New investors often assume off-market sellers are uninformed. Occasionally that is true. Far more often the seller knows exactly what a retail sale would produce and is choosing something else on purpose.
What a retail sale actually costs a seller
A listed sale means repairs before photographs, showings on a stranger's schedule, an inspection contingency, an appraisal contingency, a financing contingency and sixty to ninety days of uncertainty — any part of which can collapse and start the process again.
For a seller with a property that will not pass an inspection, or who needs the proceeds on a fixed date, that process is not merely slow. It may not be available at all.
The situations that produce off-market deals
Inherited property several people own jointly, where the co-owners want the matter finished rather than optimised. A landlord who has decided they are done and does not want to turn units before selling. Property with deferred maintenance the owner cannot fund. A relocation on a deadline.
In each case the seller is buying speed and certainty, and the discount is the price of it.
What this means for you as a buyer
It means your value to the seller is your reliability, not your offer. A buyer who closes when they said they would is worth more than one offering slightly more and asking for an inspection contingency.
It also means retrading is expensive in a way it is not on the retail side. Reduce your price after the fact and you have removed the certainty the seller chose you for. Word travels.
Underwrite before you commit, not after
The practical consequence is that your diligence has to be front-loaded. Know your numbers and your rehab range before you agree to terms, because the flexibility to adjust later is not really there.
This is why buyers who close quickly tend to be buyers who have looked at a lot of properties in a small number of markets. Familiarity is what makes speed possible.