How to Take Advantage of MLS
Q: How can I best leverage MLS as a way to find deals to wholesale? There are so many properties for sale, and I don’t want to waste my time or my agents’. AK, Sacremento
A: The Multiple Listing Service, or “MLS”, is a sort of “catalog” of all properties listed for sale through real estate agents.
It’s available on the Internet to the public in most areas; however, the best and most complete access is available only to a licensed real estate agent with a subscription to the MLS’s database. Agents can connect directly to the MLS through a closed network system and can quickly sort by such criteria as price, condition, financing available, and so on.
For these reasons, it’s to your advantage to work with an agent who will provide you with regular updates about properties on the market that fit your criteria. In return, you make offers on the properties through your agent, and he or she will be paid a commission (usually by the SELLER) for any properties that you buy.
Advantages of the using the MLS to find deals include:
It’s perhaps the simplest way of finding properties for sale. If an owner bothered to list his property with a real estate agent, there’s an overwhelming chance that he actually wants to sell it. In addition, much of the information you need about the property, including asking price, number of rooms and bedrooms, property taxes and even some commentary on the condition of the property are right there on the “MLS sheet” or computer screen for you to see.
There are many, many properties to choose from. Statistically, more than 80% of sellers of 1-3 family properties sell through a real estate agent. This means that there are thousands of properties available through the MLS in any mid-sized metropolitan area. The vast majority of these sellers are not, of course, motivated to sell at a price that you can afford; however, with thousands to chose from, if only 5% are motivated, that’s still dozens if not hundreds of potential deals. See “tips on using the MLS to find deals” for information on how to narrow these down.
It’s cheap. In general, the agent who sells you an MLS-listed property is paid by the seller, through a “co-op” commission offered by the seller’s agent. A small percentage of agents that work with buyers require a “retainer fee” of $500-$2,000 to start the process of showing you properties–but this retainer fee is usually returned to you when the agent makes it back on his first commission on a property you purchase through him.
Disadvantages of using the MLS to find deals include:
The competition factor. Because the information is so easily accessible, there’s a lot of competition for MLS-listed properties. Many real estate agents are also investors (and many experienced investors have agents who are constantly on the lookout for deals for them), which means that there are lots of people out there ready to grab up the obvious deals within hours of the time they hit the market. See “tips on using the MLS to find deals” for tips on overcoming this.
Not all types of properties are commonly available in the MLS. If you’re looking for larger apartment buildings, office or retail buildings, vacant land, or mobile home parks, the MLS is not the best place to do it. There are some of all of the above listed in the MLS, but the sellers of these types of properties more often utilize agents who specialize in commercial sales. These agents work under a different kind of commission structure than residential agents, and do not typically list these properties in the residential MLS.
•Agents themselves can be problematic. I hear the same complaints about real estate agents from investors all over the country: they don’t want to work with investors. They don’t present our offers to sellers, even though they’re legally obligated to. They “pocket” their best listings, selling them to their own buyers before they put them in the MLS–another illegal practice. They tell us that what we’re doing is illegal, or immoral, or impossible. They encourage sellers to believe that all junker houses sell for full price. They don’t return calls. They don’t keep their investor clients abreast of what’s new on the market. They never have time to show you the properties you want to see when you want to see them. The list of common complaints goes on and on–and yet, in any market, there are agents who understand what we need and are willing to go to bat to get it for us. But finding such an agent can be a long, frustrating process.
On the other hand, you really need an agent to avoid wasting your time. Although the properties in the MLS are also available to be viewed by the public through various internet sites (realtor.com is one), the information available through these public sites is generally not detailed enough to let you sniff out signs of seller motivation. Without an agent, the process for determining whether a seller is motivated is: 1) find a property that looks promising, 2) call the listing office and find someone who knows something about the property (usually the listing agent himself), 3) wait for a return phone call, 4) interview the agent about the situation, and 5) repeat over and over and over. With an agent, the process is: 1) tell him what you’re looking for, 2) let him search his more comprehensive MLS database for signs of seller motivation, and 3) get an entire list of prospects to choose from.
Seller financing is very difficult to negotiate when an agent is involved in a transaction. It’s a waste of time to look at listed properties if you’re looking for most kinds of seller financing, lease/options and small second mortgages being the exceptions. The reason is simple: agents aren’t trained to understand what owner financing is and what advantages it can have for a seller in trouble–and therefore, they can’t explain it to the seller, who is even less sophisticated than the agent himself. Furthermore, agents in some states are not allowed to be involved in certain types of creative transactions–and even in states where they are, some are constrained by the rules of their brokerages from becoming involved in these deals. Therefore, the most common types of deals you will do via the MLS are deals where you bring the money to the table to close, whether through a lender, a wholesale buyer, or your own cash.
Some tips for finding great deals through the MLS
Find a good buyer’s agent. Any licensed real estate agent can act as a “buyer’s agent”, though not all choose to do so. A buyer’s agent is an agent that works on behalf of the buyer, presenting and defending the buyer’s offers, keeping your confidences (for instance, not telling the seller or his agent that you’d actually pay $5,000 more than you offered), and shepherding deals to closing.
A GOOD buyer’s agent–at least from your point of view as an investor–is one who actively looks for the types of properties you want to buy, who has the time to show them to you, and who doesn’t mind that you will have to make dozens of offers before you get one accepted. Buyer’s agents are a dime a dozen–good buyer’s agents are as rare as hen’s teeth.
One way to find a good buyer’s agent is to find out who other investors have used successfully–but this is one secret that most of your competitors won’t want to share with you. Another way is to go to an agent you already know (believe me, you know at least one) and see if he’s willing to do what you need him to do. But the most common way, in my experience, to find one is to identify some listed properties you’d like to see on your own. When you call the listing office to make an appointment, the agent on desk duty is likely to offer to show you any other properties you’d like to see, as well. Let him, see if it works out, and do what it takes to keep him around if it does. If not, keep on trying until you find the right one.
Focus on properties that need work, show signs of seller motivation, and are listed under market. Because you’re providing your own financing for MLS deals (or wholesaling them), you’ll need to buy them at below-market prices in order to make a profit.
Because sellers who have houses in great shape can usually sell for much closer to full retail price than you want to pay, they have no reason to entertain your low offers. So you’ll want triage the available properties that meet your criteria for property type, size, and neighborhood further by having your agent look for certain “key words” in the MLS like “handyman’s special”, “estate sale”, “lender owned”, and “vacant” as well as for comments in the agent remarks section like “as is”, “needs TLC”, and of course, the always-important “seller motivated”.
And once you’ve limited your pool of prospects thusly, take the extra step of checking to see if the property is listed at least 10% below market before you bother to look at it: I’ve discovered that sellers who are showing all the signs of motivation, but still have their properties priced at or above retail price don’t accept my offers, ever.
Plan to make lots and lots of offers–and plan to make them multiple times. As an agent, I can do all of the prospecting above from the comfort of my own home–and, with years of experience in recognizing the signs of seller motivation, I can usually limit my property viewings to only the most likely-looking deals.
Still, I have to make offers on about 20 MLS-listed properties to eventually get one. I say “eventually” because one of my biggest secrets for buying properties through the MLS is this: I make an offer on EVERY property I see, even if I know there’s no chance that it will be accepted. And then I REMAKE the same offer every month or so until the property sells, whether to me or to someone else. By the time I buy many of these properties, every one of my competitors has already made an offer on it, gotten rejected, and given up. But there I am, month after month, sometimes year after year, with my offer in hand. And when the seller gets motivated enough to take it, I’m ready.