Once you have spoken to a seller on the phone and filled out your seller questionnaire, you need to do a little research to determine the property's potential value. In the real estate world, this is called a comparative market analysis (CMA) and is typically done by a realtor to determine the current market value of a property before they list it for a seller. (Doing a CMA is also commonly referred to as "pulling comps")
However, we're wholesalers, not realtors, and most of us don't have access to the MLS (multiple listings service) to pull comps. So instead, I'll show you how to use an online real estate listing website to determine what the After Repair Value (ARV) of a wholesale property will be, which is needed to help you calculate your offer.
What Is ARV? (After Repair Value)
The ARV (After Repair Value) of a property is an estimate of what a distressed home's value will be after the real estate investor has made all the needed repairs. The best way to find out a property's ARV is by comparing it to other houses nearby that have sold in the last 3 - 6 months, are similar in size and features, and have been recently updated.
Doing this will give you a good idea of what your investor should be able to sell the property for after they have renovated it, which in turn will help you determine how much to offer the seller for the property. In a later section, I'll show you how to take your ARV along with your rehab estimate and calculate your Maximum allowable offer, but for now, let's focus on determining your ARV...
Go to a real estate website such as Zillow.com, realtor.com, Redfin.com, Trulia.com, or the site of your choice. I typically use Zillow, so that's what I'll use in this example.
Type in the address of the property you're looking up and press the search button, and you'll get a property information screen that looks like this. As you can see, Zillow estimates this property to be worth $140,694, and in some cases, this might be as far as you need to go. If the property owner told you that the house needs repair and they gave you a price substantially lower than the Zillow estimate, call them back and set an appointment to see it.
If you need to dig a little deeper, let's continue...
Watch the video below, where I review how to analyze the information more closely when determining an accurate After Repair Value on your subject property.
I could go on and on about calculating a home's value using different valuation methods, but all you need is a quick and easy way to get a reasonably accurate number. Many debate the accuracy of online real estate websites; some say you need a realtor to pull comps, and others will tell you to hire a real estate appraiser to give you an exact value. Let me take a minute and tell you why I don't buy into any of it when it comes to coming up with your wholesale numbers.
First, let us address the accuracy of data from online real estate websites. Zillow, Trulia, Redfin, and all the big real estate websites pull sales data from the counties and use an AVM (automated valuation model) to develop their property value, which varies slightly from site to site. These companies spend millions of dollars trying to perfect their systems, so their data is pretty darn good. And because we're just trying to get a rough estimate of what an investor could sell it for after they renovate it, pretty darn good will do.
Secondly, unless you're married to, best friends with, or have a business partner that's a realtor, you shouldn't rely on them for pulling comps. Sure, you might talk them into doing this for you once or twice, but remember, real estate agents are commission salespeople, so they'll quickly grow tired of doing it for you unless they're being compensated somehow.
Lastly, hiring an appraiser will cost you between $300 - $400. Obviously, even the most successful wholesaler can't afford to drop that kind of money on every property they look at. The bottom line is when people start rambling on about all the ways you should determine the after-repair value on a property, remember you need a quick number to determine if the deal makes sense, so don't complicate it (it's not rocket science)