First flip, wondering about pricing

14 Replies

Hello all- first time to post on this site. I am looking for advice, insights from an agent or investor on pricing my first property flip. I am a re broker in TX, but strictly work for myself and up until now I have kept all of the properties I have purchased for rentals. The market is so good here right now I thought I would try to flip a few. So, I bought a distressed property for a very low price of $119k, put about $27k into the rehab, and put it on the market for $199,500 ($95 per sf) which the neighborhood should support. The last house sold for $93 per sf in 2 days. Mine has more updates. I listed it, have had 300+ views, no calls or showings. It has only been 5 days, but in this market... I am wondering if a realtor would see what I paid for it and feel the increase was too much (even if comps support the price)? Another problem is when I bought it, the seller's agent used the sf from tax rolls that are about 500 sf too much. So it looks like I paid $49 psf instead of the $63 psf that I actually paid. The house is beautiful inside and out, so any advice?

Also wondering about how soon to lower price if needed without looking desperate?

@Sherry

Always remember the comps are used to determine what may be the best price. The market will always determine what they will pay. It's several reason why a property may or may not sell at a particular price point. 

If the materials used for the rehab are of top quality or what's expected for the neighborhood, then a buyer may pay close to your asking price.  You also have to factor the supply and demand portion. 

How are you marketing the property? 

Are you asking for all cash deals?

If you want buyers that require traditional financing. If you receive full asking price the deal can still not happen. 

The bank will perform an appraisal on the property. At that point, if the appraisal indicate it's worth $190,500 that will be the max attached to the property for anyone that require financing.  Now I'm not sure how it works in Texas but in other states 

You could invite a few Realtor's to take a look at the property to get an opinion on the price.

I go to a lot of Broker open houses on a weekly basis. They ask about the house and the pricing.  

Mind of I ask where in Texas? (It's a big state!)

Thanks, Sean!

Hi Hattie -

I am in Spring, TX, NW part of Houston.

Ahh. Very good. Just curious. Some very complex answers. IMHO Texas lends itself very nicely to a standard CMA approach for valuing SFR, regardless of whether they will be used as rentals. You don't really need to get into the heavy income analysis, unless you are dealing with MFR >4 doors. At that point it becomes a commercial endeavor.

Brandon's article about CMA's is awesome. Just choose your comps carefully, allow for differences that affect value &/or desirability, and you should be good.

Originally posted by @Hattie Dizmond:

Ahh. Very good. Just curious. Some very complex answers. IMHO Texas lends itself very nicely to a standard CMA approach for valuing SFR, regardless of whether they will be used as rentals. You don't really need to get into the heavy income analysis, unless you are dealing with MFR >4 doors. At that point it becomes a commercial endeavor.

Brandon's article about CMA's is awesome. Just choose your comps carefully, allow for differences that affect value &/or desirability, and you should be good.

 Do you have a link to this article? Tried searching and couldn't find anything about CMAs by Brandon.

Hi @Sherry F.  ,

I think you should keep it at that price. If your comps state that you can justify that price than keep it. I have done a few out in Spring and have done great on them, don't get worried on not receiving any calls because it will happen.

Let me know if I can help with anything else.

Thanks,

Andres J.

Thanks, everyone for the great advice! It has now had 400+ views on MLS with no requests to visit the property. The market has been so crazy here that my rentals are gone within a day if I even get a chance to list them. I helped my daughter buy her first house this Summer and had houses with contracts on them within a day with offers over the asking price! First time I have seen that in TX. I have to laugh at myself for being so concerned as it has only been listed for 5 days :) Funny how our expectations change so quickly!

You wondered about your asking price in relation to your investment and purchase; as much as we would all hope comparable properties drive FMV and decision making, I have observed realtors, buyers, and even appraisers use purchase history to frame negotiations. I even had an appraiser once note in a report the sellers purchase price two years prior and the excessive profit sought in the asking price.

That's exactly what I was concerned with, Mark. I discovered two issues that I am currently trying to get changed that really amplify that perception. First, the MLS Mobile App here automatically pulls up properties in a consumer's current location, if no filters entered, it shows the most recent Sold flag on top of the Active flag. The consumer has to click the Sold flag to see the Active flag, hence it is emphasized that it just sold for much less than I am currently asking. Second, the previous seller's agent listed it with wrong sf per HCAD even though he indicated the sf should be verified. It was 500 more sf than the actual sf (I knew the correct amount before buying and based my lower offer on this knowledge), but this makes it looks as if I bought the house for much less per sf than I did. I listed at the correct sf so the psf is higher. I am sure realtors and consumers think it looks like I am asking for an excessive amount (even if the comps say that is what it is worth in its rehabbed condition). I am asking our MLS folks to change these issues. How did you respond to buyers/realtors who tried to use this in negotiations?

Sherry-Some of the appraisals that came in low and emphasized in the comments the excessive profits ended up killing deals (me as the buyer). It's hard to say if they used this rationale to select comps and produce an unfavorable report, or if they started with a crappy selection of comps (inept appraiser? not sure) and then realized they needed to justify it somehow and added comment to support their claims. Which came first…hard to say.

I have never reached an impasse in negotiations b/c of a claim in seeking excessive profits but it has been just another thing in the long list of claims buyers/realtors make to justify a low offer. I wouldn’t distinguish this from anything else like inspection items used as a tactic to renegotiate. If you have the comps, you always have a strong rebuttal which can’t be refuted.
On the square footage issues- I had a similar issue recently with a foreclosure I bought. The MLS listing was not correct—they used a public record search but it was from a previous sale (the Sherriff sale which was not correct). The assessor's office and appraisal confirmed an additional 200 square feet (a different problem to have). I started to think about the impact on comparable analysis and how the inaccurate data might artificially increase values in my neighborhood as the price/ square foot was $20 more. The MLS is the place to start; I talked to my realtor numerous times about reporting and just gave up hassling her. She did indicate there is a way to correct data when you were not the reporting party (Michigan MLS).

Since you are a broker, I figure I won't be telling you anything you don't already know, but price per sqft isn't always the be all end all to comping a house.  One key thing I see missed very often ( and I have missed myself) is floor plan or use-of-square-footage.  I currently have a 2080 sqft 3 bed 2.5 bath house in the Dallas market with all beds upstairs.  The market in the neighborhood is about $83 to $85 per foot, but I have two major negatives in my floor plan--lack of a fourth bed in a 2000 plus sqft house and all beds up so I will have some significant downward adjustments despite having the finishes that are considered quality in that neighborhood.  My house will likely sell around $76 a foot.

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