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Driving Your Comps

September 15, 2018 / Comments (0)

What you see on paper when compiling comparable sales information is only part of the story. In order to really understand the figures, you should see the houses you are comparing to your subject property. When your comps are SOLD houses, the chances are you won’t be able to see the insides, but you can still tell a lot just by looking. This one is higher-priced because it has a new roof, and the landscaping is beautiful. That one is lower because the houses on either side are wrecks, and it needs work also.

On the other hand, you might be able to get a look at the insides. At least, you should try. Go up to each house and knock on the door. When the person answers, say these words to whomever answers, male or female: “Hi, my name is <your name> and my family and I are thinking about buying a house in the neighborhood. My real estate agent told me that you just bought your house. Would you mind if I asked a few questions?”

Most people will be willing to talk to you. Why not? You might be a new neighbor!

Here are the questions to ask, and why to ask them:

  • Is this a safe neighborhood for young families, children and older people?

You want to get a feel for how secure the neighborhood is. Always remember that just because you don’t feel it’s safe doesn’t mean the people who live there feel the same way. Never assume anything in real estate, and don’t let your personal biases affect your decisions.

  • Have you found anything negative about the neighborhood that you weren’t aware of before you moved in?

You want to find out what isn’t being talked about by your real estate agent or by the seller of your subject property. Are there noisy neighbors a bully on the block or drug dealers hanging out on the corner…? Do they now think they paid too much?

  • Was there a lot of work done by the seller on the house, which was included in the sale price?

This will tell you who financed any needed repairs, which will directly affect your estimate of Worth Value. If the $185,000 they paid for the house included $35,000 of repairs done by the seller, the actual Worth Value of the comp is $150,000, which changes the calculation of the Worth Value of your subject house.

  • What about this house made you buy it?

You want to know this because it will tell you what buyers are looking for and why this house stood out. Maybe your subject property has some of the same features, and you can push those when you turn it around and want to sell it. You may want to up your Worth Value a bit on your subject property if it includes these desirable features.

  • Do you know of anyone looking to sell their house now?

This will give you free leads to call on. Don’t assume that because they are new to the neighborhood they haven’t had a chance to meet people. You can only gain from asking this question.

Naturally, if they offer to show you around the house, take them up on it. Be ready to write information down about the house. And if there are exceptional items that were included in the purchase price, like a beautiful new kitchen or beautifully landscaped backyard, ask to take a few pictures. This is so that when you’re on your purchase presentation and the sellers says their house is just as nice as that one, you then can show them the indisputable difference.

When you do look around, make mental notes of the same kinds of things you will do in any home inspection (later in this book we will go over this in more detail) and write down your notes afterwards. They will come in very handy later as you prepare to make an offer to the seller of your subject property.

While looking around, ask them if the house was in “this” (its current) condition when they purchased. You will want to know what new repairs or rehab work the new owners have done since they purchased the property so that you don’t take those items into consideration when comparing values.

When you are done, thank them; and try to “leave the door open” in case you have more questions later. Ask them if it is okay for you to drop by or call them in the next few days if you think of more questions that could help you make your decision on whether or not to buy.

Driving through a neighborhood to look at your three comps may take an hour, or more if you get a chance to talk to the new owners, but it is time well spent because you should be able to refine your Worth Value to a pretty close figure.

When you go in for the actual deal, you want all the ammunition you can get. You want to be able to explain the figures to the seller using concrete examples of other similar houses. You want to not only appear knowledgeable, but to be knowledgeable.

This leads us to the next two or three houses.

The next set of houses which you will be visiting. As I stated earlier, you will only use “SOLD” and possibly “Sale Pended” as comparables, however you will want a reasonable knowledge of the houses in the area that the sellers are basing their information on. You’ll gather this knowledge by viewing the two or three active “For Sale” houses within your search criteria.

Where this step fits in is up to you, but you should do it sometime in the process of preparing to buy your subject property. The purpose of this step is to take a look at some of the other properties for sale in the neighborhood you are buying in. The reason this is important is to get a feel for your competition as well as to get a feel for the demographics of the neighborhood. What is an acceptable level of maintenance, home improvement, landscaping, etc. in this neighborhood?

Call your real estate agent and make an appointment to see two or three listed houses that are based loosely on the same guidelines as your comp properties, but not necessarily as strict. Ask for houses as near (distance-wise) to your subject property as possible, even if they are not the closest fits to your comp guidelines. You will not be using these houses to help build a Worth Value on your subject property.

If you don’t want to waste your agent’s time, just ask him if you can call and make the appointments with the listing offices yourself under his name. If that’s okay, call the listing office and make an appointment so that the seller will be there to open and show their house. You will be able to find the listing office’s phone number from the For Sale sign posted on the property or from the MLS listing.

You can also bypass the agent altogether and just go knock on the door of the listed houses, but you will be much more successful and efficient by consulting with the agent and making appointments.

Also, while touring the neighborhood if you see a FSBO (For Sale by Owner) sign, by all means go knock on the door and ask to preview the house. When previewing the house, besides price and condition, you will be looking for both motivation of the seller and whether their house fits inside of your business model. It is perfectly acceptable to say to them that you are buying a home in the area and try and buy their house too.

Word of caution: no matter what you do, it is extremely important not to be late to the appointment that you have scheduled. The only time you should consider being late or missing your appointment is if you can purchase this FSBO now at the price point that fits your business model. If a seller wants to sign a contract, by all means put them under contract. This is a good reason to carry multiple purchase agreements with you. I always do.

Again, most people will be willing to talk to you. So you are going to ask the sellers of the “Active” houses that are for sale a few questions.

Here are the questions to ask, and why to ask them:

  • Is this a safe neighborhood for young families, children and older people?

You want to get a feel for how secure the neighborhood is. Always remember that just because you don’t feel it’s safe doesn’t mean the people who live there feel the same way. Never assume anything in real estate, and don’t let your personal biases affect your decisions.

  • Has the neighborhood changed recently?

You want to find out what isn’t being talked about by your real estate agent or by the seller of your subject property. Are there noisy neighbors, a bully on the block or drug dealers hanging out on the corner…? Do they now think they paid too much?

  • Will you be offering any concessions to the buyer?

This will tell you who is going to finance any needed repairs, which as we mentioned earlier will directly affect your estimate of Worth Value. Or maybe they are willing to help the buyer with their closing cost. You are looking for anything that reduces the Worth Value.

  • How did you set this sales price and are you offering any special terms?

You want to know this because it will tell you how motivated the seller is and whether or not this house is something you may have the opportunity to purchase. Realizing the motivation of the seller is crucial in determining Worth Value. Some sellers just put a price on a house and hope they win the lottery. You will want to know if the competition is in fantasy land or reality land.

  • Why are you selling?

If during the last four questions this question wasn’t answered by the seller, it will be important to ask so you have a clear picture of the motivation. I ask it last because by then I have built enough rapport with the seller that they tend to be freer with the truth.

Happy House Hunting

Last modified: September 15, 2018

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