50% off Market Value?

Question

I'm reading the book How to Find Hidden Real Estate Bargains by Robert Irwin and in the first chapter he mentions the possibility of buying a property at 50% off the market value.

I am moving to a very expensive big city and am looking for a place to purchase as a personal residence. In order for me to achieve my goal of homeownership, I am going to have to be very creative in finding an affordable place that is somewhat close to my place of work. I plan to look at  homes close to foreclosing, foreclosed homes, tax deed auctions, and probably other areas. Is finding a place at 50% off reasonable? This number resonates with me not only because Irwin mentions it and states unequivocally that it is indeed possible, but also because I happened to read a stock market book a couple months ago by an author who describes his strategy of only buying stocks at 50% off the market value, and it will make a big difference to me in terms of quality of life and location because real estate is so expensive in this area. My strategy would be to double what I can afford and then focus on neighborhoods in those price ranges and then look for bargain opportunities. Am I going about this the right way? Any input appreciated!

Will Barnard · Answer

Good post Ned. In addition, if a seller is having to pay agent fees, that is all the less that they can come down on their price. In the case of FSBO, you may run into a seller who has an over-inflated idea of the value as Ned mentioned and on the flip side, you may find one who has dramatically under-estimated the value, hence a bargain.

Ned Carey · Answer

>Irwin mentioned in his book that you can get better deals without real estate agents,

I suspect he meant that you can get better deals by buying properties that are not listed with agents. In other words finding and negotiating with motivated sellers.

> I've met with 2 so far and haven't liked either one.

It can be tough to find an agent that truly understands investment or bargain property. Most agents that deal in homeowner properties think 10% below market is a good deal. That's a money loser to most investors.

But there are some very good agents out there and a real estate transaction is quite complex you should have someone on your side; agent or attorney.

>What about a FSBO? If they are trying to save money by avoiding an agent, how will they feel paying my agent?

My experience is most people who sell FSBO are simply too cheap to pay an agent. They still expect full price, often they have an inflated idea what their home is worth. Although it is possible to get a good deal this route it is not likely.

Also when we said the seller normally pays the buyers agent that is because the seller's contract with his own agent is written that way. I the case of a FSBO they have no agent aggrement so you are paying the cost of your own agent unless you can negotiate otherwise.

Donald M. · Answer

Irwin mentioned in his book that you can get better deals without real estate agents, I'm not sure why, but after these posts here I will definitely find myself a good agent. I've met with 2 so far and haven't liked either one.

What about a FSBO? If they are trying to save money by avoiding an agent, how will they feel paying my agent? Or will I pay a little higher amount because I have an agent?

I plan on talking to people in preforeclosure and seeing what is available at auctions, so if I end up finding something that way I obviously couldn't use an agent.

Ned Carey · Answer

Yes you can but why? Real estate agents are normally paid by the seller. In Md even though an agent can represent the buyer, the commission still usually comes from the seller. So if you want to avoid an agent to save money you are fooling yourself.

Even if you buy directly from the seller, if a property is listed, the seller is likely obligated to pay the agent so there is no savings there either.

Books aren't going to help you learn your local market. An agent can give you a competitive market analysis to help you decide what to offer. Agents are out in the market every day. A buyers agent can share that knowledge with you.

There are dood agents and bad agents. Don't waist your time with a bad agent. Good agents are worth every penny the seller pays them. :D

Mark Betche · Answer

IMO, realtor's are middlemen and are not necessary in most cases. Buying a property, although a little more involved, is not much different than buying a car.

You don't need a realtor to write up a contract, make an offer, get financing, contact the title company and so on. Most people, use them because they don't know how not too.

I've owned three homes and sold two of them and never used a realtor. The realtor is not who you want to trust, when you are searching for a good deal, you need to learn to protect yourself. Good luck.

Donald M. · Answer

Thanks for the informative responses. Next question:  Irwin mentions that if you really want to find a deal, you're going to have to work without real estate agents. Is it possible for a first-time home-buyer such as myself to assimilate all of the information from books/Internet research/television programs, maybe some phone calls from a realtor relative, but not go with a real estate agent?

Mark N.A · Answer

If you purchase a HUD or REO you will most likely deal with a broker.

Mark N.A · Answer

In all my life I've never paid retail for a house, not even my current home of 19 years.  However, I just bought a new home for myself, and since I WANTED it, I paid full retail.

Properties can certainly be had for 50% below market value.  People here routinely find those deals.  But as Jon said, these people make many many many offers and get almost as many refusals.

Finding a property at 50% below market is sort of the 'holy grail' of REI.  Your competition will be just about everyone else who read Irwin's book, just about everyone here, just about every smart broker in your area, and so on and so forth.

People who find these deals routinely work very very hard at finding them.  With the same hard work, and a little luck, you may find one yourself.

Jon Holdman · Answer

It depends on exactly how you do the math.  I bought a property about a month ago at about 55% of the appraised value.  However, the appraisal assumed I would do the necessary fix up.  The place was not really livable as-is.  After the fixup costs, my total amount in will be closer to 68%.

Others here do similar things.

Is it easy?  Heck no.  Can you do it for one house you want to live in?  I'm not sure.   I'm looking at REOs, and I look at a LOT of them and make a LOT of offers.  Not many get accepted.  Other folks market to distressed sellers.  Its a lot of work, and I'm not sure its something you want to do for a house you would live in.  I look at properties with a completely different set of criteria than for houses I would live in.  For investments, its all about the numbers.  What's it cost to buy, what's it cost to fix, what rent will it get?  If those work, I'll try for it.  If the bank doesn't accept my offer, next!!