ARV?

Question

OK....so you found a great deal on a rehab...you KNOW you can do good on this one and get it for a great price.
But here's the issue, there aren't any Up To Date Flips in the area.
Yeah, there's been SIMILAR style Single Family 3/2 homes selling in the area...for X amount of money, but none of them have been renovated.

How would YOU figure out the Comp/ARV?

Thanks for your time!

Bill Gulley · Answer

Sounds like you're adjusting improvements or the figures of your subject property to be equal to comps, you never adjust the subject property.

If a similar home sold and it had a tile counter and yours has granite, add the value of the granite, labor and contractor's profit to the comp, it will bring that sold price up. Adjust the values of the comps to reflect what they would have been at if they were like the subject property. Then from those values find the most similar value, you do not simply average the comp values but look to adjustments between those comps to be most like the subject.

Older homes that are comps may also be adjusted as to depreciation for general repairs and items, the older house may have been sold with a 7 year old roof, your roof is new, you adjust the comp for the value of the newer roof.

Finding recent rehabbed properties that have sold is not at all necessary. You may never find comps and most likely, they probably would be the best comp anyway.

You can look in other neighborhoods that are similar, general price range, similar qualities as to location and as central to shopping, quality schools and overall conditions.

Google "Real estate appraisal adjustments" look for professional appraisal sites, there are forums as well where things are discussed.

Never adjust the subject property, only the comps. :)

Sean Hurwitz · Answer

Thanks Bill Gulley I'm familiar with what you are saying. I'm actually going to meet up with an Appraisernext week to learn from him a bit about all that.

Thanks for your input. I really appreciate it.

Sean

Karen Margrave · Answer

@Sean Hurwitz   Since January 1, 2014, there have been 359 houses sold in Van Nuys. It looks like many of them are built in the 50-60's. I found one that is selling for around $395 per sq. ft., 8100 sq. ft. lot, and house is 1000 sq. ft., 3/1. Listing reads: Newly Remodeled Bathrooms, with Tiled Showers, Floors, and Granite Counter tops. Brand New French Windows, Copper plumbing, Central A/C and Heating, Recessed Lighting, and Flooring throughout. Freshly Painted Interior and Exterior. Too much more to mention..(It is pending, and says there were multiple offers) Therefore; from that you can conclude that since it was remodeled it wasn't being bought for flipping but to live in or use as rental. The fact that there were multiple offers to me indicates that there are a number of people looking in that price range, for a home that is move in ready, etc. (I am a licensed agent and got this from MLS)

Here's a blog post from BP Rental Data Suggestions that you might find interesting too.

Karen Margrave · Answer

@Sean Hurwitz It's kind of like the chicken and the egg. Are buyers snapping up the properties so that they can rehab and resell, are they buying them while prices are still down to live in or keep as buy and hold rentals?

There's many things you need to look at to get some kind of idea of what is happening in the market.

One of the questions you want to answer is what is the local rental market like? Are properties priced as high as when the market crashed or are they lower? How many units are on the market for rent? How many homes in the area where you are thinking of rehabbing are for rent?

If a house is in an established neighborhood and houses aren't selling at all, that could mean a few things, one that people are holding properties until prices start appreciating enough to where they feel they can sell, rehab and sell for a higher price, or it may be such a great neighborhood that people don't want to sell, but live there. Another thing that needs to be considered are local economies, etc. (though here in so cal it's good)

An appraiser has to rely on their experience be able to look at all of the factors that drive pricing to come up with values in areas where there's no comps.

For us, when there's high demand and little supply of inventory in an area, high prices on rentals, etc. that's where new construction comes in.

Whatever you do, good luck!

Matt Araujio · Answer

I would to learn more about this topic as well. I read about this in a book on rehabbing written by one of the guys that started Keller Williams realty.

They said what Andrew Cordle did, but they also covered being the first investor to break ground in a previously "undiscovered" area, and how to consider being the first to take that leap. PM me for the title/authors because I don't want to get banned for advertising or what not.

But on a more personal note, I went through the same thing recently.

First off: I was looking at properties in my home town, a mile from where I lived for 20 years and someplace I drive past daily so I know the area extremely well. It's a little neighborhood of 3/1's built in the 40's with next to no recent sales, and even fewer renovated sales. Not because it's a rental neighborhood, but because it's such an great, quiet little area that no one sells. They're all original owners from the 40's and houses only come up when someone dies or as a short sale. And man are they dated as could be. So that really tainted my comp pool.

The house was very attractive to me, picture perfect, vacant, enough little things wrong with it to make it look like one big thing, but as simple as I could hope for with a for sale sign in the front yard. When I saw it my gut instincts were screamin "I could sell this thing for 345-350 in this neighborhood" But that's worthless with out the concrete proof to back it up, hence our dilemma.

What some guys do here are things others might find too questionable. But it's Jersey, the whole place is questionable. These are real world down and dirty "get it done" kind of tactics, that work in a pinch. But would never make it into any book or official training.

1. No comps within the past 6 months? Go back further, usually not more than a year, but if you go from 12 months with nothing, to finding a comp at 13-14 months, use it.

2. They aren't within your ideal 1/4 or 1/2 mile, widen your search. Within reason, as long the area is comparable and you don't cross "that" street, "those tracks" or the major highway that divides whatever from whatever else. Every city has some.

3.  This one may be pretty controversial, and contradictory, but if all else fails, move a mile down the road to a similar neighborhood and look there. I'm lucky enough to have isolated pockets in town that are carbon copies of each other with no real differences other than the garbage day.

I used 1 & 2 to comp my house because I had no choice. And I found a still dated carbon copy of my house in the high 340's, and a couple fully renovated in the 350's & 360's. All with an average time on market of something like 20-30 days, with the longest being 60.

But what good did it do me? Not a darn bit, the bank was stupid and decided to counter my offer with one 15 grand ABOVE their own approved short sale price... This displeased my agent who's sold many of their SS's, so she promptly went out to the farthest corner of the parking lot and said some not very nice things to them at a rather elevated volume, lol.

Scott C. · Answer

The recent home sales in the area, whether they have been renovated or not, should be your basis for your ARV. If you renovate to value above the current market, you will be holding on the home longer then you want.

Andrew Cordle · Answer

@Sean Hurwitz

Well the thing that worries me about this area that you speak of is there are no flipped ARV comps. Which in a "general term" tells me that the houses being sold there are two things:

1. Investors buying houses and keeping them as rentals.   Which would tell me that it is probably not the right area to flip in.

2. Homeowners buying houses there, but it maybe a little lower end as the buyers that are buying as retail or homeowners are OK with not rehabbed houses.

If I was looking in this area I would be looking for some hard evidence as to why I would flip there. As of right now evidence is pointing to know.

Just my 2 cents.

John Horner · Answer

There is a problem with having the nicest house on the street.  The problem is comps don't support it.  I think it depends on the area.  Here in Columbus in a $150k neighborhood with houses built in $1990 or newer, you could do very well being the nicest house on the block.  In a situation like this the houses are at an age where most have probably not been updated since they were built 15-25 year ago, but they most likely will be soon when the properties turn over.

In a $75k-$100k neighborhood, at least in my area, most of them are declining neighborhoods and people don't want to pay a premium to live in a crappy neighborhood just because the house is nice.

Hope this helps.

Andrew Cordle · Answer

@Sean Hurwitz

It depends on weather it is going to be a flip or rental.

If it is a flip, I would be a little worried because it may mean there are not a lot of retail buyers coming into that area. And more rentals are being bought there.

It could also mean that there are no flips in that area as it is a high sought after area that people are wanting to move into it. But that is not very likely but it could be the chance.

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