Why do people advertise ficticious, inflated ARV figures?

Question

I get contacted almost daily by wholesalers with their next great deal, and it seems like 80% of them just make up ARV's.  It seems like they just take whatever amount they want for the property, and add in some guesstimate repair costs, and then make up fictitious, inflated ARV's to make the numbers work so their deal looks like its a 60-70% deal.  Does anyone actually fall for this?  Its not hard to search recent comparable properties sold in the neighborhood.  If you're trying to wholesale, be honest, don't burn your name.  My 2 cents!!

Nick C. · Answer

The answer to your question is an easy one; they make up ARV's so they can sell a property and make money.

The why is a little more complicated- lack of education, lack of integrity, lack of experience, false guru promises, etc.

To answer your 2nd question, yes, many people fall for it. Unfortunately it's easier to find suckers right now than good deals. A lot of the institutional wholesale operations will jam any property down buyer's throats to make a profit for themselves. What happens to the end buyer is not their concern.

Jeff Filali · Answer

@John Daley I agree no numbers can be totally accurate, but I'm talking they list the ARV at say $150K and when you pull up recently sold comps in same neighborhood for past 6 months, and they're all between $60K-80K...not one over that.  That's not even in the same ball park.

Believe me, I do my own due diligence, but comping a property isn't rocket science.  I can get a general ideal within about 1-2 minutes tops.  If its close, I'll give them the benefit of being new.  But if its almost doubled, its obvious that many inflate the numbers hoping a newbie investor won't know any better.

Linda Weygant · Answer

Many, many bad wholesalers give the few good ones a bad name.  Once you find a good one, put them on speed dial.  This is a downside with utilizing an industry that is completely under the radar in most states and, therefore, totally unregulated.  It's a wild west show, caveat emptor.  Always do your own diligence and walk away from deals that aren't deals.

I'd like to say that the market will weed out the bads one eventually, but the number of new people jumping into this business model increases all the time.  Just look at the posts from newbies here every day saying they're about to get into wholesaling......

Patrick Liska · Answer

What i have found is they take the average listing price of the town, like you find on Zillow, and call that the ARV for the house. yes in the better part of town, but not where the house they are trying to wholesale sits. had one they ARV'd and it would have been right just 2 blocks away on other side of a main road but where this property was, it's ARV was half the amount, big difference in prices of home just a couple of blocks away from each other. you need to do your due diligence.

Andrew Johnson · Answer

@Jeff Filali You're right on the money, ballpark comps are pretty easy to come by.  If an investor isn't at least taking a stab at it themselves they're doing themselves a disservice.  You might be off by 20% but you're probably not going to be off by 50%.  I think the larger challenge is the under-inflated rehab costs.  Pricing out rehab based on materials and not having any budget for labor is just...well...disingenuous.  My personal perspective is that while they can play on the ignorance of a newbie investor, a lot of just boils down to the unrealistic expectations of investors.  They see HGTV where every flip nets between $20K and $50K in 90 days so of course it has to be easy!  Of course those deals grow on trees!  If you think that's normal/common then you sees natural to find a property to buy for $60K, rehab for $60K, and sell for $150K!  I'm just making up numbers but I can see why the overeager (new) investor can get caught unaware.

John Daley · Answer

Unfortunately this does seem to be the norm with wholesalers.  The problem is that the true market value can never be accurately predicted before the actual marketing and sale of the property and is, therefore, open to interpretation.  Even an official 'appraisal' can be wrong, and you will probably get as many differing appraisals as you have appraisers if they don't have a written contract as a baseline.  It's their best guess, an educated estimate and not something you can always rely on.  What this means is that an amateur or biased party can give you their opinion with a straight face and be completely convinced of what they think (or hope) is true.  And that is apart from any intentional misdirection or misinformation.

The bottom line is that unless you have a relationship with a trusted professional or wholesaler who has a track record of being 1) competent and 2) honest...do your own due diligence.  And even then, double check their numbers.  But there are a lot of people out there looking to wholesale that will waste your time using erroneous information or making erroneous interpretations of the data.

Shawn Ackerman · Answer

@Jeff Filali That's rhetorical man you know how the game goes.....You get an eager wholesaler fresh out or guru U and they just make it up as they go LOL!!!  I was there once.  Everything is buyer beware!  The problem I have as a wholesaler is my buyers don't want to do their own due diligence(many are out of state) and when I present them with an ARV they totally shoot it down without doing their own research.  Story of my life.  That's why I just tell the buyers to do their own due diligence and they typically find my numbers more conservative then theirs.

Why do people advertise ficticious, inflated ARV figures?

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