- Posted February 11, 2013 by
Reassess Area Selling Market
Analyze this: Before you close your property, reexamine your market area as defined by city and zip code in the immediate area. Ask yourself how much have the homes at your development gone up during the build-out? Ask for copies of the current price sheets from the builder’s model home agents. All of these latter questions are very important critical points to determine and factor into whether or not you have a buy or pass opportunity. Because if it’s not a sellable product the day after you close it, then you shouldn’t even be thinking about buying the property and signing the loan documents. If the raw data comes back, and it doesn’t look favorable upon the property (i.e., indicating that the property has actually gone up), then you’re doing a lot of wishful thinking and it’s gonna be a “would have, could have, should have”-type scenario. And if it walks like a duck, quacks like a duck, and looks like a duck, it’s a duck, meaning your intended flip is a laggard and shouldn’t be closed upon.
Several other points to consider in determining whether or not to close are as follows: First, the value of the home has gone up, but is it real? Is it possible the development you’re at has artificially been inflated in price by the builder? Or maybe that the surrounding market area of similar-sized homes doesn’t support where your home is at in price? Be aware that pricing can be very illusionary and can be like seeing a mirage. To combat “price creep”— a phenomenon wherein the developer advances the pricing on the subdivisions homes faster then the actual market appreciation—go to a free MLS, such as ZipRealty.com or Realty.com. Once there, look on the same street and/or same zip code area within a one- to three-mile radius of your subject flip, and see what similar-sized homes and age are selling at. Since a public MLS won’t show closing data, you can expect at the very least a 1 percent to 3 percent variance then the stated asking price vs. the actual closing price. This data, or “comps” as they are called, will help you make a decision on whether or not to buy or walk away from your intended flip. If you are fortunate enough to have access to actual closed comps, go to the MLS and see what has actually closed and what pending sales there are for similar homes during the past six months. Looking for closed or pending sales may require that you actually be licensed as a part of the local MLS where your flip candidate is domiciled. If not, go to the private Internet-based MLS subscription service that you’re using to market your property and ask for comps, assuming of course you’re already using the company from a pervious flip. They’re usually pretty nice about providing (92) comps, considering you’ve spent $195 to $495 for their services, which primarily consists of just uploading some listing data that takes less then thirty minutes to assemble. They’ll customarily give you a short stack of ten to twenty comps, and sometimes that’s part of their service. If you cannot attain this type of data from your subscription service, you’ll likely have to rely upon a free MLS (Ziprealty.com or Realty. com), or if you know someone that has access to a local MLS, kindly ask them.
As for your flip candidate that you’ve waited patiently upon the past several months to come to fruition, if the market price of your flip and similar properties is trending upward, downward, or hasn’t leveled off, these are factors you will want to consider before closing. And once again, this is the most important decision you’ll make because if you make a mistake, you’ll have to live with it. This is not like buying a bad sweater at Christmas and going back to Target to return it for a better-looking sweater. This is a $200,000 to $400,000 debt that is tied to your financial credit worthiness. And making that type of mistake and running arrears on this financial asset, which is a very big-ticket item, can be very serious and follow you around for several years. Remember, what goes up may usually come down! So it’s better to start sooner than later on the marketing of your newly acquired flip property. If that flip cost you $300,000, which you reasonably believe will sell for $350,000, then urgency should be your priority. Keep in mind its value may slip downward a lot
faster than when it went up. It would be tragic to see the property slip to $325,000. This usually doesn’t happen, but it just may. The point is to have a sense of urgency in what you’re doing.
Although real estate does not nearly have the same daily volatility that stocks have, remember that you’re running an operation that requires a seamless fluidity in converting your newly acquired flip into an escrow check. So be prepared to market ASAP at the time you close the property. There are many a times when I would actually go out and sign the loan docs, do my walk through on the home with the builder, have the property close the next day, and then the day after, go out to the property with my laptop and do a broadcast fax, do an e-flyer, and upload the property onto the MLS. In these several steps, I would literally have it marketed that very day or within twenty-four hours of having actually closed the property. There were even times when I received a call from escrow telling me the property had closed, and I would find myself at the home site within two hours with a lockbox and prepared to rock n’ roll.