Determining Your Property Values
Before you place a bid at a foreclosure auction, you need to understand what a home’s value is. You should also know the property’s lien position, do a title search, understand your exit strategy, and get your financial ducks in a row.
To read more about the other steps <CLICK HERE>
1) Drive by the Property
We need to drive by the property. Do not buy a property if you or someone you trust and are working with drives by it.
If you buy a property at an auction, you own it. You can’t give it back; there are no representations or warranties made at the time of the sale. Auctions are buyer-beware, with zero liability to the auction house. And if you drive out to the property and the house has burned to the ground, then guess what? You just bought a pile of ashes.
Driving by the property also helps you to understand the your market.
When you see For Sale signs in these areas, pull the fliers. Look at the square footage, the year built, the quality of construction, the asking price, and the days on market. Get more familiar with the values of real estate in your market.
Then, as you get better, you don’t have to drive all these properties. You can then just pull up a property on Google Maps, check out a 360-degree view of the street, and you’ll have what you need.
But if you’ve never purchased a property at auction, you need to drive out to the properties.
BPO, or Broker Price Opinion, comes from the multiple listing agent. In other words, “A broker’s price opinion is the process used by a hired sales agent to determine the potential selling price or estimated value of a real estate property. A BPO is popularly used in situations where a financial institution believes the expense and delay of an appraisal is unnecessary.”*
This tool is used by brokers and agents, lenders and mortgage companies, and loss mitigation companies. Each state has different rules and regulations for these services, such as providing the service if the the property is occupied at the time of sale. So do your research and get acquainted with how it will work for you.
Here’s one piece of advice that I give all my private clients: If real estate is going to be your career path, I highly recommend that you get your real estate license. What it does is give you instant access to pull value on a property yourself.
I’ve been a licensed agent for over 15 years, and I’ve never not been able to participate in a deal because of my licence, so don’t believe the excuse that having this license limits you in term of investing.
I will often use an agent to get an opinion on value, but I will always pull my own comps to determine the value of a property.
Zillow is also a great tool.
I use it because it has the most information in the shortest period of time. I will use it to sneak a peak at a property and increase my interest, but I would never use it alone to buy, acquire, or bid on a property.
The only tool I’m going to use to support or substantiate money is the MLS. It’s real-time value, days on market, comps, and more. You can gather information from all the sites (Realtor.com, Trulia, Zillow, etc.), but it isn’t going to be real-time and will cost you hours.
Bottom line, if you’re going to turn this passion of real estate into your profitable and long-term career, you should have access into the MLS at a click of your mouse. It’s the best data you can get.
5) Tax Assessed Value
The TAV is defined as the most amount of money the associated municipality can tax you on the value of the real property without you challenging them about the real value. In some states, it’s 80-90% of the FMV (Fair Market Value), but in states like California, it is 100% of the FMV.
In today’s market, most municipalities have over assessed property values in their district so that they can keep their tax base high.
(If you have a property that you know is valued at
$120,00 and the TAV is $180,000, challenge it!
Get your taxes down so you can save more money annually.)
What we’re looking for by pulling the TAV is the year built, the size of the lot, who has owned the property in the past, and who currently owns the property. We want to determine if there are any tax liens on the property and what the bed and bath count is. Often times, the floor plan will be included with the TAV, especially on newer construction because they have to present the floor plan to the building commission to get building permits in order to get a certificate of occupancy.
If this is included, take full advantage and look at the floor plan configuration. The floor plan is a big deal when selling a house quickly. If you walk in the door and WHAM! There’s a bathroom wall that hits you in the face and separates you from the openness of the living area, you’re not going to have a quick or easy time selling that property.
Remember, people buy property based on feeling. The price is secondary. If the potential buyer doesn’t get an immediate rush when walking in the house of “Wow! I like this place,” then you’re not going to sell it. That’s the real value of looking at a floor plan before buying a house at auction.
Get at least 1 listed comp within one mile of the subject property and the remainder within 5 miles.
The smaller radius you can get to the property in question, the closer you can determine the value.
Why do we want the comps to be as close to the property as possible?
Neighborhoods are fickle. We’ve all driven through neighborhoods that are just beautiful, and then a few blocks later, you’re wondering where you put your concealed weapon to ensure your safety. So the further out your comps reach, the more risk you inherit with those numbers.
Do your evaluation as close to the property in question as you can to assure you’re maximizing your understanding of the property value.
Look for at least:
3 Recently Sold
3 Currently listed
When you understand the property’s value to the best of your ability, you can maximize your foreclosure auction profits by determining your maximum bid.
But this isn’t just for auctions. Before you make offers on a property, you need to have all the numbers on paper for yourself to determine your maximum offer, your rehab costs, what you would wholesale the property for, and what the ARV (After Repair Value) is on the home.
Part of understanding a home’s value is understanding the value of your time. By doing a bit of due diligence on the front end, you can avoid getting into a project that won’t yield you the income you desire and are worth.
Thankfully, if you go through Cogo for you private money loan, we won’t let you get into a property that we know will lose you money. Our application process includes items for this reason; to assure that we are only loaning out on properties that won’t get you into trouble.
You’re in good hands with Cogo.
Have a deal under contract that you would like a quote on? Let us know. You can fill out a quick questionnaire at CogoCapital.com to receive a rate quote via email or you can call us anytime at (800) 747-1104 to talk to a loan officer. With millions deployed and millions to deploy, we want you to get the capital you need for your real estate investing.
To Your Success;
Lee A. Arnold
The Lee Arnold System of Real Estate Investing
Follow me on Twitter: @CogoCapital and @LeeArnoldSystem
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*definition provided by our friendly and comprehensive friends at Wikipedia
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