Why Would Anyone Buy Property For More Than Its Worth?

Comments(11)

• 
  mattfish116th January, 2005

  I know a guy, one of my buddies I met through RE investing, who just bought a property that he estimates he is going to have negative cash flow (about $200) every month... The property might not have been purcahse above market value, but it certainly is not a cash flow property... He bought it because of the future value... He is speculating on appreciation... Not my type of investing goals, but he does...
  
  As for purcahsing above market value, I don't know why anyone would... I don't think it's a good idea. If it has a market value - and I mean true market value - of $100,000, that means other homes just like it are going for $100,000... Why would someone pay for this property for $120,000? Who knows, maybe it was owned by a celebrity, maybe it has a nice location, maybe they had a spiritual interaction with a ghost in the property when they took a look around in it... Who knows... All I can do is advise against paying more than what it's worth...
  
  Just my two cents...
  [addsig]

• 
  realztate6th January, 2005

  1. Cashflow
  
  2. Fast Price Appreciation Area
  
  3. High Demand

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  Dumdido6th January, 2005

  Financing - An extreme example, but lets say I have a house for sale with a FMV of 100k. I'll sell it to you for 105k with 0% down and 0% APR for 15 years.
  
  A great deal for you even though over valued.

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  rmdane20006th January, 2005

  are you sure its "above market"? generally, if these are houses...emotion can play a role. Somebody falls in love with a house and will pay the asking price...but, back to the market value deal...how do you know they are sold above market? A property's market value isn't generally an exact number, its generally a range of value. The market isn't efficient enough to say its worth $111,250. ..

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  spinwilly8th January, 2005

  Just as beauty is in the eye of the beholder, a property is worth exactly what someone is willing to pay for it. Therefore it does not sell for more than it's worth.
  
  Did a tree just fall in the woods somewhere?

• 
  JohnMichael9th January, 2005

  Not sure, how you determined that the properties are above value, did you do a comparative market analysis on each?
  [addsig]

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  ray_higdon9th January, 2005

  Dumdido, putting a deal above market value to get money toward closing or money back is illegal if you are getting financing. It's fine to get money back at closing or toward closing costs but not if that money back bumps the price over market value.
  [addsig]

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  vasiliy10th January, 2005

  it is NOT illegal to bump up the purchase price of the property to have seller pay for closing costs - it is done all the time, and has no illegalities whatsoever. Now, if you are financing a home, and you bump up the purchase price of the home to lets say 125, and the home only appraises for 120, that is STILL not illegal - its just that the bank will want you to pay for the difference out of your own pocket.
  
  Money back at closing outside of closing costs and prepaids - most lenders won't allow it.
  
  Vasiliy
  
  Quote:
  On 2005-01-09 11:33, ray_higdon wrote:
  Dumdido, putting a deal above market value to get money toward closing or money back is illegal if you are getting financing. It's fine to get money back at closing or toward closing costs but not if that money back bumps the price over market value.

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  ray_higdon11th January, 2005

  Vasily, I did not suggest bumping up the price is illegal to include costs, only bumping it above the value is illegal. Typically a shady appraiser is involved and this is routinely done but it is loan fraud. Can you get away with it? Sure. is it legal, no. I have a link on this if I can find it I will post it.
  [addsig]

• 
  ray_higdon11th January, 2005

  Here's a site that a lender friend of mine references, he wrote an article on this, anyone interested, PM me and I will send the full article
  
  http://trac.syr.edu/laws/18USC1014.html
  [addsig]

• 
  buy4less11th January, 2005

  How are you arriving at value?
  Values differ by different entities.
  Defined in highest order first:
  
  1. Cash price paid by buyer. (in most cases)
  2. Appraised value & lender value.
  3. Price offerred with lender financing.
  4. Listed price. (can be high or low)
  5. Assessed value.(least important & usually lowest in most cases)