Vendor Motivated - Essential Info

I am currently working on creating a system that would make it easier to find and qualify motivated sellers. I’ve gotten feedback from several investors in terms of how to qualify motivated vendors. However I would really like to know what other REIClub members would consider to be the initial key qualifying Q&A.

So here’s my question.

What key things would you absolutely need to know about a seller and their property to ID them as a motivated vendor? In other words if I could place a video camera in front of a potentially motivated vendor and you were to tell me what to ask them, what would your questions be?


Somebody just asked me that same question today. Please pardon the terrible writing…I’m in a hurry…

BTW, it’s nice to have “first poster” who has a command of the English language… :biggrin

To partially answer your question badly…

  1. It depends on what you’re trying to accomplish. Bargain hunters are not likely to search for 5 CAPS in pretty neighborhoods, for example.

  2. Looking for high leverage, low leverage, value added, money-parking, pride of ownership, or what? Each objective requires a different seller/property profile/type.

Motivated sellers offer all kinds of opportunities. I just missed (this is another “fish got away” story), a 200-plus project that was 30% vacant, partially renovated, divorce situation, and sub2 deal. It was high leverage to buy and offered a high upside potential, but required lots of cash after purchase to realize the upside.

Each deal is different. It’s practically impossible to identify a motivated seller until you start asking for concessions. You might have clues, and an agent might give you inside information about the seller’s motivation level, but until you’ve shoved an offer under the seller’s nose, you really don’t know how motivated the seller actually is.

Meantime, I’ve found that many, many sellers will seriously consider seller financing 90% of a deal if asked. That usually means the seller isn’t paying an agent. If an agent is involved, there are probably just as many sellers who would finance 80%.

Well, just for giggles, if a seller is willing to finance 80%, might they be willing to finance 30%? If they are willing to finance 30% (on a second), might we find 70% financing elsewhere, if the property is half-way performing?

Of course the worse the property is performing, the more likely that either extreme in financing will be necessary or possible; between 100% seller financing, to none.

Meantime, regarding motivated seller…

I look for vacancy problems first.

Zero vacancy and a waiting list usually means there is an upside in rents. Often sellers brag about this, knowing full well that the average investor recognizes the value in the deal when the rents can be raised significantly. I know the rents are low if the occupancy is at 100%

Then there is poor occupancy. This represents an obvious value added opportunity, too, depending on why the vacancy factor exists. Often time the management is simply incompetent to keep the building at 95% occupancy. However, it’s up to us to determine if this is a cheap management fix, or is going to require a bunch of cash to solve.

If there is a vacancy problem, and lots of cash is required after the purchase to realize the upside potential, then I want to know how flexible the seller is in getting paid. I am willing to pay more if the seller is willing to walk away with less at closing. I don’t mind partnering with a seller, if there’s something still in it for me.

The next thing (probably the first thing) I look for is whether the property is listed or not. Of course if I’m mailing to the owners of income property in my farm, and the seller calls me, he’s ready to deal w/o the agent. And I’ve got no responsibility to include an agent in my deal, just because the seller’s signed up with an agent.

Many times, the seller is frustrated with the agent, and is looking for an alternative. I’ve also had sellers tell me that unless their agent was involved in the deal, they wouldn’t sell to me. Well, that’s fine depending on how creative I’m forced to be to make the deal work. Agents on small deals can get in the way.

So, occupancy is the first clue for me. After that it’s a matter of studying the current income and expense levels, applying my assumptions to what should be happening, and then making offers to see if the seller is flexible to make the deal work for me.

So, analyze the numbers and then make the offers. Making the offers will smoke out the motivated sellers.

It’s sort of like Nancy Pelosi telling us, “we’ll know what’s in the bill, after we pass it.” We’ll know how motivated the seller is after we make our first offer.

Hope this helps, and isn’t too verbose…


Thanks. That was very helpful. I understood most of your post, with the exception of “5 CAPS”. What does that mean?

“CAP” is the shorthand term for “capitalization rate.” This is the most common way to assess the return/value on a building of more than say 5 units.

It’s the return, by percentage, after all expenses, if you were to pay all cash for a project.

For example if I paid 2M cash for a property that had $500k in scheduled income with $250k in expenses and a $250k cash flow, the CAP would be calculated by dividing the cash flow by the all cash sale price.

$250,000 / 2,000,000 = 12.5% CAP. So, if I paid all cash, and realized $250k in cash flow that would represent a 12.5% return on my cash invested.

This would be a smoking deal, by the way!