Determining Your Property Values
One the most important steps in Real Estate Investing is knowing the retail value of the house, or also known as the ARV (After Repair Value). This number is the basis for many critical calculations to include your Max Offer Price, Max Funding, and Profit level. As an investor, it is crucial to know the potential value of the property you are working with.
Having a tool and method to determine the ARV quickly and accurately is vital to a Real Estate Investor to move quickly with confidence. I use a Collateral DNA to provide an accurate value quickly. I find this to be possibly the closest you can get to a true appraisal without spending over $300. This report provides detailed data about the property you are considering for investment from sales history, comps, recent sales, and, where available, current listings, information about the market, the schools, the impact of foreclosures, and the inventory. This can be done in minutes for only $25. Available here: Collateral DNA
If you have the time and ability there are other steps to calculate and determine the value yourself.
1) Drive by the Property
You should drive by the property. Do not buy a property if you or someone you trust are able to drive by and confirm the conditions and photos listed on websites. Driving by the property also helps you to understand the neighborhood and market.
When you see For Sale signs in your area, 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, age, layout, and types 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, then conduct a triage and drive to the best prospects.
2) BPO
BPO, or Broker Price Opinion, comes from the multiple listing agents. 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 are 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 property is occupied at the time of sale. So do your research and get acquainted with how it will work for you.
3) MLS
The Multiple Listing Service is a privately own database that is used by and for Licensed Realtors in a specific market. One piece of advice that I give all my clients: If real estate investing 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 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.
4) Zillow
Zillow is also a great tool but has its limitation in non-disclosure state like Texas where I do most my investing. With the sale price not being public information, the Zillow Algorithm use to create the ‘Zestimate’ is not as accurate as in other states.
I use it because it has the most information in the shortest period of time available at my fingertips via the Zillow App on my phone or website. I will use it to sneak a peek at a property and look up the taxes and other information. I would never use it alone to buy, acquire, or bid on a property.
Bottom line, if you’re going to turn your passion for real estate into your profitable and long-term career, you should have access to 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. T hat’s the real value of looking at a floor plan before buying a house.
6) Comps
Get at least 1 listed comp within one mile of the subject property and the remainder within 5 miles. Make sure you are looking in the same neighborhood as the houses tend to be the same style and age. 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.
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. If you want to maximize your time and have the analysis done for you grab a quick Collateral DNA.
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