Pros and Cons: Dealing with Institutional vs. Private Motivated Sellers in Real Estate

The world of real estate investing is full of “do this” or “don’t do that”, but do you ever wonder whether you should be doing deals with institutional versus private motivated sellers?

After all, it’s always good to have options!

People ask me all the time if I focus on deals that are primarily with private sellers or institutional sellers. And then, the inevitable next question—which is BETTER?

My answer: well…I actually do a mix.

I do a lot of HUD and bank foreclosure deals and of course they are institutional seller. Made an offer on one just this morning in fact.

But…my Vacant House Data Feed provides me with access to constantly updated motivated sellers as well (both private and bank owned). It’s a great tool that allows you to search for thousands of vacant homes in any location across the country. Try it out for yourself here 100% risk-free!

To figure out which you should be doing – and maybe it’s a mix of both as well – let’s look at some of the main differences between these two types of sellers in real estate.

Private Seller Perks

With private sellers in real estate, the transactions tend to be less complicated. There’s no Realtor involved, you can count on a lower earnest money deposit AND you have the ability to come up with creative seller financing on some deals. (That would never happen when working with a bank or HUD)

I could write an entire book on the things I’ve done using creative real estate investing with private sellers…

One time I actually found a mobile home for the seller, added it to the deal and made a profit on it! I’ve also taken cars, antiques and equipment such as tractors. And, I’ve been able to set up zero-interest seller financing numerous times.

True stories!

The sky is absolutely the limit when dealing with private motivated sellers vs. institutional sellers. I like to get creative and have fun with it.

Once you get going and get some experience, you’ll learn this very quickly.

For the new investor, I always say you’re better off with private sellers. It’s a friendlier environment and the best part, in my opinion—small earnest money deposits.

Institutional Sellers – Are They Worth It?

First off…you’ll need proof of funds (POF) with every offer.

Next…you’ll be looking at putting down larger earnest money deposits.

AND you’ll be working with Realtors. By no means are all Realtors difficult to work with but there are some that can be very discouraging or negative.

So, when you DO find an investor-friendly agent – keep ‘em!

Realtor Problems

With more than 2 ½ decades in the business, I’m way beyond it but sometimes, I hear stories of how some Realtors discourage investors. The investor then has to take time and energy to bounce back from the negativity and I know of some who couldn’t and actually QUIT the business over such an incident.  Don’t let this happen to you.

I wrote an article about it called: Dream Stealers Stink. In it, I go into more detail of what I’m referring to, and you’ll understand why I get a little hot under the collar regarding this topic!

Make no mistake about it, I love Realtors. They play a huge roll in my business. Unfortunately though, the 80/20 rule comes into play here just like everything in life.  So, again, when you find the ones that are “investor friendly” and you surely will, hang on to them!

Playing by Their Rules

Having said all that, let’s go back to the subject of working with an institutional seller…

Remember, you’re playing on their court, which means you must play by their rules. In order to do that, you must KNOW their rules.

They’re not going to allow you to “get away” with anything. You MUST do double closings because they typically forbid contract assignments, whereas with a private motivated seller, you can do an assignment.

In fact, a private seller typically doesn’t care who closes, as long as it closes under the terms initially agreed upon.

The vast majority of banks will rely on their broker to list, negotiate and manage the sale of the house. If you raise what they consider to be red flags, you’re TOAST. (Your offer goes directly into the trash.)

The good news is that since so many other investors are doing things the wrong way and when you learn how to make offers that make you look like a pro, you’ll be miles ahead of the competition and you’ll make a killing.

When you’re willing to take the time to learn the ropes, you can make a lot of money working with institutional sellers, but I think it’s always best to learn the basics with private sellers first.

Remember to give the Vacant House Data Feed a try. There’s no easier or faster way to get access to private OR bank owned motivated sellers across the country and you can give it a test-drive 100% risk-free!

What’s Your Take?

Have you experienced both types of motivated sellers in real estate? What are your ideas of the pros and cons? And, what about your take on working with Realtors? Your feedback helps others in the industry, so please leave your comments below!


Cameron Dunlap

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3 thoughts on “Pros and Cons: Dealing with Institutional vs. Private Motivated Sellers in Real Estate

It has been my experience that working with both have pluses and minuses. Private sellers are by far superior to working with than REO/HUD properties. As you have articulated, institutional sellers have their own rules that are etched in stone. Very rarely do they deviate from them, if at all. And…. because institutional sellers ONLY work through agents, you can become subject to their mercy. Why this is the case I don’t know. However, it could be that 1. the agent wants the deal 2. they have “preferred” buyers that want to work with (cultivating this relationship takes time but, once acquired can be profitable) . 3. They don’t like losing control of the deal which could put the sale and their commission in jeopardy. Private sellers on the other hand if, motivated, are willing to consider all options. I did a deal which I found on the VHDF. I had sent a Yellow Letter to the owners who lived out of the state in which the property was located. What I subsequently learned was that a local agent was the property manager. This agent kept changing what she needed to get the deal done. I soon realized that what the agent was doing was using stalling tactics in order to secure a listing so that she could earn the commission on the sale. She only had a management agreement in place. The purchase agreement stated a closing date of 4/15. I didn’t close until that day. I did a private seller deal in which it was a matter of getting the purchase agreement signed, earnest money in escrow and setting a closing date and then closed with a double closing. Slap bam, done. My vote goes to working with motivated private sellers, unless you have an agent who is willing to think “outside of the Box.”

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