I have come across a few properties that did not have any similar homes sold in the same area (same beds, baths, sq feet, etc). How do I figure out what the ballpark ARV would be if i have nothing substantial to compare it to? I know I could ask a realtor and I am working with one who could provide that info, but I'm curious what information would those comps be based off of?
Typically, if your goal is to wholesale it or fix and flip it yourself, if you don't have comps in a 0.5 to 1.0 mile radius, the deal isn't worth doing.
A lack of comps will give you immense challenges on the exit of the property no matter how nice you fix it.
If you are buying for cash flow, it may be easier, however, if you are using acquisition capital (hard money) to purchase the property, and plan to refi out of the hard money to a 30 yr fixed, you still may have problems in having the property appraise for what's required to cash out or repay your lender.
An exception to the above is if there are few comps because the area is so desirable that once people own in that area, they never sell. You'll sometimes see that in extremely high end markets or downtown areas going through positive changes like an area marked for Amazon to come into. These areas typically have a very low days on market (DOM)... less than 30 days.
In summary, few comps are a bad sign.
The properties I was trying to comp are located near a downtown area which is currently undergoing a lot of new development, and one of the investors I work with is seeking to buy properties in the area. I know in most cases, few or no comps is not a good sign, but what about areas that are expected to have a lot of growth very soon? Thanks for your feedback by the way, I appreciate it very much.
Hi @Keri Dichiara ,
We make adjustments based off something we can quantify. For instance I may run a list of properties that are older so I can find an adjustment per year. Or higher sq footage and find out what a price per sq foot is and adjust by a number that makes sense (30% of the per sq foot per built sq foot). I may figure out what garage spaces on non comparable properties are so that I can make that adjustment to mine. So you really just have to make adjustments. It takes some time and practice but you will find you really always can get somewhere.
Thanks Mike I really appreciate your input!
Welcome to the world of real estate appraisal!!
No two properties are ever exactly alike. Even in a tract of new development the corner lot, for example might sell for a premium over the others. You make adjustments for these differences. If you are handy with excel you can make a spreadsheet that will do the math for you as you plug in adjustments for differences in size, acreage, condition, etc.
That said, without strong comparables it is very difficult to be right. For unique properties I will in some cases go back farther than 12 months for sales of other kooky properties. Going farther from your subject property is dicey unless you are very sure you know your markets and know that a typical buyer looking in your area will also be looking in some other neighborhood where you might have comp. Location is key and geographic similarity will be more accurate than condition or size alone.
@Josane Cumandala thank you very much for the helpful information!