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Less Than
Foreclosures What? Find homes priced less than foreclosures? How do you do
that? I’m going to explain exactly how that is done and why it is the
hottest new thing to hit real estate investing in the last 20 years. So let’s
go ahead and get started. The MLS, or the multiple listing
service, is a computer database of all the properties that are listed in a
given area by any licensed real estate agent who is a member of the local MLS
board. An MLS board is comprised of members who are realtors in a defined area.
It can usually be by county or by area. There are literally thousands of them
across the country and each one is different. They’re not all connected
and you have to be a member of each one. You will usually just be
concerned with the one or two in the area that you invest in. Why is the MLS so
important? Once again I want to remind you of what power there is in the MLS.
Here it is… up to ninety percent of the properties in a given area are
controlled by this powerful tool. Think about that for just a
moment. How would you like to sit down in front of a computer and plug in the
exact information of what you’re looking for and have it right there on
the screen in front of you? I think you would agree that could make life a
whole lot easier for any investor. However, it wasn’t always
that easy. It started many, many years ago when agents used to literally carry
their listings in their pocket. (A listing is a property that is for sale where
an agent represents the seller in the transaction.) They would be out working
the streets trying to get them sold for their clients. Often times they would
meet up with fellow agents as they were out and about. At this time they would
get together and compare each other’s listings and try to help each other
get them sold. When they would cooperate like this on a sale, they would share
the commissions. I don’t need to tell you
how well this worked. It was at that time the idea was proposed to have a
service where all these listings could be placed in one convenient location.
This would help agents sell their listings quicker and everyone would be happy
and make more money. In the days before computers,
agents had an MLS book. Usually it came out monthly, depending on the area. You
really had to be on top of the inventory in those days because the books
weren’t always the most up-to-date information. Houses could be bought
and sold while the book was still at the print shop. Of course, agents used a
computerized MLS long before the Internet became popular. As the Internet
expanded, a lot of real estate companies became naturally concerned about their
privileged information (the MLS) becoming available to the general public. They
felt this inside information becoming public could truly hurt their business.
They would say things like, “Why are people going to need our services
anymore?” It was a legitimate concern.
Just imagine, the privileged information clients could only get from you was
now all over the internet. But guess what? It totally worked to a real estate
agent’s advantage. The largest real estate website
in the world, for those of you who don’t know, is Realtor.com. It
literally contains every listing in the country. You simply plug in the state
and area you want to move to and, voila! Sounds great, right? Well, sort of. The great thing about
Realtor.com is it has given a lot of power to buyers and sellers. What do I
mean by that? It has given them the opportunity to research a market before
they even get to the area. What that has done in many instances is to cut down
on a lot of the real estate agent’s work. Here’s how. Let’s
say I live in Besides Realtor.com, there are
hundreds of smaller websites for searching homes all over the internet, and
that is where an inherent problem lies. In case you haven’t noticed, with
the advent of the information age there is often too much information. It can
be overwhelming. How many websites can I possibly view? Are you starting to get
the picture? Here’s another problem. I
know a lot of beginning investors will try to find and comp property on
Realtor.com. Why is that a problem? Depending on an area, some information can
be very dated. Let’s say I listed a home on a Tuesday morning. In most
cases that home is on my local MLS by that afternoon, but often it can take
days or more to show up on Realtor.com Let’s face it. When you
have almost every listing in the country on a website, certain things are going
to slip through the cracks. That’s not to say it’s
Realtor.com’s fault. They’re just posting the information that is
given to them by thousands of smaller MLS’s across the country. That
certainly is a recipe for some glitches, though, wouldn’t you say? I’ve had clients who watch
Realtor.com daily for new listings, and when a fresh one comes up that meets
their criteria, they call on it. They’re shocked when they find out the
home was sold five days ago. That’s just the nature of all that
information. I’ve seen homes that have been sold for months still showing
active. I’m not
trying to say Realtor.com is not a good site for folks to go to, because it is.
It gives them a great look at a local area and inventory. I’m just saying
it’s not the best place to find the best deals for a real estate
investor. There’s only one place for that, the place where the listings
originate, and that is your local MLS, period! Everything else may be diluted
and not as accurate. Let me ask you a question. Would you want a calculator
that was 85% to 95% accurate? Another reason investors and
real estate agents often don’t mix very well is investors often
don’t trust the agents. Most investors think that real estate agents grab
all the good deals on the MLS. They think, “Why would they tell
me?” or “They’ll just want them all for themselves.”
I’m here to tell you that nothing could be further from the truth.
Remember what I said earlier about the 80/20 rule? That’s why! The majority of real estate
agents can’t afford to buy these deals, although this is the completely
opposite perception of the public and most real estate investors. Trust me,
when a great deal comes up on the MLS, agents are happy just to get it sold and
get paid the commission. They’re not even thinking about buying it for
themselves because they can’t afford it. I can almost hear you thinking,
“What about the 20% with all the money?” Good question. As a
general rule, those agents are so busy listing and selling homes that they
don’t have the time. Of course, there are a few out of that group who own
rental properties and pick up a fixer-upper here
and there. It is certainly the minority of that 20%, and they don’t go
out of their way to find them. Their primary business is listing homes and
taking care of their clients, not looking for fixers or good deals. Usually
when they buy one, it’s because they stumbled onto it or found out about
it through their sphere of influence. Incidentally, top real estate
agents are always big listers – they have lots of listings for sale. Why?
Leverage! If I have 30 listings, that means I have all the other real estate
agents in my board helping me to sell them. That means I could be on vacation
and have three homes sell while I’m gone. Try that working with buyers.
How can you work with 30 buyers at once? You can’t. You’ll rarely see a top
real estate agent out with a buyer. If you do, I guarantee they have a signed
buyer agency agreement and the buyer is ready to buy something right now. This
is why it’s not a good fit to work with this minority group; they are so
busy already. I just wanted to point out they’re not out buying all the
property that everyone thinks they are. A lot of new investors think real estate agents and other
investors must already be using all the available investing techniques. In
reality nothing could be further from the truth. Most just use the basics and
struggle to get by. We still haven’t answered
the million-dollar question. How do you find “homes priced less than
foreclosures”? The answer is the MLS, but it will require some explaining
before you understand. As a real estate agent I have
always like to used square footage as a good indicator of price for a home, as
do a lot of appraisers. Again I’m speaking in general terms right now.
For example, a 3400 square foot home for sale at $340,000 is $100 per square foot. In a subdivision with similar
homes that is a very good starting point, using square footage based on homes
recently sold. I’m not going to split hairs talking about style,
additional features, larger lots and all that. In order for you to understand what
I’m saying, you need to think in general terms right now. The details
come in later when you have to plus and minus out certain things to come up
with a fair market value (FMV) using a lot of methods an appraiser would. Incidentally a good real estate
agent can be just as accurate as, if not more than, an appraiser. A little
known fact is appraisers will call agents who have recently sold a home to help
them get a better idea of what it is they’re appraising. Let me now define fair market value for you. Fair
market value is simply the most probable price that a property should bring in
a fair sale. This definition makes three assumptions. First, it presumes a
competitive and open market. Second, the buyer and seller are both assumed to
be acting prudently and knowledgeably. Third, the market value depends on the
price not being affected by unusual circumstances. The difference between market value and market price is
that market value is an opinion of value based on the analysis of data. Market
price, on the other hand, is what a property actually sells for, its sale
price. In theory, if everything is correct, market price should be pretty close to the same as market value. So
what’s all this got to do with “Finding Homes Priced less Than
Foreclosures?” Actually lots! Let me now take you on an inside journey
through an MLS. We already know this is a phenomenal real estate weapon for an
investor. At this stage if the real estate investor could get into the MLS system, it would be off to the races. So let’s
look a little deeper into this. Amazingly,
the majority of the real estate agents who use the MLS don’t know how to
use it effectively; Most can barely muddle through it. All MLS’s are not
the same. There are hundreds of different ones and most use different
independent software to make them work. It’s not like Microsoft®
Windows where over 90% of the people all use the same system. They
pretty much all work the same as far as the information contained, but that is
where the similarities stop. When an agent comes in and turns on their computer
to access the MLS, they get a generic template of properties and criteria.
There is usually an infinite number of ways to customize virtually any MLS.
Most agents only know how to use the generic template. It’s enough to get
by. It’s like any software program; they all do so much
more, but most people only utilize a fraction of what any program will do. Has
this ever happened to you? You were using a software program and somebody came
along and showed you how to do something you didn’t know how to do or
that could be done. If you’re like most people, your initial reaction
was, “Wow, that’s pretty cool.” It’s the same exact
thing with any MLS software program. The secret is to search these properties by price per square
foot and other valuable criteria. I’ve seen MLS’s that have the
price per square foot category in them already, but then again, I’ve seen
others that don’t. Mine didn’t. I had to use conversion forms and
different integers to set it up to work effectively with my select criteria
that gave me advantages over everyone else. It was a lot of work, work that most people wouldn’t
bother with. They would still be taking out their HP12C (financial calculator)
and doing it the hard way. That’s why a lot of deals are missed. Now that’s not to say those good deals won’t
sell right away, because they will. Usually when they come on the market, if
they’re not picked off right away by my MLS formula, they will be picked
off by accident or by word of mouth. The listing agent really only needs to
talk about it a bit at the office and someone will end up finding a buyer. This
is why it’s critical for the investor to get to it as soon as it comes up
on the MLS. I’ll give you a great example. I saw a home that
came up on an MLS that was 5400 square feet on a half-acre lot for $154,900
with possible seller financing. For that area that was a smoking deal! Nobody
could find the house on the MLS! How can that be you say? Here’s how it
happens. When an agent has a buyer in front of them, he or she is asking
questions to plug criteria into the computer: how much money are you willing to
spend, number of bedrooms, square footage, etcetera. Out pops a list and there
you go. Let’s take a little closer look and see what is being left
behind. Here’s how the conversation usually goes. Agent: How much are you planning on spending? Jones Family: Between $140,000 and $160,000 Agent: How much room do you need? Jones Family: We have five kids so I would say between 3000 and 4000 square
feet. Agent: How many bedrooms, bathrooms, blah, blah, blah… In that
prime example the home was missed because of square footage. Their input range
into the computer was 3000 to 4000 square feet. The computer missed it because
of the house’s larger square footage. Based on price per square foot the
home was an absolute steal. It did sell rather quickly, too. This happens
because of word of mouth among agents. Someone will always have a buyer looking
for a deal like that. Without getting into a lot more of the details, tricks and
idiosyncrasies of MLS’s, here is something you must never forget. Less
information is better, and always search for properties by price per square
foot. As an investor everything else is secondary. Do you really care if
the carpet is pink if the home is priced at 50 or 60 cents on the dollar? That’s exactly what I do. I don’t even use
price as an eliminator. I simply plug in single family, town home or whatever
and push the button. Up pop hundreds, if not thousands (depending on where you
live), of listings. Then I do the magic secret next. I push a button that sorts them from the highest to the
lowest. Then I simply look at the lowest priced properties in the entire area
and pick from there. How powerful is that? Extremely! I need to caution you. They have to be checked on a daily
basis. This is why you need a real estate agent. Most agents can have this set
up so it can be e-mailed to you on a daily basis. This happens once they set up
these criteria in their system. You need
to be respectful of an agent’s time. Don’t expect them to manually
look at these everyday and call or mail them to you. Here’s the deal with
my investors. I plug in their criteria and they’re e-mailed the
properties on a daily basis. From there they choose the ones that interest
them. I expect them to drive by and initially check them out. When they have
narrowed it down to what they want to buy, I’ll open up the houses and
we’ll write offers. Here’s
an actual example from off the MLS so you can see for yourself. This is the
default generic template of a broad search of properties in my area. Most
agents will narrow a search down by area, and that is one of the ways you can
miss a deal. You have to realize the majority of real estate agents are just using
the MLS to look for properties for the everyday buyer, not the real estate
investor. Most
agents get by just fine using it this way. However, that isn’t even
beginning to tap into the power of the MLS. Guess what? Almost any MLS across
the country can be set up the way I’m going to show you in just a moment. As you can see, this is what the majority of agents would
see. Not very specific is it? You get your basic template of price, beds, baths,
square footage and address. Of course, you can import other fields. However,
this is what the majority of real estate agents will use. I want you to notice
that the yellow highlights (next page) on the three listings are actual
bank-owned REOs (real estate
owned) in my area. You can see there are many homes priced less than the
REOs. These are the homes that are priced “less than foreclosures.”
Notice the important information that I’ve added: Psf - Price per square foot List Date - Nice to know how long it’s been on the
market. I
simply plug in single-family homes and all the active listings in the entire
county are at my disposal in the format that I like to use. I then sort by
price per square footage from the lowest to the highest price. Bingo! These
are the cheapest houses in the entire area right in front of my eyes. I can
also see how long they’ve been on the market. If they’ve been there
for a while, maybe they’re even more motivated to sell. You
have to check this list almost daily. Why? You never know when a property is
going to pop up. Check it weekly or every once in a while and you’ll miss
a lot of deals. It’s fairly easy to have this search set up and automated
on most MLS’s across the country. Can you
see how powerful this is? This has been a general overview of what you can do
with this, but make no mistake in the power of this. As a matter of fact, you
may not want to tell everyone you know about it, especially other investors in
your area. Let’s
now talk about how we know what any
home is worth, when it will sell and for how much. If you guessed that
it’s with certain criteria that we plug into the MLS, you are right
again. Let’s
now talk about, how we know what any home is worth, when it will sell and
for how much. If you guessed with certain criteria that we plug into the
MLS – you are right again! The
following example I’m going to talk about is an actual sold search on my
MLS. In looking at it - it really doesn’t give me much information. In my
MLS – I can’t even look at the sold price unless I know how to drag
that field in on to the screen. I then have to click on each individual listing
to see the sold price. Can you believe that? How
surprised would you be to know this is the view the majority of real estate
agents look at and rely on? All it really does is give them a brief overview.
Can you use this? Yes. Is there a better way? You’d better believe it. A
few will drag in different fields to expose additional information, but not
many. I’ve seen hundreds of agents over the years use the MLS, and
virtually none of them do what I’m about to show you here. It
takes training to learn how to really work an MLS to your advantage. After all,
the data is only as good as the interpreter and the person who sets up the
parameters of the different searches and views.
I’ve also viewed the street, city, beds, bath, total
square feet, year built and lot size in acres. Then I averaged the fields at
the bottom. I could have also picked median instead of average if I wanted to.
So how does that help me? In many different ways, to say the least! For example - let’s say I wanted to comp a similar
home on which I was going to make an offer. I can start eliminating square
footage that is not in the range to get me closer to an average. From there I
can use the year, price or whatever else I need to. After playing with this for a while, it’s simple to
find out exactly how much a home is worth, when it will sell and for how much.
I know of no faster way to comp a home. We’re talking minutes, if that,
with pinpoint accuracy. I can’t tell you how much time some investors
spend trying to get an accurate figure on the price. Not any more! Another way we use the formula is on land searches. In my
area where lots and land are starting to become a premium, I’ve devised a
great way of looking for land for investors who want to land bank. I simply
search all land by price per acre because that’s where the deals will be.
So many investors struggle and beat their heads against a
wall trying to find property, struggling to work with short sales and a lot of
other things that are very time consuming and often not very profitable. You
have to have a system that is the shortest path to the deal. The power of the
MLS and working with a trained real estate agent cannot be argued. It just
saves you so much time and helps you find deals you may have never found
otherwise. There is so much potential in the MLS and how you manage
and work the data. How about this? What if I went back to all the expired
listings for the last three months and now called them to see if they wanted to
sell? I’ll bet you’d find some motivated sellers in there, not to
mention the potential for new listings for your real estate agent or even for
you if you decide to become a real estate agent. (More on that in an
upcoming chapter.) Can you imagine how knowing how to do this could change
your life? Imagine all the investors with whom you could be working. Better
yet, you could be picking off these properties for you and your family.
That’s how powerful this is! |