Whether you are an experienced investor or just a beginner, again beware of the guru who read a couple of books and armed themselves with some general information. I am not talking about the book and tape salesperson – I am talking about the realtor, wholesaler or self proclaimed real estate specialist who is trying to sell you an investment property. When you buy a property you do your homework, so before you do business with somebody do your homework.
In our last article, we touched on why you should beware of the “Real Estate Evangelists”. In this article, we’ll offer some questions you should ask any realtor, wholesaler or self proclaimed real estate specialist before working with them.
1) Are you, yourself, an investor and how many properties do you own in the local area?
If they answer “none” or say they just rent an apartment, run!
Watch out for the slick book and tape sales people who don’t own any investment property and know nothing about the local market. They will take your money and run. I met a new investor last year who had paid over $5,000 to attend a two day seminar taught by a guy out of California who knew nothing about the Atlanta market. Nothing good can come of that. Deal with locals who not only know the concepts but can help you find the right properties to invest in.
2) Can you provide me with a list of bank owned properties in my area?
If they can’t provide this, run!
If they can provide you a list, pick a property on it and ask this next set of questions.
3) What’s its tax value?
This is a “DUH” question – if the Realtor or Investment Specialist can not give you the assessed value of a property, they need change careers. You would be surprised by the numbers of “PRO’S” that don’t even know where to start to look for that information.
Generally, the tax value or the accessed value put on a property in Georgia is typically 10 to 20 percent below the market value. When I start my search for possible deals, the first thing I look for is properties priced below the accessed value of the property.
List Price is $200,000
Accessed Value is $220,000
This might be a possibility because I estimate the Retail Value of the house to be 10% higher than the Accessed Value or $242,000.
Just reverse #1 – list price is $220,000
Accessed Value is $200,000
I probably would not consider this house because I estimate the Retail Value of the house to be $220,000 – no deal here!
Remember tax value is only one of the factors you should consider before buying a house but I consider it a good starting point. If someone is trying to sell you a property and they can’t provide tax value, it could be they don’t want you to know.
4) Can you give me a list of comparables in the area?
Another “DUH” question. Most Realtors can pull a Comparative Market Analysis (CMA) which will show the sales history for the past year to include the following categories: Sold, Expired, Under Contract, and Active Listing. Additionally, the Realtor should be able to provide a Area Market Analysis (AMS) which will provide the average Days On Market by category.
5) How many days has this property been on market (referred to as Days On Market DOM)?
If their reply is I don’t have access to that information – run. Any Realtor should know that information is available but finding it is the trick. Keep in mind the length of time the property has been on the market does not coincide with the foreclosure date. It could take 30 to 60 days after a property has foreclosed to get it listed with a realtor and into the MLS.
Why are days on market important? The longer the property has been on the market – the more flexible the seller. Banks and other financial institutions are not in the property management business. Everyday expenses include loss of income, maintenance, insurance, and possible vandalism. I like to submit low offers on properties that have been on the banks books for over 4 months. Offer cash with a quick closing – you will be surprised how flexible the banks will become considering it may be the only offer they have received on the property.
6) How much did the property sell for at foreclosure and what month and year did the property foreclose.
Once again, if the Realtor or investment specialist does not know this information – run. When you know this information you have a starting point for what the bank or financial institution holding the property may take for the property. Even though the property may be listed for more than the bank took the property back for, your first offer should be at or below the foreclosure amount. When you make an offer, the bank has three choices – accept, reject, or counter. The foreclosure date reflects the length of time the bank has had the property on its books which may be much longer than the days the property has been listed in MLS.
7) What will the property appraise for?
It’s a trick question, actually. The correct answer is “Ask an Appraiser”.
8) What is a HUD Property and where do I find a list of HUD properties?
A HUD property is a foreclosed property that had an FHA Loan. The website for HUD properties is www.HUDhomestore.com.
9) How is the listing price for a property determined?
HUD properties are appraised by a licensed appraiser to determine the listing price. The listing price for all other Bank Owned and Foreclosed Properties is determined by a Brokers Price Opinion (BPO) . A BPO is a mini appraisal is performed by an individual who almost always is NOT an appraiser.
10) How many properties did you sell in the past year?
Only you can determine what is a good answer but if the answer is less than ten – run!
Asking these questions will allow you to quickly identify who understands the business and who is merely trying to make a quick buck off inexperienced investors.