Supply and Demand

What it is

Supply and demand, as applied to deal sourcing, is this: the easier a house is to find, the more buyers find it, the more they compete, the higher the price goes. Put it on the mls and every investor, owner-occupant, and weekend warrior in the city is looking at the same listing at the same time.

Here’s how I explain it: if you think you’re going to go out there and get deals from wholesalers and realtors, you’re probably just bait for the sharks. The only reason a wholesaler isn’t taking a deal themselves is because they can make more off of you right now. That means prices get pushed up to the same status as if it were on the market. The most buyers are there. It’s going to push the price up.

The only true way to have consistent deals is to go get them yourself. And a lot of people try to think about all the creative ways they cannot do that, because truly they’re just scared of it.

Why it matters

Think of it as concentric rings around a deal. The innermost ring is the seller themselves. The next ring out is people who know the seller personally. Then off market channels like direct mail, probate lists, tax-delinquent lists, driving for dollars. Then wholesalers and their buyer lists. The outermost ring is the MLS and Zillow. Every step outward adds buyers. Every buyer added raises the price the seller can command.

I ran a million dollar a year wholesale company. We did 100-plus deals a year. And what I know from both sides of that business is that the best deals go to the wholesaler’s inner circle first — 2-3 closest buyers, first look. The next tier goes to the top 10-20 buyers who respond fast. The remaining leftovers hit the big list of 500-plus buyers, and by then every investor in the city has seen the deal. Same property, different prices, depending on how early you see it.

The Fliporithm math, the 70 percent rule, the max allowable offer calculation — all of it assumes you bought at a discount to retail. You don’t get discounts in high-supply channels. On the MLS, the asking price is already filtered through an agent who knows the comps, with marketing exposure to every qualified buyer in town. The competitive bidding shaves any discount out.

How it shows up

One of the strategies I used especially when I was ratcheting up deal volume: find wholesalers that were good but new. They hadn’t built their buyers list yet. So I could basically be their biggest and best buyer. I would get great deals from them for a while because they were good and didn’t have a list. Eventually they got a list, prices started going up, I couldn’t be their best buyer anymore. That was smart for their business, obviously. But while it lasted, it worked.

The trade-off for going direct-to-seller is work. Direct mail campaigns cost money and time. Probate research takes hours. Driving for dollars takes gas and patience. The work is the reason the channel stays below-MLS: most investors won’t do it. The ones who will, earn the margin.

The MLS isn’t useless. It’s just where you go when you need speed, not margin. Retail flips with fast turnarounds sometimes come off the MLS. Fat-margin flips almost never do. And there are times — when the market is soft — where you can get deals on the market. They’re still never as good as off-market because you cut out all the middlemen. You cut out everybody else that needs to get paid on a deal.

Related

motivated seller, direct mail, mls, off market, driving for dollars, wholesale, list building, skip tracing