The Basics of Real Estate Investing: Finding Motivated Sellers
A motivated seller is someone who needs to sell their home, not someone who just wants to sell their home. Someone who just wants to sell their property is usually expecting a full-price cash offer and if they get it fine, but if they don’t, they have the time and resources to wait until they find someone to pay their full asking price for the property.
On the other hand, a motivated seller has to sell the property by any means necessary and is looking for a solution to his or her immediate problem, which is to get rid of the property now! A real estate investor who comes up with a workable solution can usually buy such properties at bargain prices.
Truly motivated sellers make up a small portion of the real estate market. Most of the properties that you find listed in the multiple listing service (MLS) and even a good share of properties that are FSBOs (for sale by owner) are for sale by unmotivated sellers. Just because an ad or a listing advertises a “motivated seller,” it doesn’t really mean that they are. The term motivated seller has been highly overused by agents and sellers hoping to generate interest in their properties over the past few years.
The best way to find out if a seller is truly motivated to sell their property is to find out as much as you can about the seller’s specific situation. The basic and most important question you need to get an answer to is, “Why are you selling your home?” Smart investors will develop trust with a seller prior to asking the question. However, investors generally don’t have a lot of time to spend getting to know each and every potential seller; the key is to become skilled in talking with people and getting the information you need in a short amount of time.
Screening sellers to determine their level of motivation (and there are various levels of motivation) can be done with a simple phone call. For example, if you are calling on a FSBO ad you found in the newspaper or on the Internet, start your conversation by asking details about the property. Get the seller talking about easy things such as the number of bedrooms, bathrooms, the total square footage, the size of the yard, other amenities, the neighborhood, and the neighbors. Most sellers will be in their sales mode and tell you about how wonderful this property is. After they have warmed up to you by telling you about their little piece of heaven on earth, just ask casually, “That sounds like a wonderful property…why would you ever want to move?” More often than not, you will get an honest answer that will help you determine the motivation level of the seller.
If the seller responds with something like, “We really don’t have to move, but we would like to move to a little bigger home across town if we can sell,” then you probably don’t have a true motivated seller. Thank them for their time and move on to the next call. But if the answer is something like, “We really don’t want to move, but my husband has been transferred and we have to sell,” then you may have a motivated seller. Continue the conversation and try to find out all you can about their particular situation. You can create your own list of questions, but things you might want to know could include:
• How soon do they need to be out of the house?
• Have they already purchased another home?
• Do they need all of their equity out of their current home to purchase a new home?
• What is the current value of their home?
• What is their current mortgage balance?
• What is the condition of their home?
• Are they willing to consider seller financing?
• Are they willing to consider a lease with an option to buy?
Remember, you are trying to find out all you can about their particular situation so you can more easily come up with a solution. Over time, you will develop a list of your own of questions that help you determine a seller’s motivation level.
Although motivated sellers make up a small portion of the real estate market, they are out there. Finding truly motivated sellers results in good deals for investors. Motivated sellers are not too difficult to find, you just have to know where to look. Here are a few places to search and some ways you can attract motivated sellers and get them to contact you:
• Research classified ads in major newspapers. Get in the habit of looking at the real estate for-sale ads in newspapers every day. Look for key words that might indicate a motivated seller, words like transferred, handyman special, and must sell. Create a list of key words that indicate some level of motivation.
• Review ads in free papers, such as the Pennysaver or Thrifty Nickel. Many people who truly need to sell their property typically are in financial crisis and may not be able to afford major newspaper ads. Gather all the different free publications in your area on a regular basis and screen the real estate section for motivated sellers.
• Search Internet ads. There are numerous places a person can advertise on the Internet for free (Craigslist is one of the most popular sites). Search as many of these Internet sites as you can and find out which ones carry ads for your area.
• Review radio and TV station classified ad sites. Many local radio and TV stations have an Internet site that includes a classified section for online ads.
• Review the Multiple Listing Service (MLS). Have the real estate agents on your Power Team supply you with a hot list of listed properties (each week or every few days) that have key words indicating a possible motivated seller.
• Research old or expired MLS listings. MLS listings that have been on the market for 90, 120, 180 days or more are likely to have sellers more anxious to sell. You can also have the agents on your team provide you with a list of expired listings. You can send a letter of intent to owners who couldn’t sell their homes through the MLS to determine their level of motivation at the present time.
• Call on for-rent signs and ads. Every time you see a for-rent sign or ad, record the property address and the phone number. Call the owner and ask them about the property. If they say that they are not interested in selling, ask them if they have any other properties they would be interested in selling. You might find they have several that they would like to sell. Empty properties tend to motivate landlords.
• Check evictions records. Research court records to find landlords who are evicting tenants. You might find an angry landlord who would be willing to sell, especially if the tenant trashed the property on their way out.
• Be alert as you drive. Always be on the lookout for rundown and/or vacant properties. Note the address and ask the neighbors about the property to see if you can find out who the owner is and why the property is vacant and/or rundown. If you knock on enough neighbors’ doors, you will probably find someone who knows about the property.
• Always advertise yourself. When talking with neighbors of vacant properties or even your friends and family, let them know that you are always looking to buy homes and that you specialize in renovating rundown properties. Be sure to emphasize that you pride yourself on improving neighborhoods and increasing property values. You may even consider offering a finder’s fee if you end up purchasing a property they recommend (note: first check to see if there are any state or local laws regulating finder’s fees). Everyone you meet should know that you are looking for homes to buy—you are essentially building a small army of scouts searching for you.
• Drive different routes going and coming from your work and when running errands. In addition, consider going to a store in a different neighborhood—you never know what you may come across just driving around.
After gaining a basic understanding of real estate investing, a lot of new real estate investors begin their investing quest by looking for houses to buy. This can be a very frustrating experience, since there are thousands of houses in the market place for sale. To be successful as a real estate investor, you don’t want to spend your valuable time looking for properties to purchase. You want to spend your time looking for motivated sellers! Making investor-type offers to unmotivated sellers is a waste of your time and theirs. So do yourself a favor and concentrate on finding motivated sellers.
The ideas mentioned in this article are just a stepping stone. There are many other places to look for motivated sellers. Future articles on the basics of real estate investing will discuss even more places to find motivated sellers. Additionally, future articles will also discuss how to market your business and get motivated sellers calling you. For now, don’t concentrate on finding properties to buy, concentrate on finding motivated sellers.