“For Sale by Owner” is often abbreviated as “FSBO” and used as a noun to refer to a property or the owner of a property that is for sale in this way. Some jokingly insist that the abbreviation actually stands for “Fastest Source of Business Opportunity.” When I entered the realm of real estate 14 years ago, a prominent trainer told me that the National Association of Realtors did a study on FSBOs. The statistics are dated, but they will help emphasize my point: 70% of FSBOs at the time of the study ultimately listed their home with a real estate agent. This means that they tried to sell their home on their own, then realized they didn’t want the headache and listed the property with a Realtor. What this indicates is that 70% of FSBOs are not motivated enough to take a low offer. 10% of the FSBOs gave up and told friends and family that they didn’t want to move, and had just been testing the market. Again, these people weren’t motivated. They were typically asking more for the property that it was worth; they didn’t need to move. 10% of the FSBO’s actually sold the property for what they were asking for it and 10% sold the home at such a discount, that they would have saved money working with a Realtor.

Here is what these boring statistics mean to you, the investor: 90% of the time, a FSBO isn’t motivated. However, 10% of the time they are very motivated. Again these statistics are dated; in the current housing crisis, you will find more motivated sellers. However, we are going to continue with the premise that 90% of the FSBOs are not motivated enough to work with an investor. This means that you need a quick technique for sorting through FSBOs to determine who is motivated and who is not.

There are two quick questions that you can ask the seller to determine if they are motivated or not: “Why are you moving?” and “By when do you need to be there?”

Before we ask these questions, however, we need to have the seller tell us about their home. Therefore, we are going to start by saying, “Tell me about your home.” If they don’t offer up the description you are looking for, follow that up with, “Take me on a verbal tour of your property.” There are two reasons for this question. The first is that it will give you a minute to restart your heart. The second is that the seller is expecting you to ask them about their house. They are going to do everything in their power to get you to come and see their home. They want, or perhaps, need to move. They will try to interest you in the property enough to make an appointment to come see it. The good news is that this sets up our first question perfectly.

The first question to ask to determine if they are motivated is, “Wow, your house sounds amazing. Why are you moving?” Typically, they are not going to say, “The neighbors throw the loudest parties and I just can’t stand one more sleepless night.” They won’t say anything negative about the property because they want you to be interested in the home. Their answers will generally fit into one of three categories:

• Unmotivated Sellers: Those Who Want to Move. The answers will sound something like, “We are thinking of moving across town.” “We thought it would be nice to get a bigger home.” “We thought that it would be nice to…..” In each of these cases, their wording establishes that there is little or no motivation. They want to move. They want to get as much out of this house as they can before they go on to the next house.

• Motivated Sellers: Those Who Need to Move. “We got transferred out of area.” “We built another home.” “We bought this as an investment, but we can’t sell it.” “We’ve been stationed somewhere else.” In each of these cases, they are establishing that they must move. If they aren’t having financial difficulties yet, they soon will if they do not sell.

• Unknown. The answers that you are going to hear are that put one into this category are along the lines of, “We thought it would be nice to downsize.” One possible translation is, “All of the kids have left home and we want a smaller house.” Another possible translation, however, is: “We are going to lose our home to foreclosure if we do not sell soon and find something less expensive,” or “We just got downsized at work and have to adjust everything accordingly…and soon!” The first person isn’t motivated, the other two are. This is why we may need to ask a follow-up question to determine their motivation. We have to determine which category they should be in: motivated or not motivated. Who wants to confess to a complete stranger that they are losing their home? I wouldn’t, would you? It is an embarrassing situation for most people to find themselves in. Keep that in mind when you are approaching people who are in foreclosure.

The next question that we are going to ask of someone in any of the three categories concerns the time-frame in which they need to move. This type of question can be awkward to try to fit into the conversation. Don’t make yourself obviously uncomfortable, but try to come up with a way of establishing if they are motivated. Perhaps you already know the home is vacant, so asking them when they need to be out doesn’t fit. Obviously, they don’t need to move out of the home, but they still need to unload the debt of the home. In that case, try phrasing the question in such a way as, “By when are you hoping to sell the home?” I know that is a “duh!” question. Obviously, they probably want to get rid of it immediately, but what if they don’t? What if they paid cash for it, so there isn’t a hard-money lender demanding payment?

Unmotivated sellers will answer something like, “Well, whenever we sell the property; there isn’t any rush.” Remember, this is the answer that you are going to hear about 90% of the time. In this case, we don’t need to know about their mortgage information; we don’t need to make an appointment to see the house. Unless we can infer that they are way under value in their price, we just need to get off the phone. “Thank you so much for talking with me. I don’t think that your home is quite right for me and my family, but good luck with finding the perfect buyer.”

Motivated sellers will say something like, “We start the new job in two weeks.” “My spouse has already left; I am just waiting for the home to sell.” “We need to sell as soon as possible.” Sometimes you will even hear, “The bank says that they are going to foreclose if we don’t do something quickly.” These are the answers that we are looking for. This is what we are going to hear about 10% of the time. We need someone who is showing that they are motivated and therefore, willing to work with us. In this case, make an appointment to see the home. You want to set the appointment up for later that same day, early the next, or as soon as possible while still allowing yourself enough time to do research on the area and the property.

While different veteran investors have different opinions on this point, I personally feel that you don’t need to tell people that you are an investor at this point. To a seller, the word “investor” means someone who will try to buy the property for next to nothing. While truly motivated buyers may not have the luxury of discriminating against you, there is no point in having them dislike you before you even get there. New investors tend to give away too much information over the phone. Don’t make your battle any harder than you need to. You are just like any other buyer.

If the Category Three sellers still haven’t sorted themselves into categories of “motivated” or “unmotivated,” then say, “Thank you for telling me about your house, but it doesn’t sound like something that would work for me.” If they start backpedaling or trying to keep you on the phone, then they may be motivated sellers after all. “Is it the price? We are negotiable on the price.” “What don’t you like about the house; maybe if you came and saw it you would change your mind.” If you think that they may be motivated, go ahead and make an appointment and then do your homework. If you then do not think they are motivated, just walk away.

Before you go to an appointment, you need to do some homework. You want to make sure that you go into the situation well-educated. What are homes like this one selling for once they have been fixed up? How long does it take a home in the area to sell? Are there a lot of homes for sale in the area? By the way, if there aren’t a lot of comps, that may be a good thing. This may be an area where people move in and stay put, and there may be more of a demand for homes in an area that is harder to get into. If that is the case, you will want to know what you can rent that home for. If you have all your exit strategies laid out before you arrive at the appointment, you won’t have to do as much thinking on your feet.

These questions are designed to help you determine if this person is motivated. Sometimes, overcoming the fear of picking up the phone requires a little motivation. If you were to call 10 FSBOs a week, you should find one motivated seller a week, at a minimum; this translates to 52 potential deals a year. Assuming that you can only get 10% of these motivated sellers to work with you, that is still 5 deals a year. If you assign each of these contracts for $5,000, you will have made $25,000 a year as a result of making 10 phone calls a week. If you rehab each project yourself and sell it for a $15,000 profit, you will have made $75,000 a year.

Let’s make sorting FSBOs even easier. Another sorting tool can be utilized by strategically planning when you call. If you call Monday mornings at 10 a.m., how many people will be home? Very few. This means that you may leave 7-8 messages and talk to 2-3 people. Calling when you know that you are going to leave a message most of the time will help you stay calmer and shortens the time period necessary for making the calls. If you get the voicemail, leave a message: “I saw your ad/sign, and am calling to get more information about your house. My name is ______, and my number is (555) 555-5555.” That is all that you have to say. If they don’t call you back, they are obviously not motivated; move on!

This method is a quick way to sort out the motivated people from the unmotivated people. You can call 10 FSBOs in 20 minutes a week. That is $24 a minute, and $1,440 an hour, if you are assigning contracts. You can handle that.

So where do you go to find FSBOs? The first place you should look is the newspaper. You will notice that the supply of owners advertising in the newspaper is dwindling, but don’t be concerned. The next place to look is the internet. Do a Google search “For Sale by Owner” and your city or county. There are several different FSBO websites and you should also try Craigslist. Incorporate looking for FSBOs into your daily driving. If you need to go to the store, pick a random block that you can drive around. On the way home, pick a different block. You will get to know the neighborhoods and you will see the FSBOs. Write down their contact information.

Because people will change their advertisement from one medium to another, you will need some kind of tracking system to prevent you from making multiple calls to the same seller. One of the best ways to do this is to keep track of prospects by telephone number. Create a spreadsheet. Write down the phone number, the date that you called, and the reason they gave for moving. This is an easy way to see when the last time you contacted them was. If it has been 6 months since you spoke to them and they are still advertising the property, maybe they are more motivated now. Consider calling them again.

The Exit Strategy Review

Now let’s review some possible exit strategies.

• Wholesale or contract assignment. How could you make assigning this contract to another investor desirable for both parties? What could you offer? When you calculate those numbers, assume the home is in perfect condition. Then the only thinking you have to do on your feet is to assess the expense of the repairs that need to be done. Once you have an estimate on repairs, you will subtract that from your original offer. Wholesaling is a great way to get into properties with little out-of-pocket expense.

• Rental or lease/option exit strategy. You need to know how much you can charge to rent this home, and how much you can offer the seller based on the rents. There are a lot of people who owe what their home is worth. They don’t want to ruin their credit, but they still need to move. Offer them terms that work for you. If you know that you can rent the property for $1,200 a month, offer them $1,000 a month. This is a way for you to control the property with cash flow. In our current market, properties are not appreciating and people don’t want to ruin their credit, making this a perfect strategy for the times in which we live.

• Rehab the property yourself. Again, you need to determine the maximum amount you can offer before repairs. Then calculate the repairs and adjust your figures accordingly prior to giving them an offer at the home.

The Appointment

Before you get to the property, make sure that you have all the paperwork that you might need. Make sure that you have a lease/option contract, as well as a purchase contract. Always carry extra documents and addendums with you so that you are ready no matter what happens with the seller.

When you get to the house, strive to create some kind of a relationship with the seller. Most people don’t want to sell their home to someone that they don’t like. There will be times when the seller doesn’t care about the house. However, most people get attached to their home. They may have been there for a long time, and they want to make sure that it is left in good hands. Remember the sentimental factor.

Find something that you can talk about before you jump into your tour. For example, comment on a beautiful flower bed; notice a nice piece of furniture or a great car. Be careful not to comment on the views or the home itself. You don’t want the price to suddenly jump up. Yes, this will feel forced and awkward the first few times you go through it. Eventually you will realize that these people are just like you, except you actually know more about real estate than they do. I know that it may not feel that way.

Once you have established the emotional connection, pull out a clipboard and start walking through the house. Ask them about any repairs they have made or have considered making to each room as you are in it. Between rooms, ask them about the “guts” of the house. How old is the plumbing? Have they updated any of the electrical? Do they have GFI outlets (the plugs that work like a blow-dryer and shut themselves off before they electrocute anyone) near all the water sources? How old is the roof? How old is the furnace? How old is the water heater? If necessary, remind them that there are parts of the house that are expensive to fix. Each time you ask them about something that is outdated, the price of the home will go down in their mind.

The last time that you looked at a home with an agent, were you asked something like, “Would your furniture fit in this room?” If so, the agent was trying to get you to imagine living in the house. We are going to do the same thing, but in reverse. We want the owner to see us as the new owner of the property. Pick a room and role play this with your partner. For example, if you are standing outside the bathroom one of you can say, “Wouldn’t that vanity we saw the other day look fantastic in this bathroom?” Your partner should reply, “It would look great! We can put in that tile that I liked; it would really be beautiful.” Now the homeowner can visualize you living in their home and remodeling it. On a subconscious level, they will feel as if they have already sold you the property. If they are going to have a hard time selling you their property, it is wise to bring that to the surface before you pull out the contracts.

FSBOs provide great opportunities for a real estate investor. Don’t ignore them; don’t be afraid to talk to them. You can make money in real estate, and FSBOs are a great way to do that. These people are just like you. Don’t allow fear to keep you away from the “Fastest Source of Business Opportunity!”