PLP-072 Where To Find Value: Comping Properties

PLP 72 | Running Comps
Listen to this episode

PLP 72 | Running Comps

 

Running comps is not as easy as it seems. Finding value from a long list of properties can be challenging. As Keith teaches us how to run comps, he gets down on looking at MLS and who you should transact with. He also shares the importance of getting an MLS access, paying an aggregator, realtor, or broker for a comparative market analysis. Keith stresses the need to makes sure that you are getting a true comparable by using a BPO. It is ideal to keep some appraisers at arm’s length to help you out when you are not busy, and suggests using some websites that has good valuator calculator.

Listen to the podcast here:

Where To Find Value: Comping Properties

If you’re looking to build wealth without banks and outside of Wall Street by utilizing time-tested methods in an ever-changing world like the one that we live in, then you are in the right place. I’m going to be speaking about running comparables on other properties when you’re trying to formulate the after repair value or your loan-to-value of a particular deal. I want to run through the best ways and the worst way. You don’t have to be a realtor necessarily, but there are certain ways you can run comps and comparables. There are third parties you can reach out to have that done for you. I’m going to run through those lists and give you a couple of ideas at the end as the last case scenario or last resort, but also to get practice and to start looking at things to train your eye on properties. There are a lot of great free web resources out there.

Real estate is a relationship business. Click To Tweet

Before we get into all that, I want to mention that for those of us in the United States, it’s Memorial Day. I’d like to honor the men and women who have given their lives for this country. I’m taking a moment and mentioning the significance of Memorial Day. Whether I agree with a war, a president or a reason for the wars has always been irrelevant in my mind. It’s all about honoring those people who sacrificed their lives for this country. While I’m on that subject, I’d like to acknowledge those who served and lived and those who are currently serving in the military. My friends like Leon and Scotty Mac because people like you guys served. I was never drafted or forced to serve. For that, I want to say thank you.

Let’s get into the nuts and bolts of this episode. How to comp a property? The best way to do it is through the Multiple Listing Service, the MLS. That’s the database that all the realtors and real estate brokers have access to. That’s how they determine values when they come and get a listing. They use that and it’s the best database out there. I wish I owned it because it’s updated fairly quickly and you can get a good snapshot. You can drill down into various variables, lot size, square footage, year built, bedrooms, baths, garage and all the stuff. There are a lot of bells and whistles. When you’re trying to determine an after repair value for a flip or trying to come up with your loan-to-value on what you feel like the house is worth right now. For example, if it’s a rental and it’s got a builder-grade carpet and Home Depot finishings, light fixtures, faucets and whatnot. If it’s got that contractor feel, if it’s got that rental house feel, I would comp that lower than somebody who’s had the custom woodwork done, the built-ins and the nicer finishings, treatments, crown molding and these things.

PLP 72 | Running Comps

MLS is the best way to look at that to get comps and comparables. If you don’t have MLS access, you better get a realtor friend. That’s all I can say or go get your license. I decided I was going to get my realty license and pay some online. It was $400. However, I found that it was quickly a waste of my time and money because I didn’t have the deal flow. I wasn’t doing multiple loans a week. I wasn’t loaning money to put bread on the table. For me to go and spend all that time and effort, not to say that a realty license is not worth it. In my case, it wasn’t. I got too many other things going on. I didn’t dedicate the time that was needed to get that license. That was my example in my case. It might be different for you. If you’ve got a ton of money, you want to do a ton of loans or if you want to have a real estate license in general, it’s a great license to have. The last thing I need to do is add that onto my list. If you don’t do that, then you need a realtor friend.

Let me dive down onto that. This is a relationship business so you should already have the relationship. Don’t walk up to a realtor and give an empty promise of, “I’ll give you the listing if you help me purchase this property.” They go run, spend time, you don’t get the house and it’s wasted. I totally get it from there because time is money and you don’t want to waste it. If you want to go with a realtor friend route, I would suggest you pay it forward. Connect them with a legit and bona fide lead buyer-seller and let them get a listing. Let them get something and hit them up for that CMA or that Comparative Market Analysis or whatever.

One time I had a realtor friend that would provide me comps and whatnot. A fairly quick turnaround from her office. She got married and moved out of town. I don’t have my connection to the Houston area MLS anymore. That’s number one is get that MLS access. Number two is you can pay an aggregator. There are services out there on the web where you can pay a membership fee per month and are allowed so many or unlimited searches. This is one way instead of having to deal with giving a realtor a lot of work or getting your license and all that, you can just pay an aggregator monthly. It’s all tapped into the MLS. You can do a Google search. There will be plenty that comes up. I don’t have any affiliation with any of them, although I am looking to put some of them on. Interview them and talk about it because comps are such a vital way of keeping your money as a private lender safe.

PLP 72 | Running Comps

 

The third way is you could always pay the realtor or broker for a CMA, a Comparative Market Analysis. Anything that you have to pay for the borrower, you want to pass that onto the borrower in the closing docs. It’s hard to get a borrower to pay for a CMA upfront. You might be able to get it, but let them know that it’s part of the fees. Put it in your fee schedule, let them know and fully disclose it upfront. I found that if the realtor themselves run the CMA, I’m comfortable with it. I’ve seen somewhere they have their assistant or their secretaries run it. All they do is run off of square footage and maybe the number of bedrooms. That’s it. They don’t search for an apples to apples comparison. A lot of the beauty of the MLS is you don’t necessarily have to. However, if you do that and if it’s going into the back office, kicked out and emailed to you later in the day, I would dig into the pictures and make sure those properties are truly comparable. If it’s a rental house or if it’s a nice luxury home. If it’s a $500,000 home here in Houston, that’s a nice house. I understand in California, that’s a hovel.

You want to make sure that you’re getting a true comparable. There’s always the BPO or the Broker Price Opinion. Make sure the borrower pays that fee or pass it on to them. The BPOs are more expensive. I’m not going to give numbers because I don’t know what the going rate is in your particular area. In my area, the BPOs are more expensive. However, they may include a quick drive-by inspection if not a full-blown property visit. I’ve seen it where they paid some good money. I’ve got a good report. It was almost an appraisal in a way, which is the fifth way. You can check your ARV and your LTVs as hiring an appraiser. With this one, I would say have the borrower pay the appraiser directly because you don’t want to deal with credit cards unless you’re set up and have a storefront or Square or have those PayPal things. I would even mess with it. You let the borrower pay the appraiser and the appraiser provides their product to you and you can make your decision based on that. Use only a licensed appraiser if you’re going to charge somebody to do it as you should across the board when you’re dealing with real estate. The more licenses, the better. The bigger the headaches, but the better.

However, I’ve always tried to keep a few appraisers in arm’s length and throw them some work when possible if I’m not busy. It’s a referral business. Keep things going, let them know that you’re thinking about them and try to put some money in their pocket. If you’re down to the last resort and you’ve let your borrower talk you out of an appraisal, don’t ever do that. Let’s say you want to get a quick down and dirty measure. What I call the last resort if you’re looking, or something has caught your eye and you want to do a real quick asset test to see if this might be in the ballpark or not, there are a ton of free online resources out there that you can use. We can start with the worst offender Zillow. Years ago, Zillow wasn’t all that accurate. I don’t think in anybody’s neighborhood. In my experience, I’ve seen things tighten up over there. They do run off of MLS data now. I’m not quite sure. There are also sites such as Trulia, Redfin, Realtor.com, Real Estate ABC, Eppraisal, and HomeGain.com.

PLP 72 | Running Comps

 

Chase Mortgage Services has a handy property evaluator. Way back when, Bank of America had one that I would use quite often because I found that their values are more accurate when compared against the MLS. That was Chase. Check your bank. Maybe they have their own valuator calculator. Also, places like RE/MAX. I’m not sure if Keller Williams does or not for sale by owner. The latest one is Opendoor. You’ve seen those ads on TV. It looks like hedge fund money coming in and trying to corner the market. We’ll see how it goes. There’s also TheHomeEstimator.com and HomeValues.io. There is a place I want to check out is called NerdWallet. I saw them in a search. I want to check them out. I haven’t heard of them. There’s always HomeLight and ZipRealty.

The only thing I want to say about that is I wouldn’t bet my life on those values, but they will get you in the ballpark. They should let you know if there’s a green light or red light. When I say green light or red light, that warrants further investigation. Maybe it needs an appraiser, maybe it needs a BPO or a CMA. If it’s a relatively new subdivision and it’s all cookie cutter houses and it’s all on a very tight area, you’re going to be okay with a CMA. That’s up to you. I’ll have other episodes, hopefully talking about setting your temperature on all of this, should you require an appraiser all the time, so on and so forth. I don’t necessarily, but I’ve also been burned. I’ll bring up that in future episodes.

The more licenses, the better. The bigger the headaches, the better. Click To Tweet

I want to ask that if you gained anything or if you think you gained something and you got something out of this, would you please go to iTunes and leave an honest rating and review. If it’s a one star and it sucks, let me know but it would mean the world to me if you could stop by and do a rating and review. Provide one because it helps get this show into the ears of more people. You also can connect with me on social media. I’m over at Facebook, Instagram, Twitter, LinkedIn. I say BiggerPockets, but I’m bad about my social. I’m trying to keep up. It’s difficult. LinkedIn and BiggerPockets are the same. You can connect with me there. I want to say thank you for reading this. I do appreciate your time and consideration. For those of you who are reaching out, please reach out to me. Keep reaching out to me, Keith@PrivateLenderPodcast.com. I do appreciate all the feedback. Besides health, happiness and self-awareness, I wish you all safe and prosperous private lending.

Important Links:

 

Love the show? Subscribe, rate, review, and share!
Join the Private Lender Podcast community today:

About the author, Keith Baker

My ultimate goal is to create an economy for Real Estate (and other) Investors where banks are no longer needed. An economy where every day people look to each other for leverage and support. During the day I am an insurance adjuster for the oil field, where I handle millions of dollars of other people's money (OPM), and by night I invest in Real Estate and host this podcast. I hope you have an excellent experience and find real value within this website and the Private Lender Podcast. Please leave comments or submit your questions on the Contact Page.

I wish you prosperous, safe and happy lending and investing!

Thanks for listening

-k

Leave a Comment