How To Determine The After Repair Value                                        BACK TO ARTICLES

The foundation of your deal is the After Repair Value, also known as the ARV.  

The ARV is the single most important number in your formula, as it is the basis from which your offer is determined. Therefore, it is critical to be able to determine the ARV of any property accurately. 

Here are some fast ways to get this done.  
  
 1. Hire an appraiser - A full blown appraisal costs about $275 to $300 for a typical single family residence. But, this is a small amount to pay in comparison to making a $10,000 mistake if you don't know how to arrive at a property value on your own. 
Email me at drobinson@reihelp.com if you need a referral to a competent, professional appraiser. 

A second option for appraisal is to have the appraiser do what is known as a "pencil search". These are used by investors who need to value lots of properties without spending lots of money. 

A pencil search is not a full appraisal, but is the appraisers estimate of value based on a quick check of recent sales of similar properties in the immediate area.  The estimate will be expressed in a range, such as $125,000 - $130,000.  These types of estimates only cost about $50.   

While this is not exact, you will get data on comparable properties with addresses, sales prices and square footage.  I take the sales price for each property listed and divide by the stated square footage to come up with a "dollars per square foot" average.

 Then I take the square footage of my subject property and multiply that by the dollars per square foot average from the pencil search. This total will usually be accurate enough to use for evaluating the property and making an offer.  It will usually be right in the value range as stated in the pencil search. 

The most common way to determine ARV: 

Comparable Market Analysis, (CMA) is the most commonly used way to determine your ARV. This is the method most used by real estate sales agents to figure out how much to list a property for.  An agent can do a comparable market analysis for you, but you should plan to pay them a small fee for this service, unless they are earning a commission on the deal.  

You simply locate all of the recent sales in the immediate area of your subject property. If the property you are evaluating is a brick ranch that has 3 bedrooms, 2 baths, a garage and a basement, then your recent sales should have as many of these same features as possible. 

You are looking for consistency. In most suburban neighborhoods, you will find that similar properties sell in a price range that does not vary too much.  In many suburban Atlanta neighborhoods, prices will only vary by a few thousand dollars each, as the houses were all built at the same time and are very similar in style and size. 

You can find recent sales on the internet for free by checking sites such as www.domania.com
You can also go to your local courthouse, but the internet is much faster. If it's worth it to you to
spend a few bucks to have this info delivered to your office or home every month, 
you can subscribe to tax data services such as Map Merge, Win 2 Data or Criss Cross. All of these software packages include comparable sales data and make searching very easy. This data  is essential for those who are full time investors. 

The cost varies by product and the number of counties you want data for. 
Each product has it's own special features and functions. The best way to
try them all for free is at a local investor club that provides access.  GAREIA  provides access to these packages for free if you are a member. Overall, Win 2 Data is my favorite, but all 3 have strong
features. 

It's a bit more tricky to value properties inside older, inner city areas. Prior to the early 1950's, every house was different. Older neighborhoods inside cities like Atlanta, Decatur, and Marietta, that were built prior to world war II have styles and sizes that vary considerably.  Older neighborhoods like this exist in practically every metro Atlanta city, from Woodstock to College Park, to Stone Mountain Village. But the highest concentration of them is located inside I-285 in Atlanta.  

Values can chance significantly from block to block when you are working inside some areas of I-285. 

One of the most common mistakes I see is people who pull comps from an area that is not considered to be part of the neighborhood where the subject property is located.  

In the burbs, this does not happen that often, but inside the city of Atlanta, one side of the street may be in Grant Park, while the other side of the same street is considered to be a totally different area. You really have to watch the location of your comps when doing business in south Fulton and Dekalb. 

Virtually any major city will have this issue. Some inner city neighborhoods are in demand with high prices and some are not. And those two neighborhoods can be virtually side by side. 

 If you are not very familiar with your market, it is a good idea to drive by the recently sold houses to see how they look in comparison with your subject property. Houses can seem to be the same on paper, but have large price differences because one was kept in perfect condition while another one was in poor condition.

You also want to verify that those recent sales are actually in the neighborhood where your subject property is located.  

This may sound complicated if you are just getting started, but really it is just a matter of time and experience. Once you get to know your area well, you will find that you can determine property values fairly quickly and easily. It is a matter of knowing your market and knowing what things are selling for in that area.  
 
 Comparable Market Analysis is part of the course I
developed to train property locators for one of 
Atlanta, Georgia's largest wholesaling companies. 

The course includes detailed information on how to do a comparable market analysis; evaluate leads accurately and quickly; how to determine your offer price and how to write an offer. 
It includes 3 hours of CD audio to walk you through the manual page by page, and help you get
started quickly.  

Click Here To Check Out The Course.  

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 Financing Is Your Key To Success...

One of the most important, yet often overlooked areas of real estate is the financing. It's funny, but most people find a house they want to buy, make an offer, and only then do they start the process of applying for a loan.  

This should be the other way around. Your financing should be the first order of business. Whether you are buying your own house, or an investment property, it makes no sense to make an offer on a house and then spend weeks jumping through hoops to find out if you can get the money to buy it.  

Plus, having your financing pre-approved gives you a big edge on competing buyers who have no proof of funding. When you submit an offer to a seller, and you can include proof of funding with that offer, the seller will pay a lot more attention. Sellers don't want to refuse offers from buyers who already have their financing in place.  

With financing contingencies out of the way, the seller only has to decide whether or not they want to accept the price you offered. When working with foreclosures and REO properties, this is a huge advantage. 

Most investors don't think of this, but having pre-approved financing in place can also give you the advantage when negotiating a creative deal where you are asking the seller to take back a second mortgage for the down payment.  Plus, knowing your actual financing costs when making your offer is crucial to investment property deals, as your cash flow predictions will be more accurate. 

Pre-approval can save you thousands of dollars. Even though your offer is lower than a competing offer, many sellers would rather accept $10,000 less from a buyer who can close, and not risk waiting for weeks only to find out that the buyer can't qualify. 

I know from personal experience how much of an advantage it is to be able to show that you can close. Pre-approved buyers are like gold compared to those buyers who don't have their funding in place.  

But, there are many, many issues involved in real estate financing. It is not easy to understand all of the rules of this game. And, it is important that you know enough about financing to talk intelligently to lenders.  Finding the right lender can make or break your deal.  

But it helps to know how the lending game is played, so that you can save yourself thousands of dollars in fees and costs associated with mortgages. 

I recently found an e-book that provides a lot of insight into negotiating loans so that you are at an advantage when talking to lenders.  This book can help you understand the process so that you can save on financing costs, and shop for the best loans.  

There are very few books available on this topic. Most real estate books and courses don't even address the topic of mortgage financing at all. I would highly recommend this e-book to anyone who wants to gain insight and understanding into the mortgage financing business and save thousands of dollars in the process.  

Click Here If you want to check it out. 

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I am looking for your questions. If you have a topic 
that has been burning in your mind, and you would like
 an answer, email me and I will try to address your 
question in the newsletter. As long as time permits, 
I always try to answer all of your email questions.

send them to drobinson@reihelp.com

Donna Robinson is also available for consulting and 
deal evaluation.

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