I am currently having a very tough time figuring out the market value of real estate in my area of Southern California. The issue is figuring out what is the market value is of properties I am interested in reselling…Do you eliminate short sales and REO properties from your analysis of comparable properties because it seems standard sales usually sell for more money? Or can you get the value by looking at all the available properties on the MLS similar to the sqft of my property?
Sometimes the deals I see are still a deal either way, but a lot of times I pass on properties because of this that I see others buy. I talked to two successful real estate agents and they had opposite answers. One says you have to eliminate short sales/foreclosures in your analysis and sells a lot of real estate at top dollar. The other says the short sales/REO are the market and should be calculated and sells just as much real estate. On one hand, I feel I am losing out on properties because I offer too low, and on the other, if I lose money on a deal, I may no longer have enough cash to invest. Please advise. Thank you in advance for any help.
There are a ton of REOs on the market. To completely eliminate them from your analysis of value would be poor judgement in my opinion. One thing to realize is that the majority of REOs are going to need some work. Some more than others. Some of them will need so much work that they would never pass an inspection for a potential buyer to get a loan on them. That all has to be factored in.
But the bottom line is the foreclosed homes are out there and they’re driving down the values of all the other houses on the market. That’s why you hear of banks wanting to hold some of their inventory off the market and just releasing some homes for market. Flooding the market with foreclosed homes would drive down prices even more.
Thanks for your input, but I don’t understand which one you are saying I should do. I’m sorry, I just realized I should probably be more clear and say I am more interested in how to find out what the after repaired value will be. You said to not eliminate short sales and REO’s from my analysis, but then you say the majority of them need work and are dragging down prices, so if I am flipping a house it seems you are saying it makes sense for me to eliminate them and just look at standard sales that are in good condition to find my value because that is what my property will be. Correct?
If you are going to be working in that area a lot, why not invest in a basic real estate appraisal class? They used to be offered at a low cost in the California Community Colleges Adult evening schools.
You can learn to be your own expert. There are no short cuts to getting good at something like evaluating property prices. No one here can give you a magic formula.
You could also try to get mentored from a local real estate appraiser.
Thanks for your reply furnished owner. I have taken some appraisal classes before and I do know a real estate appraiser but his opinion is similar to what I think about all appraisals…they can make a semi-valid argument for just about any purchase price as long as it’s within reason. In my market, I would say they are very good to get a range of value, say between $300k-$350k, which I can do too. But that $50k difference can cost me big on a deal.
So what do you think furnished owner? Should you eliminate comparables that are short sales and reos and pay attention to the comparables that are standard sales of properties in good condition if you are trying to find the after repaired value of a property you will resell?
Would your end buyer buy a fixer with unknown repairs? Or would that buyer want the move-in ready house?
Do they want the granite counter tops and hardwood floors like the TV shows? If so, give them what they want–just price yours lower than comparable good homes by a few thousand to get the fast sale. Make yours the best deal on the market.
There are a few threads on here by FDJake describing how he did exactly that, pull those out to read.
So I am guessing that you want the standard sales of regular properties IF you are going to fix your buys up to that “mint” level.
After you do a couple you will be the expert on how to price them.
Okay, thanks so much for the help. I guess it’s obvious that what I should be able to get a higher price for a property that is fixed up compared to a short sale or REO in bad condition. But what’s confusing in the comparables is that some REO’s are in good condition and are selling for significantly less ($40-$100k) than similar condition standard sales. The only reason I can think of for this is it may be a little harder for the buyer’s agent and buyer to buy an REO than a standard sale (more paperwork, less guarantees about the property).