How to Evaluate Motivated Seller Leads and Find Great Deals

Gavin Finch
Written by Gavin Finch 

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Motivated sellers are vital to landing profitable real estate deals. Without them, investors have to turn to on-market listings and pay top dollar to add properties to their portfolios. If you’re looking to wholesale, fix and flip or even buy a rental property, buying for nearly full price off of the MLS won’t lead to many big checks unless you manage to find a chest full of gold in the basement. 

If you’re a real estate investor, you need to find people who have to sell their homes at low prices. Finding these sellers is relatively easy with modern real estate lead generation software, but once you find them, you have another problem: how do you know if a lead is profitable or a money pit?

In this guide, we’ll show you how to evaluate motivated seller leads so you can put your time, money, and focus into the deals that will generate a great paycheck.

What are motivated sellers?

A motivated seller is a homeowner who needs to sell their house to escape or avoid financial hardship. Many factors can create a motivated seller, but the most common type of motivated seller has a debt default, such as a pre-foreclosure.

Other common types of motivated sellers include people who have recently inherited houses, recent divorcees, and people experiencing bankruptcy. While the details of each case are unique, they all share a few things in common that classify them as motivated sellers.

First, the financial hardship they’re experiencing or trying to avoid is large enough that only selling the property will alleviate it. Sometimes, as in the case of a divorce or bankruptcy, the court is requiring the property owner to sell the house. 

Secondly, the owner typically has a limited amount of time to sell, so they can’t repair damage to the home or list it with a real estate agent. For example, someone in pre-foreclosure needs to sell immediately or they will enter foreclosure, which will severely damage their credit score.

Finally, many motivated sellers can’t afford to make the improvements that the property needs to sell for market value.

Because of these factors, motivated sellers typically have to sell their homes for far below market value, making them the premiere lead type for real estate investors.

How to find motivated seller leads

Picking motivated sellers out of a crowd isn’t as easy as it may seem. There are rarely any external signs that you can use to find a motivated seller who is experiencing financial distress. As a result, generating motivated seller leads involves some digging and networking.

One option is to reach out to other investors and real estate professionals. Agents talk to people who want to list, so they may know of people who can’t list on the Multiple Listings Service (MLS). Property contractors often know of homeowners who need to sell as quickly as possible. Finally, other investors may have deals that they’re struggling to sell. You can either buy these houses yourself or send them to a cash buyer you work with frequently.

However, the most efficient way to generate motivated seller leads in your target market is to use real estate lead generation software. With a lead generation platform, you can build targeted property lists in a matter of seconds. All you have to do is search for properties with the characteristics and features you’re looking for. You can even find motivated sellers by searching for financial and demographic characteristics. 

What makes a good motivated seller lead?

The leading voices in real estate investing agree that a great lead is someone who wants to sell now. While this may seem obvious, many investors overlook this crucial fact. 

When you evaluate and qualify your leads, you should start by asking them when they want to sell. If a lead isn’t ready to sign a real estate contract within 30 days, you should move on. Otherwise, you’ll spend a lot of time negotiating with someone who isn’t actually as motivated as they initially seemed.

Once you understand the owner’s time frame, you can start digging deeper into the specifics of the house to determine whether or not you want to make an offer on it. Here are a few signs that you can use to identify a great motivated seller lead.

Homes with high equity

Equity is the amount or percentage of a mortgage that an owner has paid off. As a real estate investor, this number will tell you the minimum amount you will need to pay for a home so that the owner can pay off their mortgage. Often, you’ll end up paying more than this amount, but it will give you a baseline to work from. 

While a home doesn’t need to have high equity to be a good investment, it certainly helps. The more equity an owner has, the less you will have to pay for the house. In cases where a motivated seller has paid off 80% or more of their mortgage, the owner can accept a low price and still walk away with some cash from the sale.

The best kind of high equity deals are homes that are free and clear, meaning their mortgages have been paid off completely. In these cases, you may be able to buy a property at a very low price and turn it for a large profit. 

Properties in growing markets

One of the most dangerous mistakes that an investor can make is jumping on a deal just because they can get it at a good price. To put it frankly, there are some areas where few people want to live and no one wants to invest. 

If you’re wholesaling, this can leave you stuck with a real estate contract on a house you don’t want. If you’re adding to your rental portfolio or fix and flipping, this means you can put a lot of money into a house that no one wants to buy or rent.

Some of the location factors you should consider when evaluating a motivated seller lead are:

  • Crime rates, especially violent crime rates in the surrounding areas
  • Local population density and population growth trends
  • Local attractions and developments
  • Economic growth
  • Job and business opportunities
  • Average property value

Some of this information is easy to find with a quick internet search, but to get some insights, you’ll have to talk to people in the area and be prepared to ask some hard questions. A house doesn’t have to be in a perfect neighborhood, but if you find out that no one wants to be anywhere near a certain street or town, you should carefully consider that information before making a purchase.

This is also true of rural areas. While many people love living in the country, rural properties are only a great fit for certain real estate strategies. For instance, if you’re wholesaling you may have trouble finding a cash buyer for a rural deal.

Comparable properties

It’s thrilling to buy a house for $100,000, but it can quickly become a nightmare if you find out that the house is only worth $110,000 and needs a lot of work.

Instead of jumping on the first low price you see, it’s important to take your time and find out what a house is really worth in your current market. The best way to do that is to use comparable properties to estimate its value.

Comparable properties, also known as comps, are recently sold houses within one to three miles of your lead that have similar features and characteristics. You can find these properties by searching the MLS if you have a real estate license. Then you can average their price per square foot and multiply it by the square footage of your lead. This number will give you an educated estimate of how much your deal can sell for after it’s been repaired.

If you don’t have your real estate license, you can use a real estate comparables tool that has access to MLS data. Some of these tools even have comping calculators built-in to take the manual math out of the process.

Doing a comps analysis is crucial to evaluating motivated seller leads, because you should know what a property is worth before you make an offer on it. As we discussed, buying a property for cheap may seem great, but it won’t be great if you find out that you bought a cheap house at full price.

Conclusion

Motivated seller leads are a great option for real estate investors of all experience levels. Not only can you buy their houses for below-market value, but they’re often easier to work with because they need to sell quickly. As a result, negotiating with motivated sellers rarely involves the bidding wars and competition you’ll often encounter with on-market property. 

However, you need to be careful when working with motivated home sellers. Just because someone is experiencing financial hardship doesn’t mean they’re willing to sell for a discount. What may seem like a profitable opportunity early on can prove to be a problem investment if you don’t thoroughly evaluate it before signing a contract. 

We recommend that you qualify your leads as much as possible before ever launching a marketing campaign. While some investors prefer to reach out to everyone on a broad list, we find that your real estate business will save a lot of time and money if you start by eliminating leads that don’t match your criteria.


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