Pricing Your Foreclosure Deal in a Hot Market: Part 2

Let’s followup to my last blog “Pricing Your Foreclosure Deal in a Hot Market“.  Now that you know the important elements to an accurate market valuation, today I will share how to find and select the “right comparables” to calculate the current market value of your next foreclosure home purchase.

Let’s review this potential foreclosure home purchase scenario….

You have a fixer foreclosure you want to buy, fix and sell in the next 60 days. You need to determine the After Repaired Value to create a budget, so you can determine your offer price. You start with finding comparable properties.

You find a nearby comparable home that sold for $275,000 in June 2013. That home went pending sale back in May 2013. It is now August 2013 and the market has moved up in price. There is another comparable home that just went pending sale in just one week at $295,000. You call the agent and they won’t tell you what it went pending for, but did say they had multiple offers and it went over. Next there is an Active comparable listing new to the market at $325,000 in the last 7 days. 

What is the correct predicted after-repaired value (ARV) of your home?

Scenario One: Conservative Valuation 

Some of you would use the $275,000 value, because “sold comparables” are what an appraiser would use in valuing the property. You would then go on using my “70% of ARV less Repairs” formula at $275,000 ARV * 70% less $30,000 for repairs (in this case you estimated $15/sf * 2000 sf) = $162,500 maximum offer price. The chances are that your offer will be too low and will not get accepted. You will continue to strike out and never get a deal, if you go in too conservative. If you want to make money buying, fixing and selling, you need to get a deal accepted. Let’s sharpen those skills and get you on first base with your first deal!

Scenario Two: Aggressive Valuation 

Some of you would use the $325,000, because the market is moving up and you want to be competitive. By the time you hit the market you expect that $325,000 active listing will be pending and your best comparable. You would then go on using my “70% of ARV less Repairs” formula at $325,000 ARV * 70% less $30,000 for repairs (in this case you estimated $15/sf * 2000 sf) = $197,500 maximum offer price. The risk is if the market does not go up to $325,000 by the time your house hits the market, you have just overpaid for this property. This is not for the weak at heart.

Scenario Three: Correct Valuation

The correct valuation would be to use both the Pending home comparable at $295,000 and the Active listing at $325,000. I would call the listing agent on both to verify the condition of terms of sale for each. The real valuation lies somewhere between those two numbers. $295,000 will be too conservative in a hot market, as values are going up in 30-60 days your house will be worth more. The $325,000 is too aggressive as that house has over shot the current market.

In today’s hot market, you still do not want to “over price” your listing, as you won’t get interest. The goal is to get many people to your house so you get multiple offers. And when those offers hit, it will push pressure on your price, and you can expect to sell for over list.

Based on the above scenario, I would use $315,000 for my valuation, and check frequently watching new Active Listings and Pending Sales to make sure I have it right – as those are your true market indicators right now. And don’t be surprised to see over bids come in. Just count that extra profit as icing on the cake. The market will correct your mistake if you let it!

Based on a $315,000 ARV using my “70% of ARV less Repairs” formula here is how my offer price would look – $315,000 ARV * 70% less $30,000 for repairs (in this case you estimated $15/sf * 2000 sf) = $190,500 maximum offer price. If you have qualified your foreclosure seller properly, and found a motivated pre-foreclosure seller who is ready to move on and get their fresh start, and you present the value of your offer properly, your seller will say “yes” to your offer. If your offer is pending short sale approval, you must also include a cover letter to the lender outlining the benefits of your offer so the lender says yes as well.

Do you want to get your “foreclosure offers priced right”?

If so please join me in my next Live Strategy Session, August 7th, Wednesday at 6pm Pacific (9pm Eastern).  I will be reviewing three live foreclosure deals with you and offer my professional opinion on how to properly price your wholesale foreclosure offer so it gets accepted in today’s competitive market.

Let Me Help You Get Your Deals Accepted. Here’s How… 

• Start by Searching Foreclosures.com Listings for a Great Hidden Wholesale Foreclosure Deal.
• Pick a Pre-Foreclosure (with Equity); or a Short Sale (no Equity) You Want to Buy;
  (REOs’ are NOT where the deals are – in most markets right now they are over priced.);
• Do the Research and then Send me Your Details
  (address, city/st, asking price, loan amounts, square feet, lot size, year built, etc.);
• Include 3 Comparable Homes Sold (Last 60 Days within 1 mile);
• Include 3 Comparable Available Actives and Pending Sales (within 1 mile);
• Include Estimated Repairs Needed (Price/Foot and Explaination);
• Determine Your Potential Wholesale Offer Price (Include Your 15% Profit);
• Submit the above to deals@foreclosures.com by TONIGHT, Monday, August 5th, 2013
• Make sure you Register Here and then Join me this Wednesday at 6pm PDT to Learn the Answers.