typical marketing campaign would cost $10,000, with costs ranging from $7,000 for a budget promotion to around $30,000 for advertising that includes videos, drone shots and priority placement on a variety of websites.

Ray White estimates that advertising on the big real estate websites, such as those owned by REA Group and rival Domain, starts around $2,500 for cheaper suburbs and rises from there, with extra charges for putting the property higher up in search results, having it pop up on other websites or sent in an email alert to people who may be interested.

Ms Conisbee said weaker market conditions generally make advertising more important for maximising the sale price than during booms.

“During the pandemic, it was a very strong time for property, interest rates were really low, and there were lots of people looking to buy, at that time that it would have been a lot easier to sell off-market,” she said.

“Right now, the market is starting to get stronger, but it’s still a lot weaker than that time period and, as a result, we generally advise spending some money on a marketing campaign.”

Auction or private treaty?

Another hot topic of debate about selling a home is whether to take it to auction or to sell by private treaty.

Ms Conisbee said Ray White runs about a quarter of the nation’s auctions and generally recommends it as a preferred sales method to sellers.

“We’ve got a pretty decent sample size in terms of the number of auctions taking place and we do track highest prior offer versus sale price. So it’s not exactly the same as private sale versus auction sale, but you know, does give us a bit of an indication,” she said.

Ms Consibee said, aside from the buzz and pressure on competing buyers an auction generates, it also adds something of a deadline for the time the property is on the market.

“What we find is that when a property is on market for a long time we see an increase in the amount of discounting taking place,” she observed.

“So the absolute hottest time for a property to be on market is those early days, those first few weeks.”

Research by real estate economist, associate professor Adrian Lee at Deakin University, backs Ms Conisbee’s view that going to auction rather than selling by private treaty tends to ramp up the price, especially when the property market is on the way up.

Work undertaken several years ago by Professor Lee found auction sale prices in Sydney were 6.9 per cent higher than private treaty sales, even after controlling for the fact that auctions are more commonly used to sell larger homes in more expensive neighbourhoods.

Professor Lee said he has not updated his research in this area since he was interviewed by ABC RN’s The Money program in 2019.

“This pressure that you have on buying and there is no cooling-off period, it makes you vulnerable,” he observed at the time.

Ms Conisbee said the evidence for achieving higher prices has seen auctions start to become more popular outside the two biggest capitals, Sydney and Melbourne, where they have traditionally been more popular.

“Even markets like Adelaide, it is now more commonplace to go to auction,” she said.

“So it does seem to be catching on as a more transparent way to sell.”