Why sell off-market?

I agree and disagree with teddythebear and Multiverse. I agree that most off-market deals are way overpriced and the reasoning for this typically is that an agent made some cold calls to some owners or knows the owner from other deals and asks if the owner is interested in selling (I receive many of these cold calls from random agents). Generally for the properties these agents call me about, I am not motivated to sell, but if I get a stupid price for them, I will sell. So when the agent asks me how much I will sell for, I give them a high price. The agent then takes this number and markets it off-market to their internal network of potential buyers. The agent does not market it publicly nor put it on MLS because 1.) I will not sign an exclusivity agreement with them and 2.) the agent wants to sell it directly to a buyer so they make the full commission. For most off-market deals, this is the reasoning they are off-market. It's not that the owner wants it to be marketed off-market. Generally speaking, the seller doesn't care how its marketed. Just get me the price I want.

No I disagree with teddy and Multi that off-market discount is a myth. I have done 2 true off market deals and I truly believe both deals would have received significantly more if marketed publicly and I will explain my reasoning as well as why they were sold off-market.

Deal #1: I purchased a 3 unit project for $2.8mm a couple years ago with the intent of gut renovating and converting the basement to a 4th unit through entitlement. A couple days before PSA signing, a very similar comp came on market and went under agreement for $3.3mm (this comp was actually worse than my 3 unit because it did not have parking). On the day that I was supposed to sign the PSA with the seller, the seller went MIA and told us via his attorney that he is no longer interested in selling. The backstory behind this property, which I later found out, was that the owner had passed and the heirs couldn't agree on what to do with it, so it ended up in probate court. The court ordered the property to be sold and appointed a "magistrate" to handle the sale...this magistrate is some random attorney that specializes in family affairs (such as divorces etc..) NOT real estate. The magistrate went onto the city records to find the assessed value ($2.55mm) of the triplex and that's how he came up with the asking price. The man selling it to me, lets call him Bob, owned the adjacent property to this triplex which is how he knew of all the legal troubles and probate court. He offered $2.55mm to the magistrate which was accepted and then contacted his broker friend to flip the PSA for $2.8mm (Bob is not really in the real estate business and does not know the true value of this property, which is why he wanted to get out when the $3.3mm comp came out). The reason Bob wanted his broker friend to sell it off market was because 1.) he didnt actually own the property and 2.) There's a clause in the PSA with the court that the court maintains the right to void the PSA should a better offer come in before closing (this is how I forced Bob to come back to the table to sell to me because if not, I would go straight to the magistrate with my offer).

Deal #2: I actually just signed PSA for this one a couple weeks ago for $4mm. The property is a SFH but located in a very commercial location at the heart of the city and is actually zoned for commercial. The submarket is one of the most desirable and expensive submarkets in my state and is where athletes and celebrities live. The current owners are not developers, but fast food franchisee owners with the intent of opening a franchise at the location, but the neighborhood and city hated their proposal and the neighbors want to preserve the existing building. They spent 5 years trying to permit it, but cant get it done and things are getting contentious with the city and neighbors. So their zoning attorney, who is also my zoning attorney, reached out to me, explained the situation, and asked me if I would be able to save the existing structure (or at least the front facade). I told my attorney that I would need a number of variances and ultimately be able to build double the amount it it zoned for. I also told him that my offer would be contingent on these variances being approved and I won't close until I have permits in hand (a 6-12month period). My attorney ran my scenario by the city officials and neighborhood and got the "soft" okay (I still need to go through the official entitlement process) and the owners agreed to my terms. I guarantee if this property went to market with these terms, it would be sold for much higher because the project is contingent on approvals. A developer only needs to risk ~$50k to entitle it, since there is no cost of carry and if they are able to entitle it, it could easily be flipped for $6mm+. The reason the owners aren't marketing it publicly is because they don't really care that much to sell (it's only because the zoning attorney brought them a buyer to get out of it). They have so much money that it is a pride thing. Their plans right now are to just demo the building to piss off the neighbors and have no intention of developing anything.