It is estimated that 85-90% of properties that are sold in the United States are listed for sale through a real estate agent. This would mean it’s a good practice as a real estate investor to develop good relationships with your real estate agent(s). Typically, as a real estate investor, we are looking for properties that are vacant. We also want to find properties that are distressed or need some updating. Third, we are looking for a motivated seller. This is the typical criteria you want your real estate agent to be looking for when he or she is searching for properties for you. After you have a steady stream of these types of listings flowing in from your realtors, you might want to ask then to add a few other categories to your search parameters.
Three simple additions will give you more properties to look through and research so that you can be making even more offers each week. Ask your agent(s) to send you expired listings, withdrawn listings and listings that have gone back on the market. These three categories will each come with their own unique characteristics to research, so let’s dive into that.
1. Expired Listings. These are houses that were listed on the MLS and did not sell. The purchase price may have been too high or there may have been other issues that you will need to research. The best strategy is to contact the homeowner and let them know that you noticed that their house had been listed in the past but is not currently listed. Ask if they are still interested in selling and let them know you work with a team of investors and can offer cash for their house. Because their house is no longer listed, the listing has expired, they will no longer be working with a real estate agent and, therefore, the agent’s commission will not need to be a part of the purchase price. On a typical transaction the selling agent and the buyer’s agent will have a commission total of about 6%, so taking this out of the equation might help the seller net what they wanted on the property. This might be a really attractive offer to the seller because they don’t have to pay that commission. It may also be attractive because it can be a fairly quick sale and not include a buyer needing to get financing from a bank.
You’ll need to contact them and ask some questions to determine how motivated they are to sell and if you will be able to deliver a cash offer that will satisfy their motivation. Keep in mind that these home owners might be getting calls from other real estate agents trying to get them to re-list their house with them so you want to set yourself apart as a real estate investor interested in their home. You can say something like, “My partners have been working on a few houses in this area and noticed that your house was on the market and now it’s not. Are you still wanting to sell your house?” This can start the conversation. Make sure you are leading the conversation to find out what is really going to motivate them to sell so you can take quick action to address their motivation.
2. Withdrawn Listings. Withdrawn listings are properties that were listed for sale but for some reason the owner of the property cancelled the listing with the real estate agent. There are numerous reasons this might happen. They might have changed their mind about selling, they may not have liked keeping the house clean for the showings, they may have decided that they wanted to do some work on the house in order to get a better asking price or maybe they did not like the way the real estate agent was marketing their property. Whatever the reason for withdrawing the property, they could potentially be a motivated seller if you can offer a cash price quickly without a real estate agent. This phone call would go something like, “Hello Mr. Seller, I noticed you withdrew your house from the market. Are you still interested in selling your property?” Then let the conversation start from there. Again, just like with expired listings, you want to be leading the conversation to see if there is still any motivation to sell.
3. Back on the Market. This category is my favorite and has been a very successful strategy for me and many other investors. When a property goes back on the market it is because the sale has failed for some reason. It may be because the inspection yielded unfavorable results and the potential buyer didn’t want to buy the property any more. It could also mean that the potential buyer was not able to obtain financing for the property. Whatever the reason, this is good news for us because the seller is a bit more motivated because they thought that their property was sold and they were headed to the finish line. Now their thoughts are along the lines of, “Ugh! I have to start this whole process over” and their real estate agent is thinking the same thing. This is when they may entertain a lower offer with the promise to close much quicker. Again, it always depends on the motivation of the seller. If you can have your real estate agent do a little homework with the selling agent before you make the offer then you can find out if they are more motivated by a quick close offer or getting the right price. I have personally found that once the process has been started and they thought they would be closing soon, they are much more likely to take a lower offer just to be able to close near when originally planned.
In the first two scenarios above, expired listings and withdrawn listings, you will be getting the listings from your real estate agent but they will not be getting commission on the deal so make sure you have a conversation with them up front on how you might be able to give them a referral fee if you close on one of their properties. By doing so, they will be much more likely to want to assist you. As in all of entrepreneurial ventures, it’s important to think outside the box and look for more ways to bring in deals. Spend some time thinking about what a motivated seller is and where you can find them. Then come up with a plan to get in touch with them. Get creative in other ways you might be able to use your real estate agent and the MLS. As always, happy investing!