How do you calculate your after repair value

Question

How do you best analyze a deal and calculate your after market value

Brandon Krieg · Answer

@Darrell Paden - Awesome question.  To calculate your after market value, you want to focus on SOLD comparable sales.  Ideally, the comps should be as physically close to your subject as possible, with nearly identical features (square footage, house style, amenities, etc), and sold as recently as possible.  So the ideal comp is a carbon copy of the subject, located next door, sold yesterday to a typical buyer with typical exposure time and no sales concessions, etc.

Of course, in the real world, that is easier said than done!  So, you want to get as close as possible.  Remember that every step you get away from the ideal, the less reliable your results become.

One good method is to 'bracket' the subject.  Find a house that you know is worth less than the subject will be after the repair (say it is smaller, has less desirable features, etc).  Then, find a house that you know is worth MORE than the subject (larger, nicer finishes, better location, etcetera).  This becomes your bracket of value.  Then, within that range, try to narrow to the best of your abilities using your available comps.

Also, if the house needs work, understand that different levels of upgrades will get you different ARVs.  Homes with tile showers, granite countertops, and hardwood flooring will often sell for more than those with fiberglass showers, laminate countertops, and basic carpet.  So, understand that different repair levels will get you different ARVs, and plan accordingly.

Does that help?

Tom Shallcross · Answer

We do a very similar exercise as @Brandon Krieg.  We pull sold comps on the MLS and use the same bracketing {we haven't used that term, but I love it and will be stealing it to use internally :)} technique.  What's the worst case scenario and what's our high-end of a similar bed/bath home within .5 miles.  If we are happy with that low-end we're in a good spot.

We'll throw out any oddballs that skew the number up/down and if the variance is too great between the comps great we usually punt and look for the next one.  However, we've gotten pretty good at our estimate in our little neck of the woods so we can usually figure out the reasoning of the variance.

Jerry Jawuan Huggins · Answer

@Darrell Paden You should find at least 3 to 5  comparables that are located within a mile of the house that you are analyzing. Only consider sales that have sold within the last 180 days (remember that comparable sales are CLOSED sales, not just LISTED). Comparable sales should be recently remodeled, well maintained, or ready to move in. Don’t use foreclosures, short sales, or other distressed properties. The square footage of your comparables should be within 15% of the subject property... so if the subject property is 2,000 sq ft, your comparables should be 1,700-2,300 sq ft. Also take into account the features of the property, because even though they may be identical in square footage, features like pools, garages, views, etc. can have a drastic impact on the value of the property. Only use sales from the MLS, sites like zillow and others are often not accurate. if you are not licensed yourself, you will need to contact an agent who is to gain access to the MLS.

These are tips I learned from a book called THE FLIPPING BLUEPRINT by Luke Weber. It’s a great book for house flippers and explains the process in good detail.

Clifford Paul · Answer

A) I just have my agent do the ARV. She's been pretty spot-on so far.

Brandon Krieg · Answer

Sounds great @Darrell Paden - persistence is key in this business!

Darrell Paden · Answer

@Brandon Krieg thanks for the advice I’ll try it out and tell you my out come

Brandon Krieg · Answer

@Darrell Paden - There is no magic formula.  For the After Repair Value, you want to figure out a likely range of what your house will sell for after you make the repairs.  The market is the best estimate of that.  So, you bracket your subject, and then make educated approximations based on home condition, location, amenities, etcetera.

It is not easy to get MLS access if you are not licensed.  In fact, most (if not all) prohibit sharing login credentials.  Your best bet is either to A) find a friendly real estate agent, who is willing to find comps for you, or B) use publicly available sources, such as state/county records, or online places like Zillow/Trulia/Redfin etc.  Just double check any information you get off of those sites, because they are notorious for not being accurate.

Darrell Paden · Answer

Both you guys gave good example on analyzing deals but what’s your strategy once you find your comp how do you get the ARV what’s the formulas and how do you apply them @tom shallcross how do you get a hold of the mls list without being a realtor

How do you calculate your after repair value

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