By: The Hughes Brothers
Obviously, having the ability to predict what a house will sell for after the rehabbing is done is critical to this process. How do you estimate the current and future value of a house? Estimating the current market value of a house is one of the most difficult aspects of acquiring real estate. However, in my 30+ years of experience, I have been surprised at how accurate most home owners are in placing a value on their property. Generally speaking, you can figure that the owner is going to be within about 5% of the realistic market value of the property with his/her asking price. This isn’t always true and if you find someone who is really low in their value---buy it ----- and close fast! There are several ways of determining how accurate the seller is and I would suggest you do one of the following: 1. There is a book published for realtors called the “Multiple Listings Book,” which tells participating realtors the details on all house for sale listings in their market area. This is not for public reference, but if you know someone in the real estate business, you can usually borrow their MLS book to look at. If you are successful in getting one to review, look thru it for comparables that will show you what prices other people are asking for similar properties. You might even be able to get the book called the “Comparable Book.” This book is put out by your local board of realtors and gives not only list prices of properties for sale, but also the actual sale price and date when they sold. This way, you can look up properties that have the same features as the house you’re considering buying/rehabbing, and arrive at a figure very close to what that property should be sold for in today’s economic climate. If the property has been on the market for a long time, this usually means that it is overpriced (you can find out how long the property has been on the market with the above referenced Multiple Listing information). If you can’t get the information from Multiple Listing, ask the seller directly or ask the seller’s representative how long the house has been listed at its current price. The most important indicator of value is found when you go to the county assessor’s office and look up under the property address and / or the real estate tax identification number what the current owner paid for the property and when that person bought it. This process is much easier if you can go “on line” with your local assessor’s office. This is public information, and the county assessor’s office personnel should be happy to help advise you how to search for this information. Armed with all the data mentioned above, prepare a market analysis. This form will help you compare “apples to apples” when analyzing different properties. Will the house you’re considering retain its value? If you buy a certain house, will it retain its value over the years or depreciate in value? This question is also going to take some research, but is worth your time and effort. As mentioned earlier, neighborhoods have life spans. Determine whether values in the prospective neighborhood are going up or down. Talk to some of the neighbors, especially those who have bought in the area within the past 5-10 years. Ask them what they paid then and what their house is now worth. If you go about this questioning in a kind and friendly manner, they usually won’t mind talking about these rather personal matters, especially if you tell them you are considering buying in their neighborhood. Generally speaking, if anything drastic is happening (e.g. values are skyrocketing or values are plummeting) people will be more than anxious to tell someone else. Drive around and observe the area. Are there any new schools? Are there any old, closed schools? If there’s a shopping center, go in and see how many empty stores there are, and ask the management office what their average percentage of occupancy was over the last five years. If occupancy is going down, perhaps the people are slowly moving out to more desirable areas. Park in the subject area for a while. Watch the homeowners come and go. This tells you what kind of people live in the neighborhood and if there is generally pride of ownership. It is information like this that tell you if your prospective property will retain its value and even appreciate, or if property is in a gradual downslide. Armed with this information, you are ready to make an offer to the owner of the house you want to rehab.
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