How to get a good deal on the MLS in a hot market

Question

Hello! I am just wondering how you find your good deals on the MLS. I always thought there are only 2 ways: 1) you jump on a good deal the second it hits the market and have an offer in within 24 hours or 2) you offer a little lower on a house that has sat for a couple of months. I'm in a very hot Boise, Idaho market and we have tried number 1 several times with no results. We get in multiple offer situations and the price goes way up. So we tried 2. We offered $6k (plus $4k closing costs) below asking on $172k house. The sellers considered it a "low ball offer" so much that they didn't even counter offer!! The house has been on the market for 2.5 months and has already had a price drop from $179k. Did I do something wrong? How do you make these deals work without offending people? I don't plan to ever overpay for a house and I would like to find a "good deal" so do I just keep offering a little below asking price hoping for a seller who actually wants to sell? Thanks!

Justin R. · Answer

Becky Farnsworth Just remember that whether you get something for "a little under asking price" doesn't have anything to do with whether it's a good deal. Figure out the price you want to pay for each property, then use the current asking price to decide if and how to make an offer on it.

Steven Satterlee · Answer

Hi Becky-I work here in the Boise/Meridian market as well. My 2 cents, deals are hard to find right now, if your looking for an investment deal just be patient and eventually something will come along. Don't worry about offending a seller, your not looking to make friends. Your write up an offer that is good for you. Consider going through the list of cancelled and expired listings that meet your criteria, then offer on them. We are all having the same issue as you right now in this area and many areas around the country. To me this is a sign that being patient is going to be key. The market is way up here so we need to invest carefully. When I write up low offers, I always contact the agent first, explain why the offer is going to be low, then provide them the comps to justify it. I've found that I rarely offend people. Many times they will just say no which is fine. Most of my business is writing offer for my clients and not for myself. However I still do everything the same way. I urge everyone not to just into buying an investment just because it's the hot thing right now. Waiting for the perfect property or the right deal will be worth the wait!Lastly, on the last 3 properties I purchased, I offered over asking price. I did so because I wanted those houses and they were worth it to me. One of them was a flip and even going 10K over asking I still made $28,000 profit or 25% ROI. Sometimes it's worth overpaying on the asking price. Not all agent know the market well enough to price accordingly. Also, many agents in this area use terrible photo's to market a property which lends them to being under marketed. Those can be great opportunities! Keep at it and I'm sure properties will come up eventually! Just be patient. Best of luck. Reach out anytime if you'd like to chat!

Robert G. · Answer

Some very wise investors have said "If you aren't embarrased when you submit your offer, you're offering too much!" Its a numbers game, particularly in a hot market. You have to expect far more rejections then acceptances.

Robert G. · Answer

Becky, in a "hot" market, the MLS isn't a great resource for investors.By definition, properties are selling easily and quickly in a hot market. Often with multiple offers to choose from, as you've stated. Basically everything listed in the MLS will be at or near fair market value. Generally, whatever isn't selling is either vastly overpriced or has serious issues (be it structural, legal, or whatever).I don't know whether you plan to flip or buy-and-hold, but if you're looking for a good deal, neither of those scenarios helps you much. First of all, you need a bigger discount to be successful. Getting a property at 3.5% below asking ($166k instead of $172k) doesn't give you anywhere near the margins you need, unless that $172k was a seriously underpriced asking amount (which it wasn't, in theory, due to the "hot" market and the fact that it has been on the market 75 days and had the price lowered already). Hard as it sounds, as an investor, you want to buy that property at $126k, not $166k.Basically, with those market conditions, the MLS just wont work 99% of the time. You need to network to find off-market deals. Or market (yellow letters) so they come to you. Or use a wholesaler. Or buy all-cash and target distressed REOs. Unfortunately, you need to get creative. It's more work, definitely.Buying in a hot market is very tough. BUT, you'll have a much easier time when it comes to sell. You've got that on your side.

Jonna Weber · Answer

@Becky Farnsworth - My colleague @Steven Satterlee took the words out of my mouth. He knows his stuff. :) My biggest advice is to only spend effort on properties that needs some cosmetic work (and as Steve said, bad pictures are awesome too). Otherwise, at the sub 200 price point, you are usually competing with our many millennial or empty nest buyers coming to the Boise area right now. Also - there are some excellent wholesalers here. When contacting them though - it is important to be extremely specific with what your target is, and be ready to act (ideally with cash) quickly.

Becky Farnsworth · Answer

@Robert G.Thank you for your response! I think I'm going to have to get creative. It has always made me a little nervous, but its time to go out of my comfort zone because you are completely right. The MLS is just not a good place to find deals. I plan to buy and hold so I don't need an amazing deal, just something that will cash flow $300+ per month and is priced a bit below market value. We bought a house exactly 2 years ago for $138k and it was a good not great deal then. I was a little hesitant and wanted a better deal, but went for it anyway. Its worth about $175k now so in hindsight I feel it was totally worth it because it also cash flows over $300/mon. The market has changed a lot in 2 years though so its time to get creative!

Cameron Price · Answer

@Becky FarnsworthIf the market is that hot there, the MLS is probably not the best place to look for deals. Read up on the way wholesalers locate deal: direct mail, driving for dollars, etc. Its more work, but you'd have a better chance of success. If you keep making MLS offers, keep this in mind... if the seller of that 172K property would have accepted your offer, you'd have a totally different story. "You miss 100% of the shots you don't take" -Wayne Gretsky

Becky Farnsworth · Answer

Thank you all so much!!! A lot of great information! I had never thought about raising our EMD. Great idea!

Merry Briotta · Answer

Becky Farnsworth You have received some great feedback! We too are struggling with the MLS. We finally connected with a great realtor which makes the process smoother. We are writing plenty of offers and getting plenty of rejections. Someone just mentioned increasing EMD. I completely agree. In fact, we just submitted an offer today and wrote a $20k EMD check to sweeten the deal. Hoping this strategy works, or at least improves our chances. We also just sent a very small number of direct mail pieces to our target area. The list was free so we just had to cover the cost of the print/mailing. We just received our first call yesterday and had a great starter conversation with a nice older couple that are looking to get out of their property. Not sure it will go anywhere, but it's great to know that our mailing worked! Just keep pressing on and think about doing some direct mailers to find off market deals.

Richard Smith · Answer

Hi Becky,You received a lot of great responses, so I will save time and say I think you have hit it on the head and know you will need to get out of your comfort zone! Also, look for the wholesalers, and reach out to them with you contact info and what you are looking for. My list of investors range from "I will buy anything under 10% market value" to a specific dollar range, area of town, SFH or MFH. Read up on wholesale techniques, and if you still don't feel comfortable, let the wholesalers find you the deals!Rich