Is a distressed lead worth anything before it's under contract?

Question

Hi everyone, I'm new to the wholesaling and fix-and-flip side of real estate investing, coming from an AI and data background.

I'm trying to understand what a distressed or motivated-seller lead is actually worth. I assumed a good one had real value, but the more people I talk to, the more it sounds like lead is worth almost nothing until it's under contract.

I get why an end buyer wouldn't pay for a raw lead, they don't want to do the work of contacting the seller and locking it up. But what about wholesalers? Is a good distressed lead worth anything to you before it's contracted, or does all the value live in the contract itself?

And if leads do have value, what actually makes one worth paying for versus worthless? Just trying to learn how you all think about this. Appreciate any honest takes.

Crystal Smith · Answer

We receive leads from multiple sources for both our fix and flip business and the realtor business.  Many we generate on our own, some come from lead gen services, some from wholesalers.  We don't pay for leads up front, even if it's distrssed or motivated.  A lead is worth it to us if we can make our hurdle rate (Return on investment goal) from the purchase of the asset.  If you're a wholesaler you have to control the lead by having it under contract.

If you want to know if a lead is worth it then you need to understand the people you will eventually be providing the lead to.  What is their criteria for buying the asset whether it's distressed or not.

Travis Goodwin · Answer

Brett,

My answer would be: it depends on the quality of the lead and the relationship with the seller.

A list of names with no contact made? Almost no value.

A lead where someone answered the phone but isn't motivated? Very little value.

A lead where you've had a conversation, confirmed ownership, uncovered a problem, identified motivation, and know they're open to selling? That's significantly more valuable.

The challenge is that until a property is under contract, there's still a lot of uncertainty.

The seller can change their mind.

The numbers can be wrong.

The motivation may not be as strong as it seemed.

That's why most of the value gets created during the process of converting a lead into a signed agreement.

From my perspective, a distressed lead isn't really an asset by itself. It's an opportunity.

The more information you have about:

• Motivation
• Timeline
• Condition
• Equity
• Decision makers
• Price expectations

...the more valuable that opportunity becomes.

In wholesaling, I'd argue the real skill isn't finding leads. It's uncovering motivation and turning conversations into contracts.

That's where most of the value gets created.

Curious what others think, but that's how I've always looked at it.

Caleb Brown · Answer

It might be. The value comes down to how vetted and serious the lead is. If you make a landing page and sell those leads the quality would be lower which means cheaper leads. If you cold called an owner, walked it and did all the ground work that lead is hot and worth it. There is plenty of lead services out there so it's viable but it'll come down to the quality vs cost for the end consumer.