What's In It For the Seller?

Question

OK, so at this point I'm a newbie.

My orientation is to want to put together deals that are a "win" for everybody involved. When you are talking about wholesaling, wholesaling by definition involves buying properties at a significant discount over what the property may later be sold for.

So I am trying to understand: What's in it for the seller? I know there are personal situations such as financial crunches and divorces, where one simply wants to get rid of the property. And there are other situations such as out of state owners where a person is busy, may have inherited the property, may not be able to manage it...

In any event, I am trying to understand what these situations are, and what's in it for the seller. I am also trying to get an idea for the real extent to which wholesaling can be a "win" for the seller as well as the buyer. Or is it simply a game which isn't really going to go that well for the seller most of the time?

Mark Yuschak · Answer

Basically, you have hit the nail on the head.  The seller's motivations range from divorce, to out of state owner, to an owner which is pinched for cash and just needs to liquidate quickly.

I like to think of a wholesaling business as a pawn shop for real estate owners.  You'll come across all walks of life and an infinite number of motivations.  One thing is always in common: the people with the true deals will be your sellers.  They need cash, and they need it fast.  The sale price is rather irrelevant to them.

John Woodman · Answer

Thanks, David C.  That does make some sense.

It sounds like talking to a wholesaler would be a good idea for them.

David C. · Answer

Until I saw this in my extended family, I similarly felt like the original sellers in any 'wholesale' deal were really getting shafted.  Selling so low that a wholesaler could mark up a few grand and a bottom-fishing investor could still get a cash-flowing property.  All the 'room' in these deals come from the sellers - but now I see one, and I understand.

Sure, they could keep it over the winter, heat it, fix the floors, get it inspected and re-do wiring and plumbing as needed, dredge the pond, knock the down the animal infested outbuildings, mow all fall and part of spring, check for snow dams and water damage all winter.  Then maybe sell it for $50k more? or $80k more? after spending 20k or 30k? or maybe not?  they are not experts in the property values, or experts in RE rehab - so they could do all of that, spend $30k and a lot of effort and get 10k more than the auction price.

Economically, it makes sense to sell properties that are in need of rehab, to rehab experts.  They will manage the project better, they will make improvements that have pay-back, they have a set of trustworthy contractors, etc... So a rehab that costs a first timer or 'one-timer' $50k will likely: run longer, not be done as well, will have some 'wrong things done'.

David C. · Answer

They are not even willing to call a wholesaler to get an offer, but its family, so you offer suggestions and that's all you can do :)

They believe an auction will get them the 'auction price' which may or may not be higher than a wholesale price, but they do not expect 'market' - nobody goes to an auction looking to pay market, right?

They had a recent good experience with an auction, getting 85k for a house they think was worth around 115k?  That home was in much better condition, but had much less land.

The land this time is in 'shale country' and they did get an offer for a drilling lease which they turned down - so that may add some value, but not much, gas prices have plummeted since and I think the gas companies are not running around leasing every inch of land anymore.

They plan to upgrade the homeowners to 'vacant homeowners' in case the pipes and wiring are stolen - but it would still be a huge hassle.

I know for sure they have no problem that a purchaser might be getting 'a deal'.  If the next person makes some money, good for them, they will have earned it!  They are a bit afraid that it goes for $10k because there are better auctions that day, or  bad weather, or some other auction specific issue.  I think they should get a wholesale offer and set an auction reserve a few thousand under that, in case its a rare late october sleet storm or noreaster or some other calamity.

John Woodman · Answer

Dale Osborn: Yes, I would say that could fit the category of a "win." Sometimes people just really need out from under something.

John Woodman · Answer

@David C: Why do you think they insisted on an auction? Do they trust the auction process more to deliver a "market" price, because multiple people bid on it? Or is it just that they don't want to have to do any price negotiation?

I'm also curious as to how much they are likely to get via auction, versus getting an offer from a wholesaler. Will a property generally sell for more at auction than a wholesaler might pay?

As for the pipes: I was talking to a local real estate investor friend yesterday evening, and she was telling me about one of her houses that had material (wiring?) stolen from it, which she had to then replace.

John Woodman · Answer

This raises some questions.

Are these people easy to identify? That is, can you ask some questions and identify whether a person is going to be in your category of motivated seller for whom you can solve a pressing problem, and if they don't fit categories A, B, C, D, E, F or G you know you probably need to move on?

And if so, what kinds of questions do you ask the person? Or to put it another way: How do you screen potential sellers?

I'm sure those are questions (particularly the later one) that have been asked here before, though.

Dale Osborn · Answer

Most Sellers who fall within the category of "Motivated Seller" have a problem. You arrive on the scene as the problem solver and you find a solution to their problem. By you doing this for the Seller, it is like a ton of bricks has been lifted from their shoulders and they feel free again. Does that fit in your category of a "win" for the Seller??

David C. · Answer

My in-laws: their parents in their 90's are moving to assisted living.  The property is 5 acres and 50 years old and a 30 minute drive from their home.  They want out of the house quick.  If they try to list it, it will need to pass inspection, deal with negotations, etc...  Who knows what crazy plumbing and wiring grandpa has done.  They want OUT of the property.  But I could not talk them into finding a wholesaler - they don't even want to agree to a price!  They insist on an auction so its out of their hands and left to fate.  One benefit they are losing out on: if they were to wholesale it, they would never have to advertise the situation.  With an auction it will be advertised(pretty much) that its vacant and the copper pipes are free for the taking.
They don't want to heat it for the winter, prepare it for sale, deal with inspection.  Those are all value-add's delivered by a wholesale buyer.

What's In It For the Seller?

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