Here's What Fixer Uppers on the MLS are Selling For

[Wes Blackwell]

I did some research this morning to help some new investors I'm working with who are looking for fixer uppers on the MLS here in Sacramento. They were surprised to see how fast properties have been moving and the number of multiple offer scenarios, so I thought this would help.

In the last 6 months, there have been 175 homes sold on the MLS in Sacramento County with the word "fixer" in the property description. They sold for an average of 99.69% of the list price.

Of the 175 that sold, 98 of them went for 100% of asking price or above, with many going for 120-140% of asking price. 

11 went for 80-90% of asking price, 5 were between 70-80%, and only 1 went below 70% at 67%. The rest were all between 90-100%.

THE MARKET RULES ALL

There is simply waaaaay too much demand for housing right now. Just about every transaction I'm involved in, whether I'm the listing agent or the selling agent, is a multiple offer scenario. The nature of multiple offers means competing for the property, which means higher final sales price. 

So, taking the old standard of 70% of ARV minus your repairs simply isn't going to cut it in most cases. You'll be beat by a mile. This is why I'm telling people that if you want to find a deal you're going to need to put in the footwork to go and find something OFF the MLS.

Either that or you're going to need to do the repairs yourself or create some serious value-add to the property to make the numbers work.

You have to understand that by the time a real estate agent is involved in the transaction, you've now got someone who's practically brainwashed to sell the home for the highest price possible even when an all-cash quick close for a discount would be better for the seller. Plus, we have incentive to sell it for a higher price, because we get a higher commission if we do.

I know a guy who hired two people to watch the MLS for him 40 hrs a week and look at every single listing to try and find a deal. Know how many times he pulled the trigger in 3 months? Once.

And that was because the listing agent knew about us already and we gave him both sides of the commission when we bought and  listed it with him when we sold!

The month after that, those people watching the MLS were let go, because there simply weren't enough deals. And this guy had flipped over a hundred homes so he wasn't no rookie either.

The reason he kept getting beat is because there are investors in Sacramento that have flipped over 400 homes, in this area!

I know one. She has her mother sitting at home making offers on the MLS all day long, and they've had over a decade to get their system down pat and find the cheapest quality labor possible. Her AC guy charged half the price ours did, and we were already getting a massive discount!

So that means she could come up a little higher on her bid and still make as much profit, all because she had her system down and her expenses were lower. 

And so we lost. Time and time again on the MLS. We still flipped 1-2 homes per month, but you know where those leads came from? Direct mail. 

He took his morning walk in a different neighborhood every morning, and any time he saw an "ugly house" he'd note the address in his phone. As soon as he got back to the house he'd drop a letter in the mail offering to buy their home. Send enough targeted mail, and eventually you'll find a deal.

With all the TV shows like Flip This House, Fixer Upper, My First Flip, etc. everybody and their momma thinks they can flip a home now, so you've got tons of rookies coming into the market and overpaying for properties too. So that's another reason the percentages are so high.

There's a flip like this right around the corner from me, and they WAY overpriced the home when they listed it too. Been on the market 32 days and already had to reduce the price once. But now it's stale, and they've easily lost $10-20k in profit for their error. Too bad, so sad.

I don't want to crush anyone's dreams, but you've got to be realistic. Deals are out there, but it's a seller's market and so there's already a ton of demand for housing. So don't think that dreamy lowball offer at 50% of ask is ever going to happen. It won't. Not on the MLS at least.

And that's because once it's on the MLS everyone else already knows about it... 

The 400 home flipper with lower expenses, the knowledgeable contractor who can do the work himself and always has free extra materials laying around from other jobs, and the young couple who wants to remodel the home over the next few years to really "make it their own." 

All of these buyers can pay more than you and win.

So keep looking on the MLS if you like, but the investor who spends 40 hours a week looking on the MLS and the investors who spends 40 hours a week looking OFF the MLS at things situations like vacant homes, out-of-state owners, preforeclosures, divorces, bankruptcies, direct mail, etc. will be world's apart in finances and investing success 5 years from now. Just saying :-)

[Wes Blackwell]

@Vamshi Ananth @Chris Mason

Failed deals are in large part the failure of the listing agent to properly screen the offers presented.

The listing agent should have three main objectives in selling a home:

1. Fast sale for a high price
2. Protect the seller's equity
3. Inform and advise the seller to make the best possible decisions

The problem comes in the disconnect between #1 and #3. Most real estate agents are brainwashed to try to sell the home for the highest possible price, even when that price is completely unrealistic.

When this is the approach to selling a home that's in a state of disrepair, it makes it even worse.

I can't count the number of times I've made an offer on the fixer upper and had them go with an owner-occupied offer instead (higher price) and then two weeks later when they back out the agent calls me up and tells me the other buyer bit off more than he could chew and now they want to sell it to me for the same price they were gonna pay... huh? 

That's why my offer was lower! I knew what I was buying! 

But now that agent has to put it back up for sale and waste days on market which is essentially ACID to the price of the home. 

If they agent was familiar with investors and selling distressed properties, they would have informed the owner of the potential outcomes and advised them on taking a course of action that wouldn't lead to a failed sale.

All it would've taken was saying "Hey, uhhhh... you might want to fix that." before putting it on the market and many of these failures could be avoided.

Or simply telling the homeowner that although the all-cash, quick close offer is a lower, it's much more likely to be a sure thing and go all the way through to closing.

The hierarchy of offer consideration should always be in this order:

1. Cash 
2. Conventional
3. FHA / VA

A useful concept to understand in this business is that "A fast nickel is better than a slow dime."

It's the listing agent's job to describe the pros and cons of each offer to the seller and help them make the best decision for their individual situation and motivation for selling the home.

Home is a wreck and you need to move back east with your family ASAP because of severe medical issues? Then you oughta take the lower, all-cash offer that closes in 10 days.

Home is immaculate and you're in no rush or hurry to sell, or don't even care if you do? Then we can hold out a little to get you the highest possible price.

As for the "ONLY OFFER THAT WILL CLOSE!" strategy mentioned above, the tough part is that you might have to educate the agent, and then rely on them to educate the seller. It's like playing a game of telephone in getting to see why your offer is the one they should choose. And in many cases it may be the blind leading the blind.

But it could work if you touch on the potential loss to the listing agent. Hit him where it hurts:

"Hey Mr. Agent, I know you may have a higher offer right now... but this home is a wreck so it won't meet the lending standards those other offers require. You'll go into contract, waste time in escrow for 30-45 days, and then have the deal fail last minute because the underwriter won't sign off on it. We see it happen all the time. In fact, California leads the nation in failed sales, Trulia.com just wrote an article on it that I can send you if you like ;-) After the deal falls through and you've wasted all that time and effort, then you gotta go back on the market and start marketing all over again and work twice as hard, or maybe your seller just gets fed up and takes his home off the market and now you're out of a job. And that's not what you want now is it, Mr. Agent?"