As I’m starting my real estate career, I’m finding one thing very difficult for me, and that is determining the ARV (After Repairs Value) of a property.
I know that the best way to do this is via comparables, and I’ve not spoken with many realtors yet, but the ones I’ve asked for help with this so far have basically just blown me off (told me they’d get me a list, and never do, even after repeated requests).
All of the websites I’ve found that give free CMA data (Yahoo, MSN, Homegain, HomeProfile), don’t have any info for my area (Utah).
Until I am able to get this information, I can’t begin to construct any offer. What resources are available to help me get over this hurdle?
You can call around and get info on houses that are for sale in the area. You can talk to appraisers and get a general price per foot for property in an area too. About the best one can do is a price range for the ARV of +/- $5000. Your best source is the listing agent if you are using one. Title companies will not be much help. Once you kind of know an area you will not need to do as many comps and you will be getting people calling you or using your deals for comps
Clay, estimating ARV is one of the most critical things to being a successful real-estate investor. You always want to run two sets of comps. I would highly recommend you run Title Company comps as well as MLS Comps. You then want to go in and check in the MLS and see what your competition is selling for. You dont want to buy a house that you think the ARV is $150k and then find out that there are other 5 other houses on the market for $140k!
You can get access to run comps if you build a repore with a Title Company such as First American Title Company or Commonwealth Title Company. They will also give you a deal on your Title Insurance Policies. Typically, they should give you a discount somewhere in the neighborhood of 30-40% off of base rate with no sub-escrow fees. You want to make sure you always purchase your properties with a ‘binder’ policy which will save you tremendously. Once you build your repore with a reputable Title Company, they will allow you to go ‘binder’ to ‘binder’ as well as purchase a Title Policy with no formal escrow. For example, if you find an pre-foreclosure, you can purchase a title policy on the property to protect you and simply do a cash for keys deal. You dont want to find out later there are some liens on the property that you did not catch…
I would also try to network with some realtors to get MLS access in exchange for writing your offers. This will allow you to run comps and do alot of other great things that will help your real-estate investing endeavors.
Thank you for your suggestion of networking with realtors and not suggesting that you USE a realtor’s expertise by misleading them into believing that you will be a potential client. You may find that a realtor can be a very, very good buddy to have on your side but the relationship MUST be reciprocal. They are in business too. As a realtor and an investor, I appreciate doing business with other investors that are businessmen with integrity!
Be careful about CMA’s from realtors. Its very easy to punch the numbers into the computer and let the MLS system give you a CMA, but that is not a very accurate way to do business. When I give CMA’s to my clients, I go further and look at each comp, comparing similar features (not just your standard number of bedrooms, baths, sq footage, etc. because anyone can do that), comparing repair histories or remodeling efforts, updating, roof ages, etc. I then do a 3 Year Market Absorption Rate Analysis. The market is who determines the price that a house will sell for, not the realtor, not the seller, not the appraiser. Look at houses as items on a conveyor belt…they are the inventory. Look to see what your competition is in that specific neighborhood and within a 1/2 mile radius of the property and that determines a current selling range. I go back 3 three years to determine how a neighborhood is selling, look at the trends of sales prices, the % difference between the asking price and the selling price in that neighborhood and the average days on the market. That gives you a very good idea of the marketability of the product to consumers. What have consumers been willing to pay within the past year for similar houses in that specific neighborhood. What did they pay the year before and the year before that? How many houses sold in 2004, 2003, 2002? Has that number increased or decreased? Is there new construction nearby? How does that affect the resale market? Do a little investigative work and you can determine a low, mid and high range and be very specific in pricing your properties to sell quickly. If you overprice, the market will tell you by not looking, or looking and not making any offers. If they don’t look, they don’t even see the value enough to come inside! If they look but don’t offer, they don’t see the value once they’ve seen the house. Either way, its either the price or the presentation of the property (the shape its in). If you price it at market value, you should have an offer within 2 weeks (rule of thumb…for every 10 showings you should have an offer). If you don’t have an offer within 30 days, definitely reduce the price!
Hope this wasn’t as confusing as it sounded to me! Hope it helps! Need more help, I’ll check back later.
Best advice…network with a very good realtor, their knowledge. expertise and access to information you can’t get to can be invaluable. Just make the relationship reciprocal in some way. Realtors love referrals! We like investors, we are investors!
I agree with the previous posts about finding CMA’s. It also helps to pull the tax appraisals. When I average out the difference of the tax appraisal and the MLS listings I usually get a very accurate ARV. To find your county’s tax appraisal, search on-line. Most are on the web these days. It’s kind of fun to see how accurate you can become at getting FMV’s as well. Be sure to look at the average price per sq foot. You want to find deals where you’re paying considerably lower than other houses of the same size. Hope this helped.
:DThere is no magic trick to finding market value after repairs. Keep in mind that repairs are never a dollar for dollar adjustment to the property. I have been appaising/inspecting properties for over 20 years and I wish I had a dollar for everyone that thought if they put in 5k they may get that in return.
First realtors with the CMA’s are not really worth the paper there wriiten on, in that unless to locate a realtor that knows how to comp out a property they are no good. A trick is to locate similar properties in the neighborhood that are comparable with the same square footage and go from there. Compare ranches to ranches, not ranches to colonials. Keep in mind that an appraisal is an opinion of value and many appraisers differ, but your not concerned with what they think, only on what the property will bring to the market after repairs. The repairs on many homes only bring the property to average condition and that is what you are looking for.
Again, get a list of sales from a realtor of sold properties, you may also pick it up through the auditors web site, many counties have them. This will give you a good idea on what is going on in the market to price your home right without sinking too much money in it.
I hope this helps you out, because I see many people rehabbing and losing the home because they over inprove and cannot recoop there profits.
I’ve heard it said that prior to doing the work you can pay an appraiser to do an appraisal on the home AS IF the work had been completed to get the ARV. It was either Russ Whitney or Lou Vukas (or both)… Of course you would need to provide the “work to be done” list to the appraiser before hand.