I just did a search on BiggerPockets for “motivated sellers“. Guess how many items were returned…
We found 1,928 results for ‘motivated sellers‘.
This is not surprising. One of the (many) keys to being a successful real estate investor is to find motivated sellers.
For those not familiar with the term, a motivated seller is just what it sounds like; a person who wants to sell their property and has sufficient motivation. Their motivation may come from any number of reasons, such as getting divorced, relocating, inheriting the property, a retiring landlord, etc. This is different from just any seller, as a person who wants to sell their property and a person that needs to sell their property are at different points in the process and as a result will result in different quality of deals.
Many people seek out motivated sellers when they market. An example of this would be someone who markets to properties in probate, since the people who inherit the property more than likely do not want the property. Although I also seek out motivated sellers, often times I get leads of sellers who are not motivated at the present, but may become in the future. Below are the 4 steps that I take these sellers through in order to create a motivated seller.
Note: The critical aspect of this process is to spend a little bit of time and look out for the best interest of the property owner. If you put their best interests first, great deals and success will eventually come your way.
Step 1 – Determine Their Motivation Level
The first step when dealing with any lead is to determine their motivation level. When you first speak to the owner, you will want to gain an understanding of their situation. Are they selling the house because they need to, or because they want to? What is their timeframe? Is their property in good condition that a retail buyer would like, or does it need work? Are they asking market value or higher for their home?
Unless the sellers has some reason that they need to sell to you (an investor), they are most likely better off to sell the property via another means. If you were to make a low offer to a seller who is not motivated, they would most likely reject it and it may close the door on the future ability to purchase the property. Instead of making them a low offer that may make sense from an investment perspective, don’t make the offer and proceed to step 2 .
Step 2 – Sell Their House Themselves to a Homeowner
If it is determined that the person wants to sell their property but is not motivated, I’m completely honest with them that I am probably not their best option. If the property is in good condition (or even if the seller believes that the property is in good condition), I recommend that they sell the house themselves. I provide them a quick overview of the process and let them know that this option has the potential to make the most money since a homeowner will likely pay more than myself as an investor. Additionally, if they sell it without a Realtor, they will save the 6% commission.
Although the above paragraph is completely true, most people will not be successful selling their house on their own. The reasons why are plentiful:
- The person does not know the true value of the property
- The person does not know how to market their property
- The person does not know the ins/outs of selling a house
- The property is not listed on the MLS
- The person does not want to spend the time needed to sell the property
If the seller does end up selling the house on their own, then they are happy. You spent a little bit of time and helped someone, so feel good. If the person ends up selling the property on their own, you most likely would not have been able to purchase the house for a price that allowed you to profit anyways. If the person does not sell their house, then they are starting down the path of being motivated. Some time has passed, they have spent time and some money trying to sell the house and they have been unsuccessful. Because you left the door opened when you initially spoke to them, either you will contact them or they will contact you. This takes us to step 3.
Step 3 – List Their House with a Realtor
When you speak with the seller, they are probably a little more motivated but may not be ready for your offer yet. Sympathize with them and let them know that even though them selling the property themselves was a good option, it can be difficult because they are not an expert in selling houses. Prior to this point, make sure you have networked with several local real estate agents. When you find one that you like and can work with, offer to send them leads of sellers who don’t make a good fit for you. This will build great rapport with the agent, especially if they get some deals from sellers that you send to them. Also suggest helping them out if they have an ugly house or a property that is not selling for another reason by always giving them an offer. We have been able to purchase some properties because our agent brought us a deal that no one else would buy.
Since the Realtor should be an expert in their market, this should give the homeowner a better chance to sell the property. Again, you only spent a little bit of time speaking to them and referring them to your agent. The agent will then do all of the work of listing the house and trying to sell it. If they do sell it, then you most likely could not have purchase it for a price that makes sense.
Because you once again left the door open, set a reminder (maybe using Google Calendar) for right before the contract between the seller and agent runs out. Follow-up with the seller to see if they sold the property. If not, then they are ready for step 4.
Step 4 – Make Them an Offer
If the sellers gets to this point, there is a great chance they will be motivated. They wanted to sell their house, so they tried on their own (without success). They then listed with a Realtor and tried to sell it with an expert (again without success). So not only have they not sold their property, probably close to a year has passed. Additionally, they have probably come to the realization that the property is not worth what they thought it was. Because you have worked with them along the way, they are likely to contact you to get an offer for the house. Even if they don’t contact you, you should be contacting them. Sympathize with their situation. If they still really want to sell, let them know that you can give them an offer. It is much more likely to get accepted at this point then when you initially spoke to the seller. In some cases, the offer can even be lower than you initially planned to make, and you can cite that things have changed in the past year as the reason.
Real Life Examples
I have successfully used this process several times to turn sellers into motivated sellers. Below are a few examples.
- Tired Landlord – A landlord who has owned a property for a while approach us to sell. He wanted too much money for the property, so we suggested that he try to sell the property himself. He had a vacancy for a while and listed the property “For Rent” and “For Sale”. After not selling on his own, we recommended he try a Realtor. She priced the property around other duplexes on the market, but none of them were selling and this property was in worse condition. When his listing expired with the Realtor, we submitted him with an offer and after a little negotiation were able to purchase agree on a sales price.
- Realtor Lead on a Single Family – Because we referred a few sellers to our Realtor and they sold their house with her, our Realtor was more than happy to bring us a house that she could not sell. In this case, the owner had moved to California and the property was vacant. Additionally, the floor joists in one of the bedrooms were rotting out and the floor had sunk in. As a result, no retail buyers wanted the property. We were able to make an offer over $30,000 less than the asking price and purchased the property. The best part about this is the win, win, win situation. The seller sold their long distance property that they could not sell otherwise, the Realtor made a commission on the property that they could not sell (instead of letting the listing expire) and we got a great deal.
- Vacant Property – We had a vacant property across the street from one of our duplexes. It has been vacant for several years. We contacted the owner with an offer but he rejected it. We suggested that he list it for sale and he might get a higher offer. He was not interested in doing the work himself, so we referred him to our Realtor. He actually did not end up contacting her and when we followed up with him a few months later, he was just ready to sell and be done with paying the taxes on it. We discussed his situation and he wanted to avoid the tax hit of selling, so he owner financed the property for us for 10 years at a 6% rate. We closed in a week.
When looking or marketing for your next deal, you may come across a seller who is not motivated, but may be in the future. Instead of passing on the opportunity, spend some time and help them out. If they sell the property to someone else, you helped them and they may refer someone else to you in the future. If they are unsuccessful at selling, you may be able to turn them into a motivated seller and pickup a great deal.
Do you have any tips/tricks you use to find or create motivated sellers?
Photo Credit: bolandrotor