A NEW WAY TO VALUE REAL ESTATE
Awhile back I was working with a customer on the purchase of a short sale. It was on acreage but was only an unfinished shell. The slab, concrete block walls, and the roof were complete. None of the interior framing had been started. A property such as this can be difficult to value.
Obviously, there is the value of the land, plus the value of the unfinished structure. There are many considerations including risk - risk that the vandals that broke out the glass block windows dumped sand, rocks, glass, metal etc. down the uncapped pvc plumbing. What is the ARV (After Repair Value)? One way to look at the value is the ARV minus the cost to complete. We had to consider depreciation. It would take quite a bit of work to check on permits and get estimates to complete the project. Very few buyers would have the desire and/or the resources to buy a property such as this.
I also relied on my years of experience in dealing with loss mitigators and asset managers and knowing how they look at things. A previous financed buyer had fallen out for an unknown reason. The Property Appraiser's Office had seriously dropped the assessed value of the land. Surrounding properties varied from 1200 LSF homes to 4000+ LSF homes.
I wrote up an offer on this unique piece of property. The listing agent said the seller rejected the offer. There were several reasons, but the major one was price. The minor one was financing - they wanted a cash offer as the previous financed deal fell through. Changing from financed to cash was no problem - the buyer just preferred to use as much financed funds as possible for the purchase as this was going to cost as much as $180K to complete. Cash was no problem. The buyers were somewhat put off that no counter offer was made. Another minor issue was the sellers did not want to take the property off the market with such a "low" offer. They wanted to be able to market and show the bank multiple offers. Good luck with that...
The remaining issue was price. I asked the listing agent what comparable sales (comps) were used or what valuation method was used. He said the property was too unique to have any comps. A previous offer had been accepted by the foreclosing lender - but the buyers failed to get their financing and had to drop out. The current asking price was based on what the bank said they would accept without any further negotiation. In other words, the price that a loss mitigator and a list agent and the sellers agreed to. But - and it is a big but - the buyers could not or would not perform. To me, or a foreclosing bank, or a bank that owns the property - an offer that fails is worth nothing.
Why would I ever advise my customer to make an offer based on what a foreclosing bank wants? The bank does not have a clue of the value of the property. If the list agent cannot give me a number or something other than what the bank said they will take, then they have no clue what the value is. I know exactly what the value is, and it was about what we offered. Next week it will be less.
There was also another lien (construction of course) that would be left for the BUYER to negotiate. The seller and/or their agent would not clear this up. I do not mind doing this at all; I have done it before and it is no big deal. But that is a lien on title that must be taken care of. Plus, the foreclosing bank named the lien holder as a co-defendant. They might even try to dictate the price that the other lien holder would get.
Are you seeing a pattern?
I don't want to have to negotiate with the bank. That requires work.
I don't know what the value is but here is what we will take. A CMA or BPO would take work.
I don't want to write up a counter offer. That requires work.
I want to leave the property open to offers so I can shop your contract and get both sides of the commission. I get twice the pay for the same amount of work.
I don't want to negotiate the construction lien because that would require work.
If a Realtor or agent is going to take on the responsibility of a short sale, they must do the work. If you don't want to do them, then don't take them on because they require WORK.
I have little confidence in this agent's ability and desire to complete this transaction. We found another property that is similar (there's your easy comp) and they are asking much less. If we do go after the original one, I will likely help my customers buy the note from the bank and negotiate the construction lien to a price that is a win for all involved. Or, we will just wait for the Sheriff's Auction.
The point of this is not to be negative. It is a warning to sellers to carefully pick who will do their short sale. It is also a caution to buyers how you can waste your time. Ask for proof of how your agent determines value. Their job is not to SELL to you, it is to advise and guide you.
