Trouble calculating ARV... possible good deal or just pass?

Question

This is a really tricky situation I'm in and I'm not sure my next move honestly.

I'll give you a little background on the house up for question and the situation.

The house is a 4 story row home in Baltimore City, go one street over, you're downtown. It's 3,570 sq. ft., 4 bedrooms, 3 bathrooms, end unit, a block over from Maryland General Hospital, few blocks over from University of Maryland School of Medicine and Maryland State Tax Building, and directly across the street from a historic park and church.

I got a friend who has access to MLS to pull some comps. The only one that has sold within the last year is .42 miles and sold for $577,555. In Baltimore, that is a lot of money and a pretty big distance. The last time a house on the same block as my subject property sold was in 2008 for less than $5,000.

With that being said, I have nothing to go on. I do feel like the area is pretty good and could definitely sell but where do I start negotiations with my seller. Not to mention I have not seen the inside of the house yet because he doesn't live in Baltimore and he wants to hear a number first to determine if it would even be worth his trip to show it. So, I'm not even sure how much work it's going to need but I'm estimating around $80,000-$100,000. It's an older place so I know it will need some updating, and you'll definitely have to put some beautiful finishing touches if even considering anything close to that $500,000 range.

Sooo... any suggestions or thoughts? By the way, he seems VERY VERY VERY motivated to sell.

J Scott · Answer

If you think there's a possibility of a property having no comps, where do you Zillow is getting its data?  All Zillow does is an automated comp analysis using it's best guesses.  Better that you make an educated guess yourself than to use Zillow's uneducated guess...

And btw, there are always comps...sometimes you just need to be extra good at finding them, adjusting them for differences and bounding them...

Ned Carey · Answer

Britney is this a single family or multi family? This area really does change block by block.

When no traditional comps are available you make due with the best you can come up with. This may mean going back farther in time or farther in distance. Also I would look up non listed sales. There are services which pull public records that can generate a report of all sales not just listed properties. You can do it the hard way by looking them up a house at a time in SDAT for the streets nearby.

Sometimes you just have to go with your gut feeling. This will get better the more deals you evaluate. I am thinking closer the the $5000 number than the $500,000 number.

You say he is motivated and yet he wants a number to know if it is worth a trip to show up. That doesn't sound motivated to me. Is it vacant? Is it boarded? Is he behind on taxes?  Does he have a mortgage on it? Are there code violations etc? What is his motivation?

I would throw the best number I could come up with. If he says it is too law then ask "What kind of number were you thinking?" You can always negotiate down after you see the property "Oh this is in much worse condition than I thought."

Nick C. · Answer

Zillow makes money by selling ad space to realtors, not by being accurate. By marketing itself as the go to source for those without access to accurate data, it does more harm than good to potential buyers and sellers. I can't tell you how many times I've heard a potential seller say "But Zillow says my house is worth..."

@Brittnie  Stewart - Can you try realquest or some other comp pulling software, sometimes they have comps that aren't in the MLS. As J Scott said, there's gotta be comps, might take a lot of intuition to figure them out from what it sounds like...

William Baumann · Answer

You make a good point J Scott.  Thank you for sharing that.

J Scott · Answer

I think a lot of experienced investors would disagree with this advice...

Zillow can be off by 30% or more in many areas, and assessed value is often meaningless.  For example, I recently sold a house for $145K where the assessed value with $88K (and the buyer didn't overpay :).

J Scott · Answer

You need to find someone who knows the values in THAT PARTICULAR AREA.  Not a half mile away or even 2 blocks over, but that area.

Are there any houses for sale on the street?  If so, call the agent who's listing it and ask if they can help.  Any other investors who know that immediate area?  Perhaps they can help.

But, don't go off a single comp that's a half-mile away in the city...

Tim T. · Answer

Depending on how long the owner has lived out of State and when was the last time he actually saw the property this may be an opportunity for you to construct a picture, both quantitative and qualitative, for the owner of the property's Past/Present/Future states. The lead sentence for your email could read something like, "I've done some additional research, spoke with a number of REI/agents in the area and this is what I found."  Then frame what you found in terms of possible "options" -- e.g., "Based on the best available information WE could consider Option A, B, or C. Which of these options makes the most sense to you?" If none appeal to the Seller, then respond with, "Which of the options is closest to what you're thinking?" The idea here is to move the communication frame from a "Yes/No" proposition to exploring a range of options. Worse thing that could happen is the Seller says "None of them interest me, I only want X." At that point, it would be up to you to decide if and where the conversation needs to go.

William Baumann · Answer

I agree that zillow is not the greatest source to use, nor the county assessors office.  However, my thinking on this particular situation is that (and please correct me if I am wrong), if there are no comps or CMA's in the area, and your seller won't even discuss the sale further without presenting a number, using zillow and the assessors tax appraisal information could help you get a "A" number to present, and then using an option to get an official appraisal and allowing you to modify your offer based on an actual appraisal or back out of a bad deal.

My understanding from the OP, was that the seller would not continue sale discussion without "A" number.

Am I way off on this line of thinking here?

Jason Measures · Answer

@William Baumann I'm certainly not mentioning this to assume you're unaware or not knowledgeable, but please be careful using zillow and the county assessor's office for ARV estimates. These numbers are often inaccurate and can be misleading.

@Brittnie  Stewart Absolutely start with @J  Scott 's suggestion of identifying someone knowledgeable within that particular market. Then, as William Baumann said, or at least bouncing off of his idea, if all else fails, just pay $50 for an option period of 7 days and hire an appraiser to be there on the first day so you can have a confirmed ARV. If the appraisal comes back low, use your option to back out of the deal. Of course, be very professional in all of this so as to not diminish your personal brand in the eyes of the seller, but this is a very appropriate and common method. Nevertheless, I unfortunately cannot help you with your starting offer because the Baltimore market is drastically different than the Dallas market, but if you're able to nail that down, you still have the backup plan of an option period in which you could always back out if your numbers are way off. I'm sorry I can't provide any definitive solution for you, but hope this helps.

Jim Viens · Answer

If I'm in the right area (adjacent to the park right my Maryland General) it looks like there's a 3/2 and a 3/1 that sold in the last couple of years for around $100k. Based on that alone I'd say you'll have a hard time getting $500k+ out of this property. This is purely speculation on my part, being half-way across the country and not at all familiar with what's going on with the market in that particular neighborhood. And if I've identified the specific property it does look to be a bit rough (at least from the June 2011 street view image) but has potential if the structure is sound. I also noticed that the adjacent properties also looked kind of rough. That will also play into how much you can get out of the property. These points would be sufficient for me to take a long, hard look at this before committing. Especially if it needs as much work as you say. You could break even at best or at worst lose your shirt if you're not careful. All that being said, I'd advise to proceed with caution and talk to a realtor that's VERY familiar with the area (like J Scott said...down to the very block) to get a more solid idea of what the property could be worth on the back-end.

Trouble calculating ARV... possible good deal or just pass?

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