Buying from the MLS (multiple listing service) is fairly easy to do for most buyers. You find a great real estate agent, find a house to buy and make an offer. As a real estate investor you don’t want to buy just any house, you want to get an awesome deal. Many say it is impossible to get an awesome deal from the MLS, especially in a hot market. I live in Colorado, which may have the hottest market in the entire United States and I am still getting awesome deals from the MLS. I discuss how I find those deals in an article I wrote on getting great deals from the MLS. Finding great deals on the MLS is tough, but definitely possible. Once you find a great deal you have to determine the best way to negotiate with the seller. There are many ways to present offers and get the seller to agree to your terms.
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I currently own 16 rental properties and I am working on 9 fix and flips as we speak. I bought all of these properties through the MLS and you can find out more about my properties on my resources page here.
How do you find awesome deals on the MLS in a hot market?
I hear many investors say you can’t buy from the MLS anymore, because prices are too high. However, I buy from the MLS in a hot market and I know many other investors who buy from the MLS as well. It may not be easy, but there are definitely still deals on the market.
- The best way to get a deal from the MLS is to buy homes that need work. If you are willing to put some sweat equity into a property or hire contractors to repair a house, you can buy below market value. The more work a house needs, the better deal you can get.
- I am a real estate agent which also gives me a huge advantage when buying from the MLS. I can act very quickly and many times homes are simply under priced like rental property number 16. I was able to make an offer the same day the house was listed and I got the deal.
- Some houses have tenants in them and cannot be occupied for months after the sale. In these situations most owner occupants will not want to buy a home they can’t move into right away and it lessens the competition. Many times the tenants can be difficult when trying to show the home or not keep the house looking nice, which also increases your chances of getting a good deal.
- Some sellers want a quick cash sale. They will list their house for less than market value and accept the first cash offer that comes close to what they want out of the house.
As you can see there are many ways to get a great deal from the MLS, but many involve paying cash or making repairs to homes. It will be tough to get an awesome deal from the MLS that is financable and in great shape in any market. When you find a good deal on the MLS, there are certain tricks you can use to negotiate with the seller and get a better price or make a deal out of something that does not appear to be priced that well.
How do you negotiate with a seller that list their house on the MLS too cheap?
Many times sellers or their agents will under price homes in a hot market, because the real estate agent is not on top of the current pricing trends. I have bought a few houses for much less than market value that were in decent shape, because they were under priced. When I see a house that comes on the market for a very low price, I waste no time seeing the home. I set up a showing as soon as I possibly can, I view the house and if I like it I make an offer that same day.
If the seller happens to be a bank or HUD, making an offer that same day may not do you any good. HUD and most banks will not review offers until their houses have been listed a certain amount of time on the MLS. If the sellers is a regular person or an estate they may accept your offer before any other offers come in. When I see an awesome deal come up for sale I will not try to negotiate an even better price if I know the list price will work for me. I will offer full list price and in some cases more than list price to entice the seller to accept my offer before anything else comes in.
If the seller does not accept my offer or they get multiple offers before they accept mine, I do not give up. I will submit the best offer I can after being informed they have other offers and hope I still get the home. Here is an article with much more information on winning a multiple offer situation.
How do you know when one seller is motivated more to negotiate more than another seller?
When you flip houses you have to get an awesome deal to make any money. 97 percent of the houses on the MLS will not work for flipping, because there is not enough room to make a profit after all the costs are considered. There are some homes that are listed on the MLS that can be awesome deals, but the list price does not indicate it is a great deal. I do not advocate submitting low offers on every house hoping one seller will accept 50 percent of list price. However there are some sellers who will take significantly less than their asking price if you know what to look for.
- Aged listings: Some houses sit on the market for months without selling. Many times the sellers priced the home too high, the house was hard to set a showing up on, the home needed major repairs or other factors caused the house not to sell. Not every aged listing can be bought for much less than asking price, but some can. HUD homes that are on the market more than 60 days can sometimes be bought at a significant discount. Some sellers refuse to lower their price when their house does not sell, even though they will take less than asking price. It does not hurt to submit low offers on homes that have been on the market a long time, but look for other signs as well.
- MLS comments: Some comments in the MLS descriptions shout: make a low offer! If you see the words: As-is, seller motivated, quick close preferred, cash deal, no financing, will not go FHA, out-of-state owner, needs work, needs TLC or anything else that indicates the home needs work and the seller wants it gone quick they may negotiate more.
- Fast price changes: If a home does not sell right away, the seller will usually lower the price. I see house prices lowered around the 30 to 60 day mark in most cases. However, once in a while I see a home pop up on the market and in ten days or seven days the price is changed. This indicates to me the seller wants it gone quick! The bigger the price change the quicker they want it gone.
- Back on the market: Homes go under contract and then come back on the market all the time. But in some cases a contract falling apart can indicate a house with major problems or it can also motivate the seller. When I see a house come back on the market at a decent price I will ask the agent why it came back on the market. Sometimes the agent will indicate it was buyer financing or a problem with the inspection. In some cases the agent will indicate the seller wants to get rid of the home, because they were expecting it to sell and the contract fell apart. When a house comes back on the market and the price changes at the same time, that indicates a very motivated seller! If a home keeps going under contract and coming back on the market the seller may be motivated by a cash offer with no inspection to get the deal done.
How low should you offer on a house?
When you see a home on the MLS that indicates the seller is motivated, how low should you make your offer? Like I mentioned earlier, if the home is already an awesome deal don’t be afraid to offer list price or higher if the numbers work. Many of my deals were houses that I bought well below list price, because I saw some of the situations mentioned above to know the sellers were motivated.
I rarely if ever, will submit an extremely low offer. I have never submitted an offer that was 50 percent or less than list price. When I submit a low offer it is usually about 70 to 80 percent of the list price. If I submit offers lower than 70 percent of list price it usually offends the seller and even a 70 percent offer might offend them. That is why I do not submit low offers on every house on the MLS, but I pick and choose the houses I think are more likely to negotiate than others.
When I make my first offer, I do not offer the most I can pay for the home. I will leave myself some room for negotiation, because the seller is most likely not going to accept my low offer. I recently bought a flip that was listed for $109,900. This was a good price, but not for a flip because of the work needed. Seven days after the home was listed the seller lowered the price to $104,900 and I noticed in the comments the home needed TLC, was dirty because previous tenants just moved out and would not qualify for financing. This was music to my ears! I knew the seller was motivated, because they could not even spend $150 to clean the house. I offered them $80,000 with no inspection and cash closing in 20 days. The seller did not accept my offer, but they countered at $85,000 which I happily accepted because I left myself some room for negotiation. Many times the seller will want to negotiate at least a little so they feel like they got the most money out of the house.
What if the seller will not come down low enough to make a deal?
I do not get every house I make an offer on. In fact most houses I make offers on I do not end up buying. If you want to be a great real estate investor you cannot be afraid to have your offer rejected or see someone else get a deal you were hoping to buy. The fastest way an investor can get into trouble is by paying too much for a home, because they got caught up in a bidding war or the seller would not negotiate enough. If the seller will not come down to the price that makes sense for you, do not force the issue and pay too much! Even if the seller does not accept your offer, you still make get the home at a later date.
If I make a low offer I can usually tell how motivated the seller is. If the seller rejects my offer or acts offended at my offer, I forget about the house and move on. It is not worth my time to negotiate back and forth if the seller is not coming close to my price. If the seller comes down significantly from their list price I know I have a shot at getting something together. Sometimes we can’t get together on the price or another offer comes in that they accept instead of mine. In those cases I am always polite and tell their agent to please let me know if anything happens or if the seller is interested in my offer at a later date. Many times the first offer that was accepted will fall apart because it was an owner occupant who later realized how much work the home needed, or maybe a wholesaler got the home under contract, but could not find a buyer. Don’t give up if another offer is accepted and don’t pay too much.
Should you try to negotiate with the seller on inspection items?
When I make offers on homes I do not ask for an inspection period. I have enough experience to know what a home needs as far as repairs and what major issues to look out for. I would not suggest waiving your inspection if you are a new investor. Waiving my inspection period gets me a lot of deals, especially when a home comes back on the market. Many of the houses I am interested in have motivated sellers and they want to sell the house fast. If they keep having to put the home back on the market because of inspection problems it costs them time and money. Every time a house comes back on the market, buyers wonder what is wrong with it and the home will not get as high of a price.
If I make an offer without an inspection or financing contingency the seller knows they will at least get my earnest money if I don’t buy the home. This gives me an advantage and I have bought many houses at a lower price than other investors were offering, because I waved my inspection.
Some buyers will make an offer with an inspection contingency for more than they want to pay for the house. They assume they will be able to use the inspection to ask for a lower price and get the home cheaper. I do not do this, because I feel it is not operating in good faith (plus I don’t ask for inspections). While this tactic may work a couple of times or even more, it will also give the buyer a reputation of always asking for a lower price on inspection. Another reason I get so many deals is agents know me and know I don’t play games. If I write a contract for a certain price, I will buy the home at the price when I say I will. Building a good reputation will not only give you a better chance of getting your offers accepted, but agents may come to you when they have a seller who has to close quickly.
There are many ways to negotiate with sellers, but the key is knowing which properties to spend time negotiating on. I do not send out hundreds of low-ball offers, hoping one will get accepted. I think this is a waste of time and will seriously hurt your reputation as well. I pick and choose the houses that I feel have the most motivated sellers and I do my best to offer enough to get their interest, but not the maximum I will pay. So far it has worked great as I keep finding rental and flips to buy in a tight market.