Finding properties with defects is one of the three essential elements of profitable lead generation. These deficiencies are usually due to occurrences by nature, homeowner delinquency or neglect. Once these issues are noted these defects will influence market value and condition adjustments are made downward on price. This process is crucial especially in markets where property values are increasing and a seller markets are reluctant to offer discounts. The other two factors are just as important which include an understanding of how residential real estate properties are valued and how condition adjustments are applied. I am often asked “How do you acquire properties Below Market Value”? The odds you will obtain Below Market Pricing (BMP) is extremely low if you cannot target properties with defects and sellers that are motivated.
The Obvious Secret to Below Market Pricing
Market value is determined by a special set of criteria. Verbiage may differ between agencies but the definitions are virtually the same. The Appraisal Institute, Fannie Mae (FNMA), The Uniform Standards of Professional Appraisal Practice (USPAP) or even Wikipedia all give similar definitions of market value.
Fannie Mae B4-1.1-01: Definition of Market Value
Market value is the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus.
Fair market value (FMV) is an estimate of the market value of a property, based on what a knowledgeable, willing, and “unpressured” buyer would probably pay to a knowledgeable, willing, and “unpressured” seller in the market.
Typically all transactions must be in cash and both parties must be competent and of sound mind when entering into the contract. I will not discuss these two guidelines with the assumption that the bank and the negotiator both agree on these two principles. Fannie Mae and Wikipedia’s definitions are similar but the two similar words I would like to focus on is “stress” and “unpressured”. Most of the leads generated in the 7D Theory do not meet this definition because most of the clients have some sort of negative persuasion, to sell.
Home owners that are in debt and under water on their mortgage are under influence to act or they will be foreclosed on. The bank is not receiving their monthly payment is under stress to coerce the delinquent home owner to pay or reclaim the property. According to the principle of substitution, that a prudent buyer or investor will pay no more for a property than the cost of acquiring, through purchase or construction, an equally desirable alternative property. The key to this process is understanding that in order to determine value ALL these guidelines must be met. I want to be very clear. If these conditions cannot be met in total then THERE IS NO MARKET VALUE! If there is not market value the property’s worth reverts back to WHATEVER YOU CAN NEGOTIATE. Generally, 7D Theory properties also contain defects so condition adjustments will be made downward on price.
Executing this process in market makes the 7D Lead generation lead system very valuable. The level of research my team conducts on leads for our buyer/investors contain all the essential elements discussed above. Every lead is researched and scrubbed from each category to make sure the properties have characteristics and amenities that are desirable to end user owner occupants. These homes are located in desirable areas that also include; good schools, employment centers, parks, shopping, retail, restaurants, entertainment and service facilities. Contact information for the distressed home owner is verified. As well as psycho-graphic information which is a profile on the distressed home owner to identify the likelihood they will participate in our program and with our buyer network.