Your job is to be as thorough and unemotional as you can be when assessing a property. If you can, find out why the property is in foreclosure and make a list of everything good and bad about it and you’ll be better prepared to bid. If you really take your time and make this list you might save yourself from buying a liability. Making the effort to do this may point out repairs and other issues that could cost you more money than you would like to spend, so always do your research.
You must assess the risk and determine fair market value. About 99% of the time the County Appraiser will have placed a value on the property. The County Appraisers can be overly optimistic sometimes, so hiring an Independent Appraiser or Inspector for a second opinion may be a good idea, especially if you’re not there locally to check out the properties. This is all part of assessing the risk and trying to determine fair market value. It is also a good idea to have somebody on the ground that you can trust if you are purchasing properties outside of your immediate area. This can be a family member, friend, or another real estate investor. Typically it is not a good idea to take your final advice from a commissioned salesperson, as they are concerned with putting their commission check in their pocket, and may not necessarily have your best interests in mind.
Let’s expand for a moment on the concept of “Fair Market Value”. Fair to who? Buyers want deep discounts and sellers want maximum profits. “Fair Market Value” is an opinion easily manipulated by either party with competing interests. Being able to determine Property Value is the foundation for all successful Real Estate Investments. Knowing what elements property Appraisers, Realtors and Bankers look at for true home value is crucial.
Here are some attempted closing statements you may hear from yourself or others as you are looking for investment properties:
- “This price is a no brainer!”
- “You are walking into a ton of equity!”
- “This price has been reduced off the recent appraisal by $50,000 bucks.”
- “This property is already well below all the other active listings in the area. It must be a deal.”
- “This property won’t last long at this price.”
- “My Agent has done a Comparative Market Analysis and I am selling well below his/her expert opinion. My Agent has been in the business 30 years, a top producer, Nobel Peace Prize recipient…”
All of these statements may be true of the property you are targeting, but you must know for yourself. Could a licensed, seasoned Real Estate Agent or Appraiser be wrong? If they are wrong in their opinion of market value is that a risk you are willing to take?