A Single Value does Not Make a Good Comp

one-man-stands-alone

We have a great new lead in our office for a potential deal and the word is that it’s worth $100,000 to $105,000!  Great, let’s go do the deal . . . . .

But the voice of caution and reason reaches back to all those deals that we stretched the limit and based a decision on a single, one house, comparable. So we go back to the MLS and pull comps to reevaluate.

First if you look at the photo to the bottom  4 lines you will see $62,000, $52,000, $82,900 and $107,000.  So the first reaction would be that fixer uppers are in the $50s to $80s and a nicely renovated home should sell for $107,000.  But if that was the case, then why are there three active houses in the $110k to $127 that have been on the market for a LONG time . . . . Real Estate Investors, at least this Real Estate Investor is into buy it, fix it and flip it.  NOT fix it and then pay holding costs for 6 months to a year before I get lucky and sell it to some sucker . . . I mean deserving home owner.

No, I want to have at least 3 solid sold comparables to use to establish value and a $52,000 sale price, an $82,900 sale price and a $107,000 sale price does not do well to establish value.  But that’s not the whole story on these particular comparables and I have seen this over and over and over again.

First the price ranges vary greatly because there are no cookie cutter homes, they come in all shapes and sizes in this particular subdivision.  When we run into a mish mash subdivision with all different kinds of houses, it’s really tough, usually to sell a renovated house, hence the long days on market.

Next if we look at the sold comps we see the lower priced comparables selling for cash in 10 to 20 days and mostly bank owned.  This tells me that investors like this area to buy.  And we note that these lower priced houses, pretty much are all sold.  But if we look at the actives there are a bunch of higher priced houses that have been on the market for many, many, many days . . . the are not selling much if any, and we only see one sold in the higher bracket in the past 6 months.

So when I am discussing this particular deal with my team, as the valuation expert, my expert opinion tells me this.

If we can buy this deal at a price that would allow us to wholesale it at the low end value to a landlord . . then it might be a deal.

If we want to buy it ourselves and put a few dollars into it and sell it lease to own, then it might be a deal.

But if our plan is to buy it, and fix it up right  (our main model), then it is a no deal for us.

So if you are an investor who buys in KC Suburban Acreage Estates for rentals or to sell lease to own, let me know because we might have a deal for you. . .