An Argument in Favor of Sourcing Deals from the MLS
In my conversation with Matt McQueary, who has recently began wholesaling properties and has sold over 50 homes in his first 12 months, he explained why, contrary to popular belief, he likes to use the MLS to source his deals.
Matt finds the majority of his deals (70%) from the MLS, while the rest typically come in the form of off-market deals from birddogs (people that are out in the field knocking on doors and sending out letters). Most people think that the deals on the MLS are inherently bad, but Matt finds this statement to be false. Actually, contrary to what most people think, he prefers to wholesale deals that he finds on the MLS.
When working with deals that are sourced from the MLS, you have two parties, the seller’s and buyer’s agent, that are incentivized to come to a solution and get a deal done. For off-market deals, you will have sellers that nickel and dime you because every penny they negotiate up is a penny in their pocket. For MLS deals, agents get a 3% commission. Therefore, any major fluctuation in the price does not affect their compensation too much, so it is much easier to get a deal done when compared with an off-market deal!
In order to give himself and his business a leg up, Matt has created proprietary software that allows him to filter through the MLS and rank all of the deals so that they only look at the top 5% to 10% of deals. This allows Matt to deliver 100 to 200 of the top MLS deals to his underwriter’s desk, verses having them sift through 25,000 homes, which is the entirety of the listings on the MLS in his market. Out of the 200 deals, they submit 150 offers, get a response back on 25 to 30, and typically get 7 to 8 under contract. Once they have the top 200 deals on the underwriter’s desk, it essentially turns into a numbers game. The more offers they submit, the more properties they get under contract, and ultimately close on.
Matt’s biggest struggles that he must overcome when sourcing the majority of his deals from the MLS are two-fold. First, he faces a lot of competition. Since anyone that has an agent can obtain access to the MLS, Matt has to compete with many other investors for deals. However, that is where Matt’s software program comes into handy, since it allows him to quickly and efficiently filter out all the bad deals and only keep the promising deals.
Matt’s second struggle is that some of his investors argue that they can just go onto the MLS and find the deals themselves, so why do they have to pay Matt to do it for them? Therefore, Matt has to prove to his investors that he is adding value. He does this by using a formula that ensures that he is able to get properties for the best price as possible. Matt’s formula is the following:
- Start with the properties retail price – this is the price that a FHA or conventional buyer will pay for the property
- Subtract the rehab costs from the retail price, which results in the properties as-is value
- Take the as-is value and apply a discount – Matt has found that investors are willing to pay 85% to 87% of the as-is value, so anything below that price is Matt’s profit margin
As long as Matt is able to get a deal under contract at a price that is less than 85% of the properties as-is value, then he has not only proven that he is adding value to his investors, but he gets to make a pretty penny as well!
Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.