Motivated and Unmotivated Buyers and Sellers

by Mr. Cheap

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In a recent real estate post, frequent commenter Ryan Martin made a suggestion, in reaction to a statement at the end of my post:

Mr. Cheap:  ”I’d certainly be willing to sell if the right opportunity presented itself, but I’m not in any rush either

Ryan Martin:  ”Mr. Cheap, judging by your last paragraph, it sounds like you want to sell. I suggest you be proactive instead of waiting for the opportunity to present itself.  Real Estate can be stressful if you let a decision like that drag on.

Which made me thoughtful for a while.  Should a decision to buy or sell be an either/or choice?  Either you want to sell, and will take the best price you can get, or you don’t want to sell and won’t even listen to offers.

My gut feeling is emphatically NO! The best prices will be obtained by buyers and sellers who are willing to walk away from a bad deal (or even hold out for a beter-than-average deal).  Anything we own has an intrinsic value to us, and if market rate is below this, there’s no reason to sell (hang on to it and continue to enjoy it).  Heck, I regularly see people who demand a great deal or they won’t do business.  They may have a hard time finding someone to do business with, but if they do they’ll get a great deal.

In “get rich quick through real estate circles”, finding “motivated sellers” is scheme #1 (a Google search on “motivated sellers real estate” turns up almost 4 million hits).  The idea goes, find people who need to sell urgently, such as people going through a divorce, and demand an insanely low price from them.  I could be wrong, but I’m sceptical that there are many people, even those going through a contentious divorce, who are looking to give away their house (except maybe for this property Mike saw).  In fact, I suspect the opposite situation, where people expect an unrealistically high price for their property, is more common.

I’ve been in situations where I’ve been willing to buy something, but only if I get a great deal.  Often I get that great deal.  Without being obnoxious, sellers realize when a buyer is on the fence about whether or not they are going to buy and a smart seller will bring out their best price.  When I’ve shopped in marketplaces in developing countries, thanking the seller for their time and starting to walk away often resulted in a dramatic reduction in the price:  they realized that the negotiation was going to come to an end without a sale, which made them very motivated to find a price I’d accept.  Alexandra has commented that her husband has used the same strategy to good effect buying triplexes in Toronto.

Comparably, I think being willing to sell something, but only if I get a great deal is an EXCELLENT way to think about something you’re happy to keep.  Years ago I saw a property in Toronto that was a condo being rented to 4 students that had been TRASHED!  The carpet was buckled, they had taken out a lot of the light bulbs and wrapped aluminium foil around the sockets, and there were massive numbers of ants crawling all over the kitchen.  Their asking price was about market rate for the building, which seemed pretty optimistic to me given the state it was in.  I made an offer that was significantly lower (to compensate for the repairs) and they counter-offered $1,500 off their asking price.  Their agent wanted me to make another offer, but at that point I told him we were all wasting out time and I’d let it go (and told him to contact me if they were willing to be more realistic about the condition of their unit).  They never contacted me, and my hat is off to the sellers.  They had tenants in place and were making money, and had managed to find an agent who would actually show the place and try to push their crazy price.  It was no skin off their back to keep waiting and either get the rent checks, or possibly make a sale at an incredibly good price.

That’s smart.

For a personal residence, obviously you wouldn’t want to keep the property in open house condition for month-after-month while you execute this strategy.  Likewise, I’m not going to run off to Toronto to show my property a few times a week and ask a price no one is going to pay.  HOWEVER, if a tenant or someone in the building mentioned wanting to buy, I’d *CERTAINLY* talk to them, and if they were willing to pay a premium I would be happy to sell.

To be fair, I don’t think what I’ve detailed above is EXACTLY what Ryan was saying in his comment.  What I took from his comment was that he suggests, if I decide I’m ready to sell, I should go all out and put a lot of effort into selling it, not just wait around hoping for a buyer.  As far as that goes, I agree with him.  However, I haven’t decided that I want to sell.

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{ 6 comments… read them below or add one }

1 2Hirondelles

I’d have to say that right now we are in the same position as you. We plan on putting our home on the market next Jan, but if someone walked up to the door and offered us a great price right now, we’d take it.

We are in the lucky position that we already own our next house outright, however, and our plans have a certain flexibility in them.

2 Four Pillars

I think the motivated seller idea is a bit of myth unless it’s a total buyer’s market. But as we’ve seen in the US, if a home owner is upside down on their house and can’t sell for the mortgage amount they will usually just rent it out rather than sell for less – or just walk away. I would think this would be true even if there is no mortgage (the renting it out part that is). There might be the occasional situation (ie divorce) where there are no buyers for a house and you can get a good price but even then – aren’t you just paying market value?

I also don’t believe there is ever such a thing as a “motivated buyer”. Nobody ever “has” to buy.

I had a friend who sold her house and priced it to get a bidding war. Her “super” agent convinced her that the July 1st weekend was an ok time for this because “motivated buyers” won’t care that it is July 1 – which is probably the worst week to try selling a house in Canada outside of Christmas.

Needless to say her bidding war was a bit slow – there were two people bidding so it could have been worse. Other similar houses on the street (including mine) had at least 6 bidders each.

The reality is that she had a really successful agent who “consented” to be her agent because of a family relationship. The house was relatively small and cheap so I think the agent figured that doing it on July 1 was most efficient for her and she could do her normal expensive houses on better weekends.

3 Rachelle

I disagree that is no such things as a motivated buyer or seller.

A friend of mine bought a house where the people were divorcing for a great price. For whatever reason they couldn’t even be in the same room with each other. The house was vacant and a drain on both their finances.

I have seen landlords the go through an eviction and put the house on the market and not care at all what they get.

Estate sales are another good example of people who just don’t care about if they get the best deal. They just want the process to be over.

Then there’s people who have been transferred for work and have to move out of town. They may have to sell to be able to buy in the new location. While their house sits on the market they have to pay for upkeep and mortgage and taxes.

For motivated buyers, people who come from out of town need a house ASAP usually for job transfers.

People who have already sold their house and need to move within a certain date and people who are looking in high demand areas where they may have already lost a few bidding wars also comprise motivated buyers.

On top of that we all know impetuous people who want what they want and now. These people will pay more.

The best strategy is not to have a fire sale. The very first property management company I worked for we were dissolving the rental portfolio of a couple who were divorcing. They had 50 houses and it took three years. Everything was done to increase the value of the assets and to present it on the market. Every single apartment was kept tenanted so that cash flow continued to flow and while selling was a priority many offers were refused until the target price was reached.

It is easy to get caught up in the emotions of buying, I say develop a plan and stick to it. This is the largest purchase of most people’s life not a chocolate bar places strategically at the cash register.

4 Mr. Cheap

Rachelle: I stand corrected, you clearly have more expertise than I do! Were the motivated sellers going through MLS or selling privately?

5 Rachelle

Motivated sellers come in all shapes and sizes but I would estimate lots are on the MLS just because 80% of all house sales happen there. Further when you are desperate you are much more likely to “trust a professional who can get the job done”

Most private sellers are doing so because they want to save the real estate commission, they tend to be financially savvy people. Having said this the best deal I ever came across was an estate sale. The lady just wanted $130 K. The mortgage broker went behind my back and put an offer in someone else name. The lady then decided to list on the MLS and sold for $200,000.

6 Ryan Martin

I think Rachelle hit the nail on the head with “emotion”. Personally, I never thought of real estate transactions as motivated or not, but I know they sure get emotional. Usually the deal will play on someones emotions (a large topic in itself).

Mr. Cheap, do I get an assist for this one ;-)

My two cents: I suggest those who are on the fence also crunch their numbers; this can be just fantasy numbers (guesses). At least get in the habit of knowing what comparable sales have been on your street, getting a free real estate appraisal, go to open houses, etc. I look at this as a game, but when it’s time to pull the trigger, I’m all business. The trick is to give myself enough ammunition to know when to pull it.

One of the points of this article (as I see it) is that it’s okay to “sit on the fence”, just don’t do it without any degree of work or due diligence.

To steal from the Richest Man In Babylon: “Men of action are favored by the goddess of good luck.”

Ryan

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