Estimating ARV: need an agent? get a RE license?

Question

I'm learning about the BRRRR method before I jump in and understand the importance of estimating repair cost and ARV. I plan on buying J. Scott's rehab book soon and hopefully that will help with the former. I heard that I should use an agent to get comps to estimate ARV. But if I buy off market or from wholesalers, why would an agent spend time helping me if he won't make money? I know some may help in order to build a relationship, but if I'm analyzing a ton of deals for every one that I take action on, that would be a lot of work they'd be doing for free. How do investors typically go about estimating ARV? Could I pay the agent a fee for their time? Would it be worth getting a RE license myself? TIA :)

Mike H. · Answer

I don't see the advantage of getting licensed to pull comps. Use zillow to enter the key filter criteria you need. But what you need to do is talk to an appraiser to understand why they pull what they pull and when they'll make their adjustments.

I don't think a realtor would be able to help you much beyond confirming your estimated numbers.

Here's a broad outline of how I put together an ARV. Its based on the years of appraisals I've received and seeing what/why appraisers are doing.1) Put the address of the property in zillow so you can see it on the map as a starting point.

2) Enter the following criteria as range:a) Square footage. If your property is 1500 sq ft, then enter search criteria of 1250 to 1750 to filter out the resultsb) Year built. Enter a 15 to 20 year range based on the property's age. So if its 1980, I'd put 1960 to 1995. But be careful as you get newer in age. 2005 is much different than 1960.   If the house was built in 2005, i'd limit my range to 2000 to 2010.  If it was 1960, I'd do 1930 to 1980.  The newer the house the smaller the range.

c) Bedroom count. Not as important. Believe it or not, appraisers don't really care about 3 versus 4 bedrooms. The ones here in my area never give me more for a 4 bedroom if they pull a 3 bedrm comp.

d) 1story versus 2story. This is one they definitely try to stick to.

Now pull your comps from the criteria you entered. Zoom out a bit. But try to stay within the same subdivision if you can. If not, then stay within the same town/school district.  These appraisers have towns broken down by school district and sometimes simply quadrants or subdivisions. And they'll take a lesser matched comp in the same subdivision then a more exact comp in a different subdivision.

Once you do that, add for adjustments like bathrooms (3k for a half bath or 5k for a full) or basements (7500 for unfinished, 10k to 15k for finished depending on bedroom or bathrooms in basement), garages (1car versus 2car, etc).

That should give you a good idea of where the appraisal should come in at. If you really want to get good at it, I'd recommend taking a class or reading some books on becoming an appraiser versus getting your realtor license.

Realtors are notoriously bad at coming up with appraisal values. They almost always come in on the high side. Go figure. :-)

Steve K. · Answer

@Kim Forgione , as you seek to get calibrated on ARV for your market, and as you spend time on your REI "education", look to learn from other fix/flippers in your area. I used to spend time on Redfin. When ever I saw a house that looked brand new updated, I looked further into the sales history; often, you'd see that the same home was sold 4 months ago. You get to see the old (fixxer upper sales price, and maybe photos) and you see the post-renovation photos and flipper's ARV (asking price). You don't really need to use a realtor's time for this, if you can see them on Redfin (or elsewhere, publically). Then you read up on how best to estimate the cost of that new kitchen, bath, flooring, windows, roof, landscaping etc....then you're calibrated. Then, you'll know what a good deal is when you see it.

Best wishes to your success.

Raquel D. · Answer

J. Scott's Book on Flipping  Houses discusses this in depth so it will definitely give you a framework.  Of course it seems like everyone has their own opinion on the topic of license  vs. no license.  There are advantages and disadvantages to both so in addition to J. Scott's book, I'd suggest checking out other books/podcasts as well.

I'm still in the learning phase and my approach has been to hear out the opinions and strategies of a lot of different people who came from different areas/backgrounds -- no matter how much I REALLY like/admire somebody, I never want to start drinking too much koolaid from one person :)

Kim Forgione · Answer

Thanks Kyle and Shawn :)

I couldn't tell the realtor I would list it with them since I plan on holding.

I have been using Redfin though; seems to be the more accurate or at least more detailed of the major RE sites.

Shawn Ward · Answer

@Kim Forgione I think you should use Redfin to find comps yourself to estimate ARV, but also have an agent give you their thoughts. Both together should have you in a good place. The reason an agent would help is if you let them know that if you do buy the property, they can list the property after you have rehabbed it. I do it all the time.

All the best!

sjw

Kyle McCorkel · Answer

I just got my license and I think it will help immensely.  I like to do some things myself and I like having all the tools, data and resources at my fingertips.

That being said, if you haven't done a deal yet, I would try and build a relationship with an agent to help you through the process.  I've heard some investors say they will pay a fee for pulling comps.  And/or you can pull your own comps using realtor.com, Zillow (NOT the Zestimate, put together your own comps based on actual sales), tax records, etc.  It's not perfect but it's better than nothing.

It is a long and arduous process to get licensed, not to mention the annual fees and continuing education...that's why I say do a few deals first to see if you really want to take the plunge.

Estimating ARV: need an agent? get a RE license?

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