Hello,
I am currently having a tough time figuring out the market value of real estate in my areas of interest. The issue I am confused on is figuring out the after repaired market value of properties I am interested in reselling…Should I eliminate short sales and REO properties from my analysis of comparable properties because my property will be a standard sale, and will probably be most similar in condition to them? Or should I 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/don’t bid enough because although I’d make good money on it if I get a somewhat similar price to standard sales on my resell, I’d lose/make very little if I got near what the short sales/reo’s are selling for on my resell. 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 at a lower price. I feel I am losing out on properties and all the time I spend working on a property I’m interested in because I offer too low, but I’m also scared if I lose money on a deal, I might not get a second chance to buy at auction. Please advise. Thank you in advance for any help.
Hi Alan,
The subject of fair market value is a very hotly debated topic right now. The definition of FMV is what a reasonable person would pay for a property in the current condition. The problem is that most of these buyers would probably need to secure a loan for the property which would mean getting an appraisal. An appraiser is going to look at recent solds in the area and adjust for several factors which would include the size of the property, year built, number of bedrooms etc. An appraiser will not typically differentiate between a short sale, bank owned or traditional sale and will not take into account whether or not the property was a disaster when it was sold. That means that a property that was completely gutted and sold for lot value will negatively impact your comparable sales for at least the next 6 months.
In my opinion you need to look at all recent solds in the area as well as the foreclosure activity using the ForeclosureRadar Foreclosure Comp report. The recent solds will tell you what comps an appraiser is going to use and your foreclosure comp report will tell you what the market could look like over the next 6-9 months.
Hi Michelle,
That was a great response, thank you. I guess I will take all active, pending, sold short sales, reos, and standard sales into consideration, but if I do see a lot of standard sales selling for a much higher price I should probably adjust my value higher.
I’m not completely sure why some sold prices at auction for a property are higher than available short sales and REO’s in the same area, I guess the reason I think of is maybe the investor knew more about the property and the comparables than I did.
Hi Alan, That goes back to the definition of FMV being what a reasonable person is willing to pay for a property. Lets hope that the people buying at auction are reasonable. Sometimes people are buying for personal use or as a buy and hold so they are willing to pay more than a flipper. I know that it frustrates many auction investors when they see properties sell above their max bid price.
Hi Michelle,
I guess since I’m still relatively a beginner, it hasn’t really frustrated me, just made me question whether those buyers were more accurate than I am at determining market value. Your response made me feel better about my confusion. Thanks again for your reply.