I was reading one of the real estate forums in the last couple of weeks and I came across a piece of advice that made me shake my head. I think I may have asked out loud when someone was going to come up with a forum that had a delete button for really bad advice. That is the power – both good and bad – of great forums where the readership, uncensored, is giving the advice. The good is that the advice is real and unfiltered. The bad is that you really have no idea who is giving the advice and sometimes…it can be wrong!
Making Offers on MLS Listings
The forum that I happened to read was from an investor looking for advice on how to buy property in a market that I happened to have a little insight. Before I could comment, there were already a couple of responses and one was giving advice on not even looking at the local MLS for real estate deals. The commentator is a relatively new investor (I think he says he has been investing for under one year) and the advice was pretty emphatic about the MLS being a waste of time in this market.
I am sure that is the case in some markets around the country. Days on market may be low. Discount percentages from list to sale price may be low. Properties may receive multiple bids above list price. All of these factors make buying on the MLS more difficult but certainly not impossible. For new investors asking where or how to get started, getting advice to ignore the MLS is a sure-fire way to delay or possibly even stop your progress as an investor.
The advice given on the forum listed a few reasons why the local MLS was a bad place for new investors to find deals. Among those reasons listed, if a property sat for more than 45 days it was a dog and not a good deal. If a property was a good deal every big investment company in the city immediately bid and a price war would ensue. If the property were listed on the MLS in the first place, more than likely it would have fees and other costs associated with it that would make it a so-so deal while buying directly from a local wholesaler who is buying from owners would be a much easier route to find deals.
Forget about buying from local wholesalers for this article, because I really want to focus on why every investor should have buying off the MLS as part of their strategy. Even in markets where factors make it look like a bad idea.
My company makes hundreds of offers a week on properties to get to the 10-15 that we want to buy. I did not say that we make a handful. I did not say that we make dozens of offers. I said that we make hundreds of offers every week and vast majorities are made in the one location where most properties are found…on the MLS.
Not every offer is a pretty one and rarely are we offering list price. Sometimes we are over list and most times we are well under list price. We do not care how many days they have been listed and we know from years of experience that days on market is not always a reflection of whether the deal is good or not. We know in each zip code and often by neighborhood, the exact price per square foot that we want to pay. That makes it very easy to make offers.
Buying Real Estate On The MLS Is A Numbers Game
The reason that I thought the forum advice was so bad is that buying real estate is and always will be a numbers game. With very few exceptions, the best real estate investors are looking at and offering on a lot of houses every week. Investors know that for any given reason houses are priced wrong. A listing agent did a high BPO to get a listing. A seller wants to hold out for a higher price than the market is willing to pay. A seller places a low value on the work that needs to be done. There are so many reasons that a property will sit on the MLS.
Experienced investors who are buying a lot of property know that they need to make a lot of offers on a lot of properties and sometimes WELL below the listed price on the MLS to get to the pricing they need to make an investment a good buy. It is way too difficult to be absolutely precise and make offers only on the exact house you want to buy. Putting all of your activity on ONE property is risky in that if you do not get the property or if the price is above what you want to pay, you have some tough choices to make. Pay too much or lose the ONE property you had identified as your deal.
Active real estate investors who are on the streets each day looking at houses are constantly offering on listings and they know they will lose more offers than they win. Because they are offering at aggressive pricing and across a lot of properties when a property is bought, it will be bought at the right price and will be a good deal. Many of us have been told what we can do with our aggressive offers only to have listing agents come back sheepishly in 60 days and ask if our offer is still good.
Why does this happen? Two reasons.
One – new investors listen to bad advice on MLS listings. They fail to make offers on properties for all kinds of reasons. They think it is priced too high or it has been listed too long or the worst reason of all…they think they know more than they do and they are embarrassed to make a low offer on a property. This leads to fewer investors making offers on properties and listing agents have fewer options when they get down to the day that they really have to sell it.
I cannot tell you the number of times we have bought properties for half or less of the listing price on MLS because we were the only offer. The houses have always been fantastic buys for us, but they were listed too high to begin with and no one wanted to embarrass the listing agent with a low offer…except us.
Guess who bought the house?
Two – because, we close on the houses we put under contract. There is nothing wrong with making a lot of offers on houses. There is something wrong with making a bunch of offers and not closing on what you get. When you close on your MLS offers, listing agents will take your offers seriously, even when they are low. You have to earn the right to make a lot of offers and you have to earn the right to make them at half price.
We purchase roughly 30 houses a month across three markets on the MLS and probably make 300 offers or more to get those 30 houses. Realize that we fail on 9 out of 10 offers we make. For us, that is a good thing! Sometimes we are in situations where highest and best will win a deal and the pricing goes above list. Sometimes we are contacted months after making an offer and asked if our price of .30 cents of the listing price is still good. In either case, we get to decide if we move forward and actually put the deal under contract and we only purchase deals that are good for our company and ultimately good for our clients. That failure rate of 90% means that we are only buying the deals that make absolute sense for our company.
The other offers were either rejected, sold at a higher price or are simply sitting out there waiting for a future time when the seller may want to take our offer. That is the absolute best scenario possible for an investor. To have the ability to pick and choose which deals work for you and not worry about the ones that don’t. The advice given to that new investor to stay away from MLS listings and the reasoning behind that was so far from reality that I had to write this particular article.
The MLS is full of great deals and we are proving that across three markets now. Each market has a ton of investor activity and even has the dreaded “funds” buying up property. That does not mean that an aggressive and active investor who is willing to close on the contracts they win, cannot find great deals on the MLS. If you are a new investor, the MLS is the FIRST place I would start to make offers on houses and I would be making a lot!
Photo Credit: Rantes