Determining whether a seller is motivated to invest in real estate is a major issue for most investors, but especially for new or inexperienced investors. When a seller is not motivated, he seeks to receive full market value (FMV) for his property. This is a major problem if the investor is trying to buy the property in order to wholesale it to another investor.
There is essentially no monetary difference between the FMV of the property and what the investor will have to pay the seller, so it is not a deal. The investor must determine if the seller is motivated before taking the time to view the property, otherwise he will be wasting the seller’s time and his own.
To better determine if the seller is motivated or not, the easiest thing to do is to ask him: “Why are you selling?” Typically, the salesperson will try to make you empathize with their problem and tell you the truth about their situation. His hope is that you help him solve his problem by paying what he thinks is FMV.
Sometimes, however, the salesperson will simply say that they are “testing the market” and it’s time to move on to the next prospect. Every unmotivated salesperson becomes a motivated salesperson over time, but sometimes this can take years. Some sellers die in their homes and the property goes to a probate sale where the price received may be half or less than the price asked by the deceased seller. Practically speaking, waiting for the seller to come by is too long to wait for a good offer.
If the seller tells you a reason that justifies making an offer that you can make money by reselling or rehabbing and retailing the property, the important thing now is how much the seller is willing to accept below the FMV. The offer price can be arrived at by taking a percentage (60-70%) of the FMV and subtracting all repairs and closing costs.
The true test of a motivated seller is whether his concern is more about the price he will receive or a solution to the problem he is facing with the property. Money is not the determining criterion if the seller is really motivated: the solution is the most important problem. This does not mean that a seller will accept ten cents on the dollar, but he might accept fifty cents on the dollar, even after originally saying that he would not accept one cent less than FMV.
Most of the money made from dealing with semi- or unmotivated sellers is made in the months after your original offer. These deals are consumed by being persistent in following up week after week and month after month until the seller either chases you away or sells you.
With motivated sellers, your original offer could be accepted in a matter of hours or days, so be prepared. Always have the ability to draw up a contract when you’re with a seller, or at least be able to return it the next day. Hesitation in getting a contract signed has resulted in tons of lost deals as the motivated seller couldn’t wait for it and accepted another investor’s offer. Always seize the moment and sign a contract as soon as possible.
