Motivated Sellers or Serious Headaches!
If you listen to the gurus on social media, the "motivated seller" is the holy grail of property investing.
They are presented as the ideal client: someone so desperate to sell that they will agree to almost any terms, handing you a profitable deal on a silver platter.
But is working with such a seller always a joy?
A few years ago, we worked with what could only be described as a textbook motivated seller.
They were recommended to us, which is always flattering, but the experience taught us a critical lesson.
It showed us that a seller’s motivation, especially when born from desperation, can create as many problems as it solves.
This is the story of how the "perfect" motivated seller turned into a serious headache.
The Picture of a Motivated Seller
The situation was complex. The seller had recently purchased a portfolio of flats with the intention of renovating them for serviced accommodation.
It was an ambitious project, but their situation had unraveled quickly, leaving them in a precarious financial position.
The seller faced a number of challenges, including:
High-Interest Debt: They had funded the purchase with bridging finance on a short, six-month term with a very high interest rate.
Mounting Payments: The monthly interest payments were around £2,500, rapidly eating into any available cash.
Borrowed Capital: They had borrowed additional funds from family and friends, who were now asking for their money back.
No Skin in the Game: The seller had no personal cash invested in the deal. They had even borrowed money for the stamp duty and legal fees.
Underestimated Refurbishment: The required renovation work was far more extensive than they had anticipated, and they had run out of cash to complete it.
They were, in short, desperate.
They needed a fast, cash sale to clear the bridging loan, pay back their friends and family, and escape the immense stress they were under.
For any property sourcer, this looks like an open goal. But as we were about to find out, desperation can make people do unpredictable things.
Structuring the Deal
We met with the seller and agreed to help. We would sell the portfolio for a price they were happy with.
Our fee would be the difference between their agreed price and the final price we negotiated with our buyer.
It seemed like a win-win. The seller would get their sale, we would earn a fee for our work, and a property investor would acquire a great asset.
To protect all parties, we secured the deal with an Option Agreement, giving us 12 weeks to find a buyer and complete the sale.
We had a buyer in mind who had expressed serious interest in this exact type of portfolio. Everything seemed to be falling into place.
The Buyer's Complication
Our buyer was a cash purchaser, which was exactly what the seller needed. However, there was a complication we hadn't foreseen.
Our buyer was in the process of acquiring multiple similar deals simultaneously.
They made the decision that all deals had to complete at the same time, which inevitably delayed the process beyond our initial 12-week timeline.
This is where having a robust contract becomes essential. Our Option Agreement included a clause that allowed for extensions, which we discussed with the seller.
Given their situation, they were anxious but understood that a guaranteed cash sale, even if delayed, was their best option.
They agreed to the extension and confirmed they would pay our fee as originally agreed upon completion.
We worked tirelessly to keep the deal together, managing communication between the distressed seller and the busy buyer. It was a stressful period, but we finally got the deal over the line.
Completion day arrived, and the sale went through. The seller was out of their predicament.
The Betrayal
Imagine our surprise when, a day or so after completion, we contacted the seller's solicitor to arrange payment of our fee. We were informed that the seller had instructed them not to pay us.
After all the work, the extended timeframe, and the constant management to hold the deal together, our client had simply decided not to honour our agreement.
We immediately sought legal advice. Our solicitor confirmed that we had a strong case, but they also pointed out a harsh reality.
Taking a financially distressed person to court, even one who has just received a large sum of cash, is a gamble.
If they had other creditors or had already spent the money, we might win the case but never see a penny of our fee. The legal costs, however, would be all ours.
The Lesson: Protect Your Fee at All Costs
This experience was a bitter pill to swallow. We had done our job perfectly, solved a huge problem for the seller, and delivered a great deal to our investor. Yet, we were the ones left empty-handed.
It taught us that a motivated seller isn't always a rational one. When people are under extreme financial pressure, they can make decisions that are unethical or short-sighted.
They may see your fee not as a deserved payment for professional services rendered but as an easy way to claw back some cash.
We learned that our agreements needed to be more than just strong - they needed to be airtight.
We immediately amended our Option Agreement documentation. The new clause made it impossible for a seller to instruct their solicitor not to pay us upon completion.
The fee payment became an integrated, non-negotiable part of the completion statement, paid directly by the solicitor from the sale proceeds.
So, are motivated sellers the ideal client? They can be, but they also carry a higher risk.
Their desperation can be a powerful tool in negotiation, but it can also make them unpredictable.
The lesson for every property sourcer is clear: protect yourself. Never assume goodwill will be enough.
Ensure your contracts are robust enough to withstand a client changing their mind on a whim, because as we learned, when it comes to money, you can't leave anything to chance.
Want to understand more about our documents, created with Forbes Commercial Contracts? We offer a full suite + training designed specifically for property deal sourcers and deal packagers. Find out more here.
