I was wondering how someone can determine the after repair value of home. I know most people say that they look up the sold comps on the MLS for similar properties. What if you are a beginning investor like me and don't have access to the MLS?
You can find sold listings on Trulia.com and zillow.com to compare with. Just keep an eye on the dates of the sale, and make sure you are using actual sales numbers, as apposed to zestimates.
I found I was pretty accurate this way prior to getting MLS access.
You can find sold listings on Trulia.com and zillow.com to compare with. Just keep an eye on the dates of the sale, and make sure you are using actual sales numbers, as apposed to zestimates.
I found I was pretty accurate this way prior to getting MLS access.
Best advice would be get in touch with a realtor that is investor friendly. You could also pull public records on properties that have sold within the last few months that are in your target area. This could help however, it is a much longer task then just getting a realtor on your team.
On a side note I have recently seen an improvement in trulia.com with the site updating the newest listing from the mls within a day or two. This could get you in the ballpark but I would not commit to a deal based on their values.
I've seen wide variation in prices on Trulia and Zillow, that don't reflect actual value. I'm sure you can ask a Realtor to run some comps for you, especially if you might buy or sell through them. That's definitely the easiest and most accurate.
About how far should you look out? 1 mile, 2 miles?? I am a new investor and this is the part I am having issues with. If there are no comps in the subdivision, how far should I look out?
If you are surrounded by like neighborhoods, then you should not have to go too far. If you are not, then you may be better off going further back in time and discounting the values.
About how far should you look out? 1 mile, 2 miles?? I am a new investor and this is the part I am having issues with. If there are no comps in the subdivision, how far should I look out?
If there's nothing within the same subdivision, finding comps is a little tougher. Like you, I try to look for sold comps within the same development rather than go strictly by proximity. But once you venture outside a subdivision, all bets are off if you go simply by distance.
For example, we live in a tract of homes that run along the west side of a creek and spans about 1 mile in length. Using comps anywhere in this development allows me to compare similar models with each other. However, there are several homes lying just over the ridge less than 1/4 mile from our house that are completely in another city and zip code! What those homes sell for tells me very little about the value of our own. Even 1/3 mile away, there are several homes, but they are on the other side of the creek and main boulevard in another tract. Homes further away, but in our same development make for better comps than many homes that might be physically closer.
So what do you do if there aren't any sold comps in the same tract? I look at other tracts with similar characteristics. That's not very hard to do in the relatively newer parts of SoCal because developers pretty much took a cookie cutter approach to most projects. About 1.5 miles away, my parents live in a tract of homes very similar to ours, just built a few years earlier. Many of their models share striking similarities to ours. And the amenities of the area, i.e., school districts, proximity to shopping and jobs, etc. are all the same. Basically, figure out what makes one group of homes attractive to a buyer/renter and see what other neighborhoods offer the same living experience.
It's not perfect, but it's better than a SWAG (Scientific Wild A$$ Guess). :mrgreen:
Try to keep your comps within the last 3 months; oftentimes trulia and zillow are not recent and can be deceiving. You can only get an idea, but at that they are not what you want to rely on for comps.
There is a site in many major cities across the US called redfin. (unfortunately its not everywhere). I love redfin, and it has 10 comps at the bottom, but even better than that, you can pull up a map and go directly to handpick your comps.
1. Try to stay in the same neighborhood like many have said here, but if there isn't enough comps, stay within a mile if possible.
2. Try to only go back 3 months; if there aren't enough try 6
3. Stay within 1 bed and 1 bath, and try to stay the same if possible
4. Stay within 500 square feet; the close in size the better
5. I like to use 10 comps, but try to use at least 5 (the more the better). I like to be conservative because usually the appraisers are.
6. Do not use listings; use sold comps
7. Calculate the cost per square feet for each .
8. Remove the highest and lowest PER SQUARE FEET values
9. Take the remaining prices per square feet and find the average.
10. Multiply that number by the square footage of the property you are comping.
If I'm doing a rehab on the property requiring more than $25K, I usually subtract $10K from the ARV only because our market in my area is still declining slightly, and that will usually take 3 months. You can talk to a realtor in your area to find out the market trends for your city; or you can look in the paper in the real estate section; there is usually a section that talks about the trends.
I want to see ALL available comps, whether there are 3 or 30. If you're working with an agent, don't let the agent just pick out a few comps and show you those. Its too easy to cherry pick comps to show whatever you want. You want to see all of them because you don't know what an appraiser might choose.
7. Calculate the cost per square feet for each .
8. Remove the highest and lowest PER SQUARE FEET values
9. Take the remaining prices per square feet and find the average.
10. Multiply that number by the square footage of the property you are comping.
I do not believe this is an accurate method. Its not what an appraiser will do. If you have a fair number of comps, more than half a dozen or so, look at the $/sq.ft. If they're all very close, then this method may be accurate. They probably won't be.
An appraiser will apply an adjustment to the comps to adjust for difference in per square foot prices. That adjustment is probably about a third of the $/sq.ft. sales price. If your house is 1100 sq.ft. and the comp is 1000 sq.ft., and house are about $100 per sq.ft., then the appraiser will add about $3,000 to that comp to adjust for your extra 100 sq.ft. I assure you an appraiser will not add $10,000. Same if your house is smaller. For a 900 sq.ft. house, the appraiser will subtract something more like $3000 than $10,000. If beds and baths are the same, finishes and condition are the same, adding an extra 100 sq.ft. is much, much cheaper than the overall price.
Also compare your house only to ones with the same style. Ranch with basement, two story, tri-level, etc. Ground floor footage is worth the most, upper floors less, and basement much less. You need to know your area and how an appraiser will treat the different square footages.
As to comps and range. First you look in the subdivision, then move out within 1 mile, then within 3 miles, then within 5 miles, then over 5 miles. Taking all the comps in the same subdivision takes into consideration the maturity of the subdivision and per centage of the built up lots. In a mature subdivision you can do that and when there are sufficient homes to ensure that three sale do not skew the analysis.
For example, in a new subdivision, where 4 out of 30 lots were built and sold are not good comps for the 5th house, 2 comps in that subdivison might be used with another from the neighborhood.
A neighborhood is not necessairly a subdivision, it is a generally more of the soci-economic area identifed by similar attributes. It is very common for values to be significantly different from one neighborhood to another or one subdivision to another. These factors must also be considered as to the desirability (which reflets on marketability) from one area to another and such assumptions can usually be shown in the market. Failing to identify these differences will skew your analysis as valuation is not strictly a math formula of square footage costs and adjusting for amenities.
These influences will be magnified as you move further away from the subject property. For example, while a house may have a similar price, the proximity to a hospital or shopping area may be different than one close r to an industrial complex.
It's an art as much as a science. Study it as an art and you'll get the science.
Daniel,
All of the above is good to go. I am not a big fan of Trulia or zillow for comps...too much room for error.
Think of this...if you buy this property what will you exit strategy be? Flip it? Will you use a realtor? Will you ever use a realtor to sell a property? If the answer is yes...then there is incentive for a realtor to do whatever you ask of them....for example pulling comps for you.
You should have realtors on your team. they can be a wealth of knowledge and a source of great leads....
All youhave to do is know how to TAKE CARE OF THEM...they work for commission so just make sure they have a way to make money. They will respect you for respecting them and they will do everything they can to make sure you have success because they will have success.
It's nice to be able to pick up a phone and say hey so and so I am thinking of buying this house can you run comps for me real quick.
Hope that helps you....go do it now so you can get on with this deal and make some money!!!!!! Good luck!
I do not believe this is an accurate method. Its not what an appraiser will do. If you have a fair number of comps, more than half a dozen or so, look at the $/sq.ft. If they're all very close, then this method may be accurate. They probably won't be.
Hmm, I've always gotten within 3-10K of what the appraised value is this way... always has worked for me like a charm here in Southern CA, and every time my value was less than the appraisers because they only take 3-5 comps, and you do never know which ones they'll take; but here in LA area, if you took all the comps you'd have 100s of them at times depending on how dense the area is. I always do take ALL the comps within the immediate area that are within 500 square feet (or less) though, as they do not use comps that are too big or too small , ever.
Love your info Finanance Examiner. It also depends on your area. If you're in an area where there are postage size stamp lots with many homes like the general LA, Orange and San Bernardino areas of CA, an appraiser will never go past 1.5 miles unless it is a more rural area. This is good to know about sparsely covered areas though, I did not know an appraiser would ever go out as much as 5 miles!
Originally posted by Financexaminer:
As to comps and range. First you look in the subdivision, then move out within 1 mile, then within 3 miles, then within 5 miles, then over 5 miles. Taking all the comps in the same subdivision takes into consideration the maturity of the subdivision and per centage of the built up lots. In a mature subdivision you can do that and when there are sufficient homes to ensure that three sale do not skew the analysis.
For example, in a new subdivision, where 4 out of 30 lots were built and sold are not good comps for the 5th house, 2 comps in that subdivison might be used with another from the neighborhood.
A neighborhood is not necessairly a subdivision, it is a generally more of the soci-economic area identifed by similar attributes. It is very common for values to be significantly different from one neighborhood to another or one subdivision to another. These factors must also be considered as to the desirability (which reflets on marketability) from one area to another and such assumptions can usually be shown in the market. Failing to identify these differences will skew your analysis as valuation is not strictly a math formula of square footage costs and adjusting for amenities.
These influences will be magnified as you move further away from the subject property. For example, while a house may have a similar price, the proximity to a hospital or shopping area may be different than one close r to an industrial complex.
It's an art as much as a science. Study it as an art and you'll get the science.
For reference, over the past dozen or so sales I've done to FHA buyers, I've noticed the appraisers are happy to go back to near 12 months and out to about 1.5 miles to find non-foreclosure comps.
Certainly, they prefer comps that are newer and closer, but they appear to be loosening up their standards in the face of the current market.
At least that's been my experience over the past several months...
I know some states have passed laws that forbid appraisers to use REOs and short sales in their reports. would LOVE to see that here in CA in some cities that are so overriden with REOs that it absolutely derails property values!
Originally posted by J Scott:
For reference, over the past dozen or so sales I've done to FHA buyers, I've noticed the appraisers are happy to go back to near 12 months and out to about 1.5 miles to find non-foreclosure comps.
Certainly, they prefer comps that are newer and closer, but they appear to be loosening up their standards in the face of the current market.
At least that's been my experience over the past several months...
That's good news Jason! As the limit is one year and they are moving further out. FHA and VA need to see comps within 3 miles and when one goes out within 5, there is alot of jsutification as to why they went so far out. So your observation is good news that lenders might be getting a little bolder.....if you could call that bold underwriting....LOL
The real answer here is you MUST learn your area and how things are done locally. There is no shortcut to values. This is the single most important aspect of real estate investing.
If you're in an area where there are postage size stamp lots with many homes like the general LA, Orange and San Bernardino areas of CA, an appraiser will never go past 1.5 miles unless it is a more rural area. This is good to know about sparsely covered areas though, I did not know an appraiser would ever go out as much as 5 miles!
They probably need to in certain parts of the country where many properties sit on large acreages (parts of Mississippi and Texas, where I was once stationed, comes to mind). However, you're right about SoCal. No appraiser is going to go out 5 miles in the metropolitan areas. First, no need to since there's probably hundreds of comps within a 5 mile radius and, second, most of those comps will be meaningless.
5 miles separates: Beverly Hills and Jefferson Park!
Newport Beach and Santa Ana!
Coronado and Chula Vista!
The real answer here is you MUST learn your area and how things are done locally. There is no shortcut to values. This is the single most important aspect of real estate investing.
Very well said John. That is why I'm a huge proponent of investing locally, where you're familiar with the neighborhoods, the values, the living experience, the politics, the economics, the demographics, the crime statistics, (stop me anytime :mrgreen:).
I know many people invest out-of-state and are quite successful at it, but buying something in an area I'm completely unfamiliar with and relying 100% on the opinions of real estate agents, property managers, or investment companies, which have their own interests to serve, strikes me as a shot-in-the-dark.
I'll stick to buying and holding in SoCal for a couple of decades and wait for appreciation to make my gains, commonly known as "speculating" among those new to the game. :wink:
Don't get excited folks, if there are comps within a half mile they expect them to be used. Moving further out is when no other comps exist.
What is customary is pretty much by region, east and west coast will be differnt than the midwest or maybe the south. Population centers will require tighter market areas.
In my experience in Chicago, appraisers following FHA underwriting guidelines will include properties up to 2 miles away that have sold in the previous 6 months. I'm not quoting FHA guidelines here, this is just my experience.
Chicago is a city of neighborhoods (good next to bad) and though it is sometimes necessary to go up to 2 miles out to find comps, I wouldn't expect an appraiser to value all of the comps within that range equally.
Redfin.com is another decent site for those who don't have access to the MLS.