Why would a homeowner take over 40%+ loss

6 Replies

Good morning,

I have been reading about wholesaling and motivated sellers. My question is... Why would someone be happy to sell their house 40%+ below market value to a wholesaler just to close quick? They could sell it on the market for much more and even with closing costs come away a winner.

Thank you,

Erik

the reasons are endless. they may not know the true value... House generally needs a lot of repairs that they don't have the dough for .... Area has turned for the worse and they want out.

Many times those that inherit just want quick cash... And depending on which market your in houses may be very difficult to sell on the open market. And the only way to sell them is to put them through a Highly financed marketing program and offer them out of state to investors that really don't know the areas

Find the pain!  I like to ask my sellers that very question.  

Me: "I can pay you all cash but I would have to buy at a deep discount, that isn't anything you would want to do is it?"

The truly motivated seller will respond by asking what you will offer and say things like: I NEED to get rid of it, sell quick, just move on, I don't care about the money, etc.

It takes some discipline to drill down and get to the painful reason on why they need and want to sell.  I like to focus the conversation on why that reason is so painful and follow up with "I'm ready to do this today".

I just wrote a post on my bigger pockets blog on this very subject :)

The easy answer is most won't.  :)

However there are reasons.  Even just the simple certainty of getting it done.

For example looking right in your town of Auburn I see a house the recently sold that was an okay size 4BR that took about 200 days to close after being listed.  During that time they had $15K in price drops and eventually sold another $12.5K under the reduced list price.

They also said it had a brand new kitchen with new cabinets, granite and new SS appliances.  They just updated the bathroom and just installed a new HE Furnace and a new water heater.  Also said all the windows were recently replaced.

Doing all that work (and some less extensive stuff as well) retail probably cost them at least $50K.  A rehabber would pay less which is one reason you can sometimes offer a little more based on the amount of work needed.

Anyway They spent probably $50K+ to get it ready to list, got $27.5K less than they had hoped, paid a commission to do it while incurring almost 7 months of additional holding costs, not to mention the hassle of keeping a home "show ready" for SEVEN MONTHS.

I bet if they could go back in time you telling them "Don't bother doing any work and I can pay you cash in less than 2 weeks" would sound pretty good even if you were more than $100K less than they eventually sold for.

Thank you all for your insight. I have just started learning and I have so many questions to help me wrap my head around this wholesaling concept. I can wait to get started!

Its not a perfect analogy, but lots of folks (most?) choose to trade their car in to dealer when they could get more if they just took the time to sell it themselves.

This question caused me to step away from wholesaling and reevaluate the business but I came to realize that every so often a person will have circumstances that can be relieved by a quick and convenient sale. Its our job to get our marketing out there so we can be there for the seller when they find themselves in such a predicament.

Divorce is a big one.

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