Investors have been kicking this topic around for as long as I can remember. Which is better for finding distressed properties? Off market deals or the MLS? I suppose that depends on who you ask.
I know a lot of investors that get the majority of their properties off the MLS. They have mastered the art of finding good deals. Some of them follow properties by days on the market, they create spreadsheets and wait for the seller to become a motivated seller.
You know which camp I’m in. I love off market deals. Whether you choose to work off market deals or the MLS (or a combination of both) is very much an individual choice. So, let’s take a look at the pros and cons of each of these.
What are Investors Looking for?
Investors are looking for distressed properties in most cases or other hidden gems where sellers have other motivations for wanting to sell quickly in this competitive seller’s market. At the end of the day, real estate is a number’s game so you need multiple ways to find deals. There are so many different types of off market deals they are a great source for finding properties.
Finding Deals on the MLS
The MLS or Multiple Listing Service is the most comprehensive database of properties for sale across the country. It is in fact not a single database, but it’s made up of hundreds of regional databases in the US.
In a world full of memberships today, the MLS was one of the first to adopt that model on such a huge scale. You must be a licensed Realtor or broker (or their assistant), and you must pay to have access to the MLS.
The Pros of the MLS
The information is generally accurate since agents are required to follow listing guidelines. For anyone looking for property in a specific geographic area, the MLS is the ultimate database for doing that.
The Cons of the MLS
- There is a lot of competition on the MLS! When you’re deciding on whether to focus on off market deals or the MLS, this is definitely one thing to consider.
- For each property that is listed on the MLS, there are generally thousands of agents and investor/agents looking at the property
- It’s not uncommon in this seller’s market to see multiple full price (or greater) offers on a single property
- Properties listed on the MLS are much more likely to be “pretty houses” that will fetch higher prices.
- You must be a Realtor to submit an offer
Off Market Deals
Off market deals are everything else that’s not on the MLS. There are a lot of places to look and many ways to find these deals.
The Pros of Off Market Deals
It has always been my experience that there is much less competition for these properties. You can also find much better deals especially when it comes to distressed properties.
Real estate investors that take time to learn how to market to these motivated sellers have a huge advantage over their so-called “competition” who are waiting for a deal to come along on the MLS. We have the opportunity to scoop up these deals before they ever have a chance to be listed.
What About the Cons of Off Market Deals?
This is a big one for some people: You have to learn to talk to sellers.
It makes some investors completely ignore off market deals which is one of the best sources of leads I have found. Here are some of the things you’ll need to be able to do when working directly with sellers. Understand that these are not necessarily skills you have today, but ones you can definitely learn.
When dealing directly with sellers you will need to:
- Build rapport with these folks so that you are able to have productive conversations with them
- Discover their real motivation for selling
- Negotiate with sellers
- Make offers
- Follow up with them often for a long period of time, and often after they have initially said “no” to your offer
- Get good at changing their expectations when it comes to what they want or expects to get for their property
Since these deals are not on a single platform like the MLS, you often need multiple strategies for finding and marketing to these folks. Some of these leads can be found online, but others require a little more work which ultimately makes them much more valuable.
Which One Should You Choose? Off Market Deals or the MLS?
The honest answer is, that depends. Many investors choose both, while others like me choose to focus only on off market deals. One thing you need to learn to do other than talking to sellers is marketing if you want to work with off market deals. What do you get in return when you do?
More profit! There is almost always more profit in off market deals.
What’s in It for Sellers?
I am asked this question all the time. Why would a seller prefer to work with an investor when they are almost certainly going to get less money for the property? Here are just a few ways they choose which route to go; off market or the MLS.
- Sellers can control the timeline. They may need a longer closing time or extra time to move.
- They often have expenses they can’t pay like back taxes, so they are willing to settle for less cash just for convenience.
- These folks just don’t want to deal with listing the house. They don’t want to have people coming in and out of their house.
- Skipping all the preparation to get their property ready to sell on the MLS is very attractive to busy people.
- They want to be discreet about the sale of their property. This may be due to a divorce, financial problems, impending foreclosure, or even probate.
Is There a Downside for Sellers?
There can be. The downside for sellers is that there will be fewer buyers and they will probably get a lower offer for the property.
There is no right answer when it comes to whether to focus on off market deals or the MLS (or a combination of both). Choose what works best for your business. Which do you prefer?
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