Posted by Jim on March 14, 2005 at 16:22:54:
MAI designation is to an appraiser, what a CPA designation is to accountant.
Its a designation they receive after completing a required set of courses.
Expect to pay accordingly.
FSBO’s - Posted by Chad McCandless
Posted by Chad McCandless on March 14, 2005 at 10:44:18:
I am new to the process of buying a house. I have my own, but would like to purchase some as investment properties. I am mainly wondering what I need to have done when I buy a house that is a FSBO, to make sure that I have all of my ducks in a row. I will need to have an appraisal as well as a home inspection done. I am assuming there is some type of insurance that I can buy that will cover the home for a certain period of time after I buy the house also. Is there anything else that I need to do?
I was also planning on making a lot of offers on houses that were 10% below what they are asking for. Has anyone ever tried this with any success?
I appreciate any responses.
Thanks in advance,
Chad McCandless
Re: FSBO’s - Posted by Mike-OH
Posted by Mike-OH on March 14, 2005 at 11:22:35:
Chad,
Making offers of 10% below the asking price is financial suicide. In fact, the asking price should have absolutely nothing to do with your offer. You should make your offer based on a percentage of the market value. A common method is to determine the market value by checking comparable sales (or better yet look at dozens of houses until you can determine the market value by simply looking at the house). Then, your maximum offer should be 70% of the market value minus repair costs. So, if a house would be worth $100,000 after getting $5,000 in repairs (including new carpet, paint, etc), then you would make your maximum offer $65,000. Additionally, your offer should have nothing to do with who is selling the house (Realtor, FSBO, REO, etc.)
I’d suggest getting a course (such as Carleton Sheets) or buying some real estate investing books to get more education prior to investing.
Hope this helps.
Mike
Re: FSBO’s - Posted by Chad McCandless
Posted by Chad McCandless on March 14, 2005 at 12:01:05:
Thanks for your reply Mike. I appreciate the information that you gave me. I didn’t phrase my question correctly. I do realize that your offer should be based off of market value. It’s just that 99% of the homes in my area are being listed for market value. I also need to give you some background as to what I am going to be doing. I am not planning on buying houses that need to be fixed up. I may need to paint and replace carpet, but that is about the extent of it. I am planning on buying houses and doing lease options on them. Here is a hypothetical scenario.
Market Value $150,000
Purchase Price $135,000 (10% below market value)
I would then do a lease option on this house for 3 years. I would sell the house after 3 years for $168,000. That would be the value of the house with 4% appreciation per year for 3 years.
I would do an interest only loan on this house and with a 6% interest rate, that would put my payments at $675.00 a month. I would be able to rent this house out for $1,200 a month. Taxes would come to about $125 a month, and I would give the renters a 10% credit each month that went towards their down payment ($120 a month). That gives me roughly $250 a month in cash flow. In my lease option contract, it states that the tenant pays for repairs, so I have no other costs, except for the closing costs when I first purchase the house, which come to about $4,000.
So, best case scenario, I make $29,000 from buying and selling the house (buy house for $135,000, sell house for $168,000 and subtract $4,000 for closing costs). I make another $12,000 from 3 years of rental income, for a total of $41,000. Worste case scenario, I lose everything and have to beg for food. Even if I only made $15,000, I would consider it a success.
The reason I want to buy the house for 10% below market value is because I believe I can find 5 houses for this price before I can find one for 30% below market value, and the reason that I am wondering about FSBO’s is because I think it will be easier to find a house for 10% below market value this way because there is not the 7% real estate agent fee that needs to be paid.
With that in mind, does anyone have any advice for me?
Thanks in advance,
Chad McCandless
Re: FSBO’s - Posted by dealmaker
Posted by dealmaker on March 14, 2005 at 13:01:25:
Let me weigh in a bit here. You may not like what I have to say, but there are lots of folks who’ll tell you all things are possible, and many are. Then again nothing is difficult for the guy that’s not doing it. I’ve been doing this for 25+ years and here’s some things I’ve learned:
- FSBOs aren’t necessarily cheaper than MLS houses. The seller wants to save the 6% and so does the buyer. You can’t both get it. FSBO’s usually price their houses too high to start with because there’s no GOOD AGENT pouring cold water on their (inflated) expectations. In fact all else equal I’ll buy a listed house over an equal FSBO, any day.
2.In my world a $150K house, that rents for $1200/month is a LOSER.
-
You seem to be overlooking the “opportunity cost” of your DOWN PAYMENT, closing costs, vacancies, insurance, and the (probably $5K) cost of paint and carpet.
-
Your lease says tenant pays for repairs. Good luck collecting that. In fact in many jurisdictions charging a tenant for repairs beyond normal wear and tear isn’t permitted. And trust me, if it comes to a big money repair, the tenant will discover this, and walk on the place as he has no incentive to stay.
-
Man oh man! $150K house with PPTY taxes of only $1500/year, cool!
Try one for a year, see how it works out before you bite off another. I don’t mean to rain on your parade. As the expression goes “been near there, done something similar”. Let us know how it works.
dealmaker
Thanks Dealmaker - Posted by Chad McCandless
Posted by Chad McCandless on March 14, 2005 at 13:24:08:
Thanks for your input Dealmaker. I appreciate any inforamtion I can receive. These numbers that I’m using are not pulled from thin air, I know several people in my neighborhood who are doing deals very similar to the one I described.
I will take your advice and try one for a while before I jump into it head first.
I am not opposed to buying a house that is listed. I am currently making offers on houses through agents right now. I am not looking at any FSBO’s, but I would like to.
My main question is what do I need to do if I come across a FSBO that I would like to buy. Is there anything else that I need besides an appraisal, home inspection, and insurance to make sure that I am covering my neck?
Re: Thanks Dealmaker - Posted by Mark-Chgo
Posted by Mark-Chgo on March 14, 2005 at 14:56:03:
Chad,
Your lender will most likely be the one to order the appraisal. However, you do need to get CLOSED comparables before making any offers. Do not use the asking price as a guide. Getting 10% off something which is 20% overpriced is no bargain and, despite your belief that 99% are listed right at market price, sold properties are the best guide to what the real market value is.
Dealmaker is very correct in explaining that FSBOs notoriously overprice their properties. I deal with owners every day that believe their castle is worth much more than the identical property right next door. Don’t buy into it.
Mark
Re: Thanks Dealmaker - Posted by del-ohio
Posted by del-ohio on March 14, 2005 at 14:46:40:
The one thing I would mention re: the apprasial if you buy fsbo.
Apprasials while valuable can easily be inflated by 10%. I assume will hire your own appraiser and not use the apprasial from the FSBO home owner.
I would also suggest that you have a realtor run comps and do your homework especially considering the slim margin that you are working with.
Have you noticed how apprasial prices tend to always come in at asking price if the asking price is “in the ballpark”.
We had an apprasial done on a house before we listed it, it came back at 103,000. We had put a lot of money into it and wanted more. We put it on the market for 105,000. We got a contract on it for 114,500 in under 30 days. The buyers bank ordered their own apprasial, we just got it back, guess what it appraised for, 114,500.
All the best to you
Del-ohio
Re: Thanks Dealmaker - Posted by Jeanette
Posted by Jeanette on March 14, 2005 at 15:33:14:
I am so encouraged to hear your story. I am trying to get an appraisel now, before I sell. The appraisels are coming in way below what I believe the house is worth. The apraisers are using comps that are lower than ones I can get. I know it sounds like I am not in touch with reality, but the appraisers are comparing my home to those in areas less desirable. When I questioned the appraiser regarding why certain things were not taken into account-like-my home is on a corner lot, has more land (comparable square footage), has a wall … and I can go on and on, there was always a reason as to why my home was not as valuable, and the appraiser would contratdict himself - like one house appraised for more because it had a bigger lot-when I asked about a house that appraised for more, but was on a smaller lot I was told that property did not matter. I don’t know this business, obviously, because this is not what I do. But, my question is, how do you get an honest appraisel? My home is surrounded by million dollar homes, is in mint condition, and I cannot get an appraisal that I believe is fair. I also had an appraiser ask me if my granite slab counter top in the kitchen was ceramic! How do you get a good appraiser. Thanks.
Re: Thanks Dealmaker - Posted by Dave T
Posted by Dave T on March 16, 2005 at 19:26:00:
I try to give the appraiser suggestions for his comparables. I find sold properties similar to mine, nearby, and in the same price range. Has not failed me yet.
Re: Thanks Dealmaker - Posted by Tom Kirby (p.a)
Posted by Tom Kirby (p.a) on March 15, 2005 at 05:02:08:
Jeanette, I had to have my house appraised for my HELOC. I figured about 230,000, it came in at 187,000.
I live in a rural town on a farm so the appraiser took comps from as far away as 15 miles.
Any how, I called up my realtor that sold us the house and asked her to get me some comps and made another appointment with the appraiser. One of the comps I gave him showed a piece of property that sold for 275,000 that was 8 miles away from me. That raw land was the same acreage as mine. So what do you know! my house appraised at 250,000!
Tom
Re: Thanks Dealmaker - Posted by Natalie-VA
Posted by Natalie-VA on March 14, 2005 at 18:20:43:
You’ve gotten some good advice, especially about asking some local agents for price opinions.
Don’t get so hung up on your appraisal. The only appraisal that matters is the one done by the buyer’s lender. The lender probably won’t accept yours.
Re: Appraisal - Posted by Mark-Chgo
Posted by Mark-Chgo on March 14, 2005 at 17:29:58:
If you’re only getting an appraisal to find out where to price your house, why the concern about it? You can price the home at whatever amount you want. If you need the appraisal to be higher for some reason and you say you can get higher comps, have them ready for the appraiser and give them to him. Most will usually use them, if they’re reasonable comps, as it saves them some work.
Re: Thanks Dealmaker - Posted by del-ohio
Posted by del-ohio on March 14, 2005 at 16:11:10:
How to get a good appraiser you ask… from the article in the local paper recently I understand they can be bought.
I would not advise that however: - ) the people who did that got hit with some prison time. If the appraisers you hired were from the local area you could hire one from outside the immediate area. That appraiser may have a different take or viewpoint, look at different houses for comps.
The other thing to do is get three realtors who work the area to give you a market analysis. Then ask them what they would list your house for, and what they would expect to sell it for in 60 days or less. Dont suggest any amount, pretend you dont know the value but ask them how they determine the value. Ask questions and listen.
If they are in line with each other and in line with the apprasials then you pretty much have to assume that is they value everyone else sees in your house and is most likely what you will be able to get for it.
If the realtors are significantly above your apprasial then keep working on the appraisors.
I had a house in a small town comps aree not too plentiful. I reviewed some comps, expected to sell the house for 69,000. The realtor who I was planning on listing it with told me she couldlist the house for 69,000 but would expect to get 60,000-65,000. I didnt like those numbers so I asked another realtor and she said she would list it for 82,000 and would expect to sell it for 79,000.
We listed with the latter and ended up selling the house for 76,000. I was glad I got a couple opinions.
And guess what the apprasial came in at from the buyers bank, yep 76,000.
Another option that you have is to list it for what you think is FMV, see if you get a buyer for that, and then hope the buyers appraiser comes in at the contract price.
Something else to consider is that a LOT of people tend to look at a house when it FIRST goes on the market. If it is priced to high and sits there for a while it tends to become more difficult to sell and many times you have to take a significant reduction to get people interested again.
My experience and things to think about.
Del-Ohio
Re: Thanks Dealmaker - Posted by Brent_IL
Posted by Brent_IL on March 14, 2005 at 15:52:11:
Consider getting a MAI appraisal. They are much more expensive than mortgage-broker type appraisers, but they can find ways to validate your estimate that others can not. If you are surrounded by million-dollar homes, their fee will be more than covered by the increase in appraised value.
Re: Thanks Dealmaker - Posted by Jeanette
Posted by Jeanette on March 14, 2005 at 16:10:41:
Thank you so much, Brent, but I don’t know what that is. What is an MAI
appraisel and how do I find a person to do the MAI appraisel? Is this appraisel
recognized and can it be underwritten? Thanks again, you have given me hope.
-Jeanette