How Low(ball) Should I Go On MLS Deals?

As a real estate investor, you must be comfortable making low offers. To earn top income and be successful, you have to be willing to set aside any embarrassment that comes with throwing out a lowball property offer.

But, on the other hand, you need to be smart about your low offers.

Hey Moguls, Steph Davis here, and to kick off this lesson, I want to share a really interesting question I got from a fellow investor. It was something along the lines of:

“I’ve been told that a good strategy is to make offers on every MLS property at 50%
of the asking price, just to see if anything sticks. The theory behind this approach is that
wholesaling is a numbers game, and if you make a lot of offers, you’re bound to get a good deal.
I’m just curious what your thoughts are on this approach?”

And actually, this type of question is pretty common. I’ve had many people ask me if just shooting off a bunch of lowball offers on MLS properties is a good tactic.

My quick answer?

No.

It’s not a good approach.

I’ll divulge the details of “why” below. Plus, I want to share my techniques and tips for making offers on MLS properties.

So let’s get into it!

Gauging Motivation: What to Look for

Are super lowball offers always a bad idea? No, certainly not. There are cases when I make lowball offers, but I only do this when I know that the seller is very motivated.

In other words, every lowball offer needs to have a reason behind it. Instead of throwing out low offers left and right, be strategic with these offers.

There are several ways that you can determine the seller’s level of motivation. These are just a few that I look for:

A property that is priced under market value. If the seller has the home already priced well beneath comparable properties in the area, that’s the #1 clue that they are highly motivated.
Vacant properties. Empty houses don’t generate any income for the owner, and they incur monthly costs – taxes, maintenance, possibly a mortgage payment, etc.
Properties in need of repairs. Some owners just don’t want to spend the time and money needed to make necessary repairs.
Properties that have been on the market a long time. Most sellers get more motivated the longer the house sits on the market.
Price drops. Frequent price drops or significant price drops are also an indicator that the seller is highly motivated.
Properties with a contract (or multiple contracts) that have fallen through. If the property is listed as “Pending” and then comes back as “Active,” this is a sign that a contract hasn’t worked out.

Now, if a property has several of these characteristics, this is an even better indicator of a highly motivated seller. That’s the sweet spot for me... and those are the properties I look for.

No MLS Access? No Problem

Many of my students don’t have access to the MLS, so I teach them how to do research on Zillow or Redfin.

danger This is my way of “reverse wholesaling,” which is basically when I find the buyer first, and then find a property that matches what they’re looking for.

In my previous lesson, I mentioned that I was looking for properties for a buyer in Clearwater, which is a neighboring town to my own area.

So, to get started on this, I got on to Zillow and typed in the zip code where I wanted to find properties for this buyer.

To give you a rundown of my process, here is what I look for (and what you could look for, as well):

Under “Listing Type,” uncheck the “Potential Listings” box, since you want to see only properties that are for sale.
Under “Home Type,” uncheck the types of properties that you don’t want to see. In this example, my buyer was only interested in single-family properties, so I unchecked everything except for “Houses.”
Next, you’ll see a map of all the properties that match your search criteria. The first thing I do is to look for houses that are priced below the average market price for the area.

In this example, most of the homes were priced in the 200s or low 300s. But I saw one that was priced at $145K.

reject When I clicked on the property to view the description, I discovered that it was a foreclosure. So I flipped through the photos to determine how many repairs the property needed.

Then, I scrolled down to the “Price Tax History” category. In this section, you can discover when the property was sold, how long it has been listed, if there have been any price drops, etc.

I found out that the home was foreclosed by the bank in the previous year. It had been on the market for awhile, and the listing had been removed a number of times. At one point, it had a “Pending” contract but then went back on the market.

After reading all this, I knew that this house fit the criteria of a property I would be interested in making an offer on – because it had multiple characteristics that signaled a highly motivated seller.

To Go Low or To Not Go Low? That Is the Question

Going back to the original question at the beginning of this lesson... I want explain why it’s probably not a good idea to make lowball offers on every property you see listed in your desired zip code.

It’s true that you may get a good deal from offering 50% of the asking price on every single property. BUT, in the process, you are going to really tick off many local real estate agents. You’ll be wasting a lot of time – the seller’s time, the agent’s time and your own time.

Plus, you’ll make yourself look like an amateur... and that’s definitely not the reputation you want.

Another example:

I found a property that was around $170K in that same Clearwater zip code. So it was priced lower than many of the other homes but not significantly lower.

After digging around on Zillow for a little while, I found out that the property was purchased in the previous year for $60K and had just gone back on the market about a month earlier, priced at $170K.

Using these clues, I knew that the house had been purchased by a rehabber who fixed it up and put it back on the market to make a profit. So this is another instance when I would not recommend making the seller a lowball offer.

One final example to illustrate my point:

In some cases, banks that own properties will list the property for much less than it’s worth. For instance, they may list a home that’s valued at $100K for only $50K.

This is done on purpose, because the bank is hoping for several investors to get into a bidding war, which will drive up the price.

Experienced investors and wholesalers will make an offer that’s close to (or even greater than) the asking price – knowing that this is the only way they will succeed in snagging the property.

If you throw out a lowball offer at – say $35K – you’re just going to make yourself look bad... like you don’t know what you’re doing. Again, this is not the reputation you want to establish with banks, real estate agents and other professionals that you’ll probably want to work with in the future.

The bottom line: I don’t have a problem with lowball offers – but the motivation has to be there. Taking the “shotgun” approach of making lowball offers on every property is just not a good idea.

How Low Did You Go?

Have you ever made a super lowball offer and had success? Let me know your story in the comments below.

Set aside time each day (even if it’s only 15 minutes) to search for properties on the MLS or Zillow that meet the criteria of a highly motivated seller.

Do your research on a property before making a lowball offer.

Learn from your mistakes. If you make a lowball offer and it doesn’t go over well, take note of the situation – so you can avoid making a bad offer in the future.