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Stealth “Off-Market” Home Sales On The Rise Among The Super-Wealthy

An estate in Woodside, Calif., traded hands for a staggering $117.5 million in November. But it wasn’t until January that the transaction surfaced in public records. Rumors exploded about the price tag, the buyer (reportedly the Japanese tech billionaire Masayoshi Son), and even now, little information exists, including which brokers were involved.

Why such confusion? The Silicon Valley spread was never actually listed for sale.

The transaction – perhaps the biggest ever for an existing home – falls under a foggy category of real estate deal commonly referred to as “off-market.” Once rare, in an age in which privacy is perhaps the biggest luxury, off-market sales are on the rise among the wealthiest buyers and sellers of U.S. real estate.

“I am seeing more of these off-market deals in the past six months than I’ve seen in my career,” says Christophe Choo, a Los Angeles-area luxury broker with Coldwell Banker Previews International. “It’s unusual, particularly given the strength of the market and the lack of inventory.” Softbank’s Billionaire CEO Reportedly Behind U.S.-Record $117 Million Silicon Valley Home Buy Morgan Brennan Morgan Brennan Forbes Staff $135 Million Dallas Palace Is America’s New Most Expensive Home For Sale Morgan Brennan Morgan Brennan Forbes Staff The Biggest Billionaire Home Sales Of 2012 Morgan Brennan Morgan Brennan Forbes Staff $100 Million Homes: In The Stratosphere Of Real Estate, Logic Breaks Down Morgan Brennan Morgan Brennan Forbes Staff

“Off-market” generally refers to a home that’s being sold without being listed on the Multiple Listing Services. Property information circulates among a connected network of realtors and their vetted high-end clientele. In some cases, the sellers of these homes never initially intended to sell them, or, if they did, did so unofficially, quietly floating the property’s availability among a small, contained network of contacts.

There are several kinds of off-market deals, though scenarios can essentially run the gamut and even brokers disagree on definitions: informal pocket listings, exclusive listings that are officially offered for sale but not by way of a listing page, and super secretive confidential sales. The term pocket listing (sometimes called a hip-pocket or whisper listing) gets tossed around quite a bit but it has a very specific meaning. A “pocket” refers to a scenario in which a seller informally engages a broker (usually one worked with before) to discreetly and unofficially gauge demand among the prospective buyer pool. There’s no official listing contract signed but if the broker finds a buyer, he or she will reap an agreed-upon commission or fee.

A privately marketed “exclusive” plays out much like a pocket — but the parties sign a contract that enables the broker to officially market the property, legally acknowledging an intent to sell. A confidential or private sale can encompass a variety of secretive scenarios, for example, a transaction in which a homeowner is made an offer by a prospective buyer that inspires them to sell even though it was never on the market.

“There are a number of people that come to town and specifically ask me what is off market that they can see,” says Audrey Ross, a senior vice president at EWM Realty International, an affiliate of Christie’s in the Miami area. Ross has handled a variety of off-market transactions including an eight-figure exclusive sale last year. “If it’s a truly wonderful property, a wealthy buyer will pay a premium for it because there just aren’t that many available.”

Indeed. Both of the two most expensive U.S. home sales on record, the $117.5 million Woodside estate and billionaire Yuri Milner‘s $100 million Los Altos Hills, Calif. mansion, were traded in off market deals. And a series of lofty sales have transpired in this fashion in the past year alone — many of them record-breaking. Last March Eddie Lampert, the hedge fund billionaire who controls Sears Holdings, plunked down $38 million on a Miami estate on exclusive Indian Creek Island that hadn’t been listed for sale. In April, on Fla.’s west coast, two huge homes on the same street in Naples each broke the $40 million barrier within weeks of each other, neither with the help of a listing page. In June, hedge fund billionaire John Paulson spent a combined $49 million on the Hala Ranch and an adjoining property in Aspen, Colo.; once listed for $135 million, the 56,000-square foot manse hadn’t publicly been on the sale block since the beginning of the economic downturn. In November Ken Griffin, another hedge fund billionaire, shelled out $15 million in the most expensive condo purchase in Chicago history, on a Park Tower penthouse that had been marketed privately (it did actually hit the MLS, just as the deal was struck). And in January, a massive oceanfront estate in Malibu, Calif. owned by finance billionaire Howard Marks fetched $75 million from an anonymous Russian couple in the city’s largest sale to date.

The sky-high prices may seem to run counter to the conventional wisdom that the larger the prospective buyer pool, the larger the chances of attracting multiple bids and driving up the price. But at the upper reaches of the luxury market, off-market deals typically command a premium even a bidding war couldn’t top because ultra-wealthy homebuyers will pay top dollar for one amenity that no amount of market comps or construction can buy: exclusivity.

“It’s very common in the super luxury market for buyers to call me and say I want something that hasn’t been on the market and that nobody else has seen,” explains Choo, who, despite being a big proponent of the MLS route, currently has one such off-market property in escrow. “A lot of wealthy people want their privacy and that’s, I think, part of the cachet of buying something not on the market.”

Starting with the home’s details and accompanying images. Once a listing enters the MLS – and the accompanying national listing platforms like Realtor.com, Trulia.com, and Zillow.com – the details (which can include address) and images become the property of other platforms and essentially enter the public domain, meaning they can become easily shared by, for example, media outlets. There is no way for a new buyer to pull those images down – a possible bone of contention for a high-net worth individual keen on privacy.

Even though it’s not a secret, you won’t easily find information on the $135 million Crespi-Hicks estate, America’s most expensive home for sale. Marketed with Douglas Newby of Douglas Newby & Associates, the Dallas spread isn’t in the MLS and images can only be viewed on his site, Architecturally Significant Homes and his Huffington Post blog. “The MLS for the majority of homes is really beneficial for selling, but it’s geared toward a more generic search so some homes fall outside of the scope of it,” asserts Newby, who has brokered off-market exclusive sales but steers clear of so-called pocket listings. “It’s public knowledge that the Hicks estate is for sale but I doubt there are many people searching for the MLS for it, so it kind of misses the point.” His reason for keeping information as contained as possible: the sellers’ and future buyers’ privacy.

Off-market shopping can also be a good way to test a unique property’s saleability, say realtors. For every private deal struck, more eventually make their way to the sale block. In the fall, rumors surfaced that pop queen Madonna was quietly shopping her 16,500-square-foot Los Angeles mansion with a $28 million price tag; she took the Bel Air listing public in January for $22.5 million when a buyer didn’t emerge off-market. When Candy Spelling first decided to sell her Holmby Hills estate the Manor for $150 million, she did so sans the MLS for more than 18 months before expanding marketing efforts more publicly in September 2010.

Among the more jaw-dropping mega estates that have been rumored in recent months to be amenable to an offer: the 10,674-square foot 15 Central Park West penthouse of hedge fund billionaire Daniel Loeb (reported price tag: $100 million) and the storied 9-acre-plus Owlwood estate in Holmby Hills (reported price tag: $100-$150 million).

“A really good rolodex is the basic ingredient for a deal like this,” says Ross, noting that these deals can only work with a well-connected luxury broker. “You need someone who can call up an owner and have them not hang up the phone when you say you want them to sell their house.”

The drawbacks to shopping an off-market property tend to center around the seller. “This only really works at the very top of the market if you have something that is truly a trophy property,” adds Jonathan Miller, chief executive of Miller Samuel, an appraisal firm. “In that case there would be a premium for beating out the pack.”

But if the home isn’t something truly outrageous – a property for example that could be searched easily by way of the MLS or for which there are a standing number of comparables – the better price may be had on the open market, where more buyers can learn about the property and potentially bid against each other for it.

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