How to Find Flip Houses on the MLS
The most common way to buy or sell a house is the Multiple Listing Service (MLS). The MLS is a service that allows selling brokers to mass-market houses for sale. This allows other buying brokers to obtain long lists of properties that are currently for sale quickly. These lists can be mined and sorted to find great deals on flip houses from the MLS.
Pros of the MLS
The majority of home sales are through the MLS. The MLS also propagates listings out to many 3rd party websites. Redfin, Trulia, Zillow, NeighborhoodScout, and almost everyone else all get their data from the MLS.
MLS sellers are motivated. The process of finding a broker and preparing the house for the MLS creates a mental commitment. The process is emotionally draining and they don’t want to fail or repeat.
Sellers pay the commissions. That’s right! The seller pays the commission for a buying agent, not the buyer. You might say that the commissions are built into the price.
Sellers begin the negotiation. Each house listing is posted with an asking price (first offer). This is known as price anchoring. It immediately puts the seller at a disadvantage. It tells us even more about the level of motivation. Computer programs can use that extra information to sort thousands of listings to find the best deals immediately without ever contacting the sellers.
Cons of the MLS
The MLS brings competition by marketing to everyone. Competition among buyers favors the seller. That is why the MLS was created in the first place.
Sellers have agents. Unfortunately, they steal some of the best deals. The seller’s agent may either buy it themselves, or do a “pocket listing” where the house never gets marketed. Instead, the house is sold to a direct contact of the selling agent.
Access isn’t free. While everyone can see simple listings in the web browser for free, only realtors have member access to the MLS. That is the level of access we need for prospecting.
Gaining Access to the MLS
In order to gain access, you have to hire a realtor, or become a realtor. Becoming a realtor is a three step process.
First, you must become a licensed real estate agent. In most places, this involves a class that can be taken online, and a short multiple choice test over the class material. When you pass the test you become licensed.
Second, in order to practice, real estate agents must work under an experienced broker for a short time. This forced apprenticeship allows you to gain experience while shielding you from liability that is offset to your broker.
Third, you must join your local Realtor Association. The Realtor Association will grant access to the multiple listing system (MLS).
Many flippers (including us) go this route. After the required training period, you can become a broker and have your own agents.
As a realtor, sellers pay you a commission to sell their houses! The best part is that you can buy and sell houses for others as well. This opens a whole new earning opportunity for you to make money.
Using the MLS
Member access to the MLS provides a more capable web interface. There you can define and save criteria for several frequently used searches.
For example, you can search by location using a map search. You can search for only bank owned (REO) or short sale houses. Some searches might look for houses in a certain price or size range.
Most web interfaces allow you to adjust the output display. For example, you could define a column that reports asking price per square foot. Then you can go a step further and sort the houses by asking price, or size, or by your custom columns.
This basic level of prospecting is enough to view all houses of a certain area, asking price, size, and type sorted the way you prefer. With time you can define and refine several different searches.
If you are new to prospecting, then you should read Three Property Types to Avoid on the First Flip House. It can help you set up and understand your prospecting searches.
Over time and repetition you will get faster and faster. Then you will realize that you are doing the same steps over and over and over again.
The Problem with the MLS
There are two problems with basic level member access MLS web interface. These are too many buyers looking at the same small areas.
The first problem is that everyone else has it figured out too. There is plenty of information on the web explaining how to do this and it only takes a few minutes to start on most interfaces.
The second, and much bigger problem, is that the simple sorting tools point all users to the same data. Think about sorting your results by asking prices per square foot. This method will bias your data toward either bigger properties, or sections of the search area with lower-valued homes. This may be only a small percentage of the search area.
For most MLS users, it can get much better. You can download the listing data results in large data blocks. You can retrieve data for properties that have sold in the past as well as properties that are for sale currently. For example, you could obtain listing data for every property that has sold in your search area for the last 5 years and every property that is currently available. For our search area this is more than 250,000 records.
Next you can write a computer program to do whatever you can possibly think of to mine that data! These programs (aka apps) are called prospectors. Prospectors do the work for you.
Our prospector, available in the Prospecting Products Bundle, uses the data from past sales to build hierarchical statistical models in order to predict present value. We then use those models on the current listings to find the percentage of the asking price in terms of the after repair value (ARV). This is only one criterion we use for the multi-tiered sort heuristic to find the best deals.
This leads us to areas with virtually no competition to speak of. It does so by localizing the entire field to the neighborhood level. The results are clearly better.
We give it the data. It tells us what houses to buy. It considers every single house in our entire search area equally (one of the biggest MSAs in the country) in about 7 seconds.