The Right Price/ Comps
Here's the scenario:
I have pulled up the comps in a neighborhood I'm looking at purchasing a property by going to my county's appraisal district and tax information website.
I see that the seller is asking for above what the county's appraising the property for although he tells me the price he's selling the property for is a wholesale price.
I make the seller aware that I know what the property is appraising for. He responds by telling me that this is only the appraisal value for taxation (which he as the owner works hard to keep low for tax purposes) ...That sounds logical.(i guess)
So my question is how can I find out the fair market value of this property? Where do you go to the find how much a house sold for in certain area? Word of mouth doesn't seem to be reliable around here.
[ Edited by ambitious_architect on Date 10/22/2003 ]
Hi ambitious_architect,
Go ahead and call up a local realtor. Tell them that you are interested in purchasing a property in __________ neighborhood, but you dont want to over pay. Ask them to send / email you a list of sold or pending activity in that area for the last 6 months.
You might also add that if you buy the property, you will give them the listing to sell it. (that always gets prompt attention).
This will give you the firm numbers that you need. Best of Success!
BAMZ
check ****Must Reach Senior Investor status before posting URL's*** Also check the asking prices for similar homes in the neighborhood.
By the way, the assessment value from the city usually represents only 70% of the market value.
Good luck!
Ok BAMZ:
Thanx for the advice but even with going thru a realtor, I would still want to know what and where they are pulling this info. from so I can by pass them the next time around. Is it the MLS? if so what do they base there info on and where do they get it? To me it seems there has to be some type of concrete way they find out these numbers whether it be from the city or where ever.
Is there any such form or paper work that the seller or buyer has to submit to any public entity showing the "sold" for price?
I'm a newly licensed realtor, but since I'm not with any broker right now I dont' have access to the MLS. And right now I'm sure I want to pay the fees to a broker just for access to the MLS which would be approx. $750 to start up and approx. $1200 a year to maintian.
Another dilema I see is what if is there is little to no activity going on in the neighborhood I'm looking at..what then?
vguess99:
PM me that email me address cause as you see above they've blocked it out.
Perhaps I am reading this wrong but if he/she is selling the property at wholesale, then why is it hight than the assessed value? Even if the assessed value is being artificially deflated say around 30% lower than FMV, if he is selling wholesale there should be enough room for you to fix it up and make your profit. If you are satisfied with your profit margin then by all means go ahead with the deal.
Quote:
By the way, the assessment value from the city usually represents only 70% of the market value.
What do you mean by this? What area are you talking about? In the areas I have invested in, the assessed value by the city has no real corelation between the appraised value / FMV. Some times the appraisal comes in higher than the assessed value, some times lower. They are usually in the vicinity of each other, but there is no set corelation.
missbynski:
That's the premise of my question exactly .....is this REALLY at "wholesale". The city appraises it for one price. Which the arguement about if being undervalued for tax purposes makes sense to me now that I think about it.
on the other issue of profit margins is that I don't have any prerequiste profit margin I'm aiming for. I'm trying to figure out the potential profit on the property. Which by the way is a lot (land only)
It appraises for (based on the county 6k; seller asking for 7.5k; comps in the area (with improvement, i.e. homes) appraise for 30-40k
The break down on those lots with improvements is basically this:
The land appraises for 7.5k and the improvements on them appraise for high 20's and high 30k's
I still have to build on this land once I purchase which I don't know yet how much that would cost. I'm afraid that the area might be on the decline and that would eat into my profits.
rentalman:
With that being said how do you determine what the FMV is?
If you can't trust the appraisal and you can't trust the tax assessed value. Where do you from there?
The FMV is simply what two parties, one being the seller and one being the buyer, neither being pressured, agree for a price. This is called an arms-length transaction.
If you think about it, if the seller is not distressed, and the buyer does not absolutely have to have the property, and one party isn't doing the other a favor, ie, selling to a child at a good price because it is their first home, then why would the transaction happen for other than the FMV?
The appraisal can only be an estimate, but is done to show the mortgage company that the purchase price is "in the ballpark".
I only use the city/county assessment as a guideline, when I am first scouting the property. I then look at comps, but most importantly, if the property will cash flow for me on a monthly basis. If the cash flow will give me my required rate of return, then that is my FMV, the value I feel is fair.
I also want to keep the assessed value low, therefore lower taxes. As long as the appraised value is good enough for the mortgage, then I'm happy, although it always makes you feel good when the appraisal comes back higher than you are buying for...
Hope this helps...
rental man:
Yeah that does help me out. But it also puts me and all of us who are in the business in a real dilema.
The way most of us get the good deals you hear about on this forum seems to be from people who don't know the REAL value of their home and often sell them for under market and/or appraisal value.
On the flip side of that there are plenty of
people who get loans/or have money that don't know the what that money can buy in real estate. If someone comes to you with a large amount of money, you are going to more likely than not going to try and get as much profit off that as you can. So let's say you sell them a home for 100k and everyone else on that street is buying for 50k. Sooner or later they will find out that they over spent for the property on sold them and now your reputation is down the drain.
Right now,(and I may be wrong) but I think it's more of a buyer market in my area.
But back to square one. What's the best way to find reliable comps? Is thru realtors? Or is thru the tax accessors? Or like rentalmans says somewhere inbetween those 2 but mainly what someone is willing to spend?
I think that one (rentalmans way) is good for way to sell for, but for and predicting future gains/profits i think it would be to accessed based on what someone else has already spent for the same type of property already(ie, Comps),
but like a said before how can you tell what 2 people negoitated and made a deal for next door?
Thanks for all the feed back from those who've posted so far. We're on FIRE
IT HELPS
The real value to one person may not be the real value to another person. If a family has lived in a house for 30 years, then their perception of what it is worth may be that, "holy cow, we bought this house for $20,000, and the one across the street just sold for $100,000! Kids are gone, lets sell, buy a condo, and live w/out a mortgage!" It's worth $100,000 to them.
To me or any other investor, it's value is come across like this:
Purchase price = $100,000
down payment = $20,000
closing costs = $2,000
Total investment = $22,000
Monthly rents = 1,000
Int rate on 30 year mort = 6%
P&I = $480
Prop txs and ins = $175
Monthly cash flow = $345
Less Allowance for repairs = $100
Monthly cash flow = $245
Yearly cash flow = $2940
% of money made back pe year ~13%
You should have a bench mark of what type of return you want. If the rough numbers aren't even close, they're probably asking more than your FMV.
This is simply my barebones guide for rental properties. The numbes used in my example may not be accurate, but are nice round numbers used as an example. Actually, the allowance for repairs may be low, so this may be one to pass on. But then, all investors are different...
Great info here! just what i needed for the house im seeing tomorrow.
[addsig]
What the MLS is - at least in Los Angeles. On the web I have access to all homes sold via members of the MLS during the past two years. To get comps I pull up all the sales of properties that are similar to the property involved and see what they actually sold for - I then adjust for date of transaction, size of lot, amenities, etc.
Tax assesment has not much to do with market value.
What houses currently are asking defines an upper bound to market value since if they were properly priced they would be sold. Expired listing form an even higher upper ceiling since it means that they sat a long time at their price and did not sell.
rentalman:
When your right ..your right. I definitely have a better idea of how I'm going to go about approaching this potential investment and future investment of mine from now on.
After I do some number crunching. I'll see if it the number look good enough for me.
Keep in mind I'll be hold you responsible for any lost I take 'cause of your advice . (but if it turns out profitable I'll be sure to take all the credit)
Honestly though thanks again to all those for preticapating in this dialouge. I now know a lil more than I knew this morning and I'm more confident in my ability to make money .
100% gratitude....on to the financing/construction loan forums
Motivated-Architect
Well good luck to you! Like I said everyone has their own strategy. That's what I enjoy about this site, reading other's strategies. While I may not try all of them, they are all good, and it get's the mouse back on the wheel...
dickknox:
Hold on now. Do you mean to tell me if someone is asking for 200k on one block they have in some kind of way inversely raised (or lowered) everyone elses home values? And if the property doesn't sell, is it possible that the property wasn't marketed right? (had the wrong realtor behind it or whoever else was responsible for selling and advertising the property)