Evaluating the Value of a House When the Comps Are All Over the Place
From Tom Nardone, Millionaire Mailman …
I recently got a call from a seller in Key Largo… She said she wanted to get $250K for her house. She said there were houses on the next block from her that were selling for more than a million dollars!
BTW - If you have never been to the Florida Keys, go there, its paradise!
I look for excuses to go the Keys whenever I can to make offers on houses. The coconut trees and Pina Coladas and 80 degree weather in January are all awesome! I can just hear beach music playing in my head… ah…so nice.
But I digress…
Back to business…
So, living just 90 minutes from Key Largo, I figured I would go for a few hours and meet the sellers and see what’s biting. (Wink wink, that’s a fishing term.)
Perhaps you might live in an area similar to Florida where there are radical swings in value within a very, very short distance. The swings in value can be from houses on the ocean, intercostal, lake, golf course, navigable water, near a theme park, ski resort, golf memberships, historical value, etc., etc.
You first have to determine the amenities of your subject property.
- Is it on water?
- Is it a dry lot?
- Is it directly on a golf course?
- Or is it just in a golf community?
In the case of the Key Largo house, the million-dollar sales were, of course, directly on the ocean.
Other houses more than a million bucks were on canals that had navigable water with ocean access.
My subject property was a dry lot… and old house built in the 1960's.
Do your research
It’s important to note that for the most part, you can do all your research in advance of meeting the seller as all the information you need is on the internet.
Before I left my house, I printed out the solds and the active MLS listings and made sure I knew whether the property was waterfront or dry lot, and the square feet.
The main reason I went to see the house was because I liked the motivation of the seller.
The sellers lost their jobs, the property was run down, and they had no money to fix the house. The house had 75% equity.
The sellers were in their late 50s, and didn’t use fax or email. They are very “old school.” So I thought a face-to-face meeting would help me to relate better to them.
I got to the neighborhood about 45 minutes early and drove the solds and the actives for sale.
I quickly realized that there were a few investor purchases on dry lots that were in the 150K range.
I stopped by those houses and met the investors fixing up the house and saw the condition of property and what they paid for it, and talked shop with them about what they can sell it for.
Information like this is huge
It really pays to do your due diligence when looking at a surrounding neighborhood to determine value.
I realized I would have to offer about 156K after seeing the inside of the subject property, which needed to be gutted and would be about a 40K rehab.
The ARV on the house would be about $225 to $250K when done.
So I went in and sat at the kitchen table and made the offer of 156K.
The sellers are actually talking it over as I write this.
So the lesson of this post is if you have a lead in an area with radical price swings, you MUST pull your information before you go and eliminate the obvious reasons for high closed sales .
Have those print-outs in hand as you drive the neighborhood.
Get out and look in the windows of vacant comps if you have to, talk to other rehabbers in the area when you spot a rehab going on, and use this time to ALSO drive for dollars while you are out there!
Enjoy The Journey!
Talk to Me…
Had a similar situation happen to you? I wanna hear about it in the comments section below.