Determining Actual Real Value?

Question

If you are looking at a foreclosed property, how do you go about determining the ARV?  A real estate agent?  An appraisal?  Are you able to have inspections done on foreclosed properties and is it any different then working with a property that is not in foreclosure?

Jon Holdman · Answer

ARV means "After Repaired Value".

The best way is to learn values for your target area.  Get out and look at all the houses that are currently for sale in the area.  Get a list of recent sales, and drive by.  Watch those listings over time and see what they end up bringing.  Visit open houses.  Speak with agents.  After looking at enough houses (100?), you'll learn the values and be able to determine the value immediately.

I don't trust with CMA done by a broker or appraisals.  Its easy enough to cherry pick the comps and tell whatever story you want.

"Foreclosed properties" covers a lot of territory.  Sometimes you can inspect, sometimes not.  What do you specifically mean?

Ryan Webber · Answer

Ok let's define a couple things here first.  A property that has already been foreclosed on by the bank is referred to as an REO (Real Estate Owned).  The past owners no longer live in the property and the bank has cleaned up the property and normally listed it with a realtor.

Many of the issues that an inspection will turn up (plumbing or electrical issues) are not going to be assessed with REO's because the utilities are turned off with REO's.  So you are losing probably 80% of the effectiveness of an inspection.

When dealing with these types of properties a walk through with an experienced contractor is going to be much more beneficial then a formal inspection.  The contractor can access basic issues and give you an estimate of repairs, which is really what you are looking for anyway.

Determining After Repaired Value on ANY property is always the same procedure.  The most accurate way is to figure it is from comparable properties (comps) that have sold in the last 3-6 months.  Comparable meaning same area, condition, type of house, general size, amenities, etc.  Usually you want to find 3-5 comparable properties that you can determine a price per square foot sold price and then figure your house at an average rate of those.

I personally like to figure my ARV's off of an AVERAGE sold price per square foot for that entire area.  It will give me a more conservative number because it's based on the average house and not necessarily one that has been remodeled.  Understanding the idiosyncrasies of the areas that you are dealing with is essential, though.  You also need to understand that it is NOT the most accurate way to figure ARV, but what it fails in accuracy, it makes up for in speed.  I can figure a general ARV in about 30 seconds.