Find out all you need to know about motivated sellers for real estate investing…
There is lots of talk about motivated sellers in real estate circles. So what is a motivated seller? Why are they so important to real estate investors? How do you find out who they are, and do deals with them?
WHAT IS A MOTIVATED SELLER?
Simply put, a ‘motivated seller’ is a property owner who is motivated to sell.
Motivated sellers are gold to real estate investors of all types. Especially property wholesalers. The theory is that the more motivated a seller is, the better deal an investor can get on the property. If a seller needs or wants to sell quickly they may sell cheaper, and really need the services investors can offer.
A motivated seller is typically in a time crunch situation. However, there some variations of motivated sellers.
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Motivated Sellers Who Are Actively Marketing Their Properties
These are property owners who recognize the need to sell and are actively taking action. They may have listed their property with a Realtor, or be going the For Sale By Owner (FSBO) method, or somewhere in between. Or they may be actively reaching out to wholesalers and cash buyers online. This level of motivation and action has its benefits to buyers, but can mean there is competition as well.
Sellers Who Should Be Motivated
This group may be advertising their property for sale, but may not be as motivated as they should be. They may be facing upcoming deadlines, turns in the market, or other costs and risks, but may not fully appreciate the seriousness of their situation, and the downside of taking too long to sell, or asking for too much. This is a great opportunity for investors to step up, provide help, and hone their offer and negotiation skills.
Motivated but Not Actively Selling
There are also many real estate owners out there who have or should have high levels of motivation but who are not actively marketing their properties for sale. They may be unaware of how motivated they should be, too busy to take action, paralyzed by fear of making the wrong choice, or just oblivious to the help available.
Distressed Properties vs. Motivated Sellers
Distressed properties and motivated sellers are sometimes lumped together in one category and the terms get used interchangeably. However, these can be two different types of sellers. Distressed properties may be owned by motivated sellers, or not. Motivated sellers may have a distressed property situation, but not necessarily. Both distressed properties and motivated sellers can be good deals for real estate investors and wholesalers, but they do not always overlap. A run down property which looks physically distressed may not be owned by a seller who is motivated to sell at all. A motivated seller can also have pristine new property for sale.
WHO ARE MOTIVATED SELLERS?
Motivated sellers can come from any walk of life, neighborhood, level of education, and salary level. There are numerous reasons that property owners can become motivated, or should be highly motivated to sell.
Here are just a few of them…
Law firm McKinley Irvin reports that there is a divorce in the United States every 36 seconds. That is 2,400 divorces per day, 16,800 each week, and almost 1 million every year. Note that the average time to remarry is 3 years. Divorce rates for 2nd and 3rd marriages rocket to 60% to 73%. That’s a lot of divorces. That doesn’t even count the unmarried couples splitting. Every time there is a separation there is need for new housing. And often new unions mean new housing needs too. Whether before, during, or after a divorce there can be tremendous motivation to sell real estate.
Getting a new job, losing a job, or relocation by an employer can all mean serious motivation to sell a house. Few have any meaningful savings to get them through periods without income or to juggle two mortgages.
3. Physically Distressed Property
Whether due to property age, deferred maintenance, storm damage, fire, flooding, vandalism, or buying a property with hidden issues, there are millions of distressed properties out there. These issues can quickly accumulate costs, fines, bills, and violations. Many can’t afford to fix the issues.
Another area of motivation is when nearing the end of life or inheriting property. Often heirs can’t or don’t want to care for a property. They need to sell fast to avoid it becoming a financial drain, or losing the inheritance altogether.
5. Foreclosures & Financial Default
Foreclosure may be one of the most common motivated seller situations. Foreclosure is commonly automatically linked to falling behind on mortgage payments, but that is just one reason people fall into foreclosure. Underwater mortgages, balloon mortgages, fraud, property tax delinquency, code violations, failure of insurance companies to pay claims, and even income tax issues can all lead owners down the road to the brink of losing their properties.
6. Real Estate Auctions
Real estate auctions are definitely a place you’ll find motivated sellers. This may be creditors auctioning off properties, or owners and agents seeking a fast way to move real estate.
7. Builders & Investors
Builders and investors can also be highly motivated sellers. Builders and developers are on tight timelines to move units. Investors of all types can come under pressure to shift assets off their books too. This may be due to regulations, poor marketing, rising costs, changing market dynamics, or personal issues. This may bring the opportunity to pick up deals in bulk.
8. Tax Law Changes
Tax law changes have often been big motivators to sell. When tax rules change investors may need to beat deadlines before their liability goes up, or before the property becomes less attractive to other buyers. Note that interest rate hikes can also have similar affects.
9. Motivated Referral Partners
Don’t overlook motivated referral sources either. There are many professionals and businesses which are constantly dealing with motivated and distressed sellers, and who may also have a high level of motivation to get their contacts to take action. This may include; attorneys, financial advisors, mortgage loan officers, bank managers, real estate agents, other real estate investors, and more. These leads may include expired listings, borrowers turned down for loans, executors of estates, and others.
Again these leads can come from any neighborhood, anywhere in the nation from the most expensive to the most affordable. The best at mastering these opportunities will be those that get food at finding motivated sellers, being found by them, and who can anticipate who will be facing the most motivation next.
NEGOTIATING WITH MOTIVATED SELLERS
Negotiating with motivated sellers can be incredibly easy, or very challenging. Here are some of the keys to successfully negotiating real estate deals with these owners.
Both sides should be benefiting from the deal. Remember that they do not have to sell. In fact, many will let their properties be lost, rather than take a deal which they feel is just taking advantage of them. While you should strive to provide help, you also have to make a deal that makes sense for you, and serves your end buyer too. Create win-wins.
Understand the Sellers’ Needs
It’s hard to make progress in real estate negotiations unless you understand their needs. They may need to satisfy certain debt obligations. They may need to get other people on board with the sale. They may need somewhere else to live. In the case of bank REOs your negotiator may have to satisfy bosses, and shareholders, and regulators. The seller may need to close by a certain date. Unless you can meet the absolute needs you’ll be trying to pound a square peg in a round hole.