11:30 AM, 25th June 2011, About 13 years ago 9
Something is only worth what the highest bidder is prepared to pay.
If you see something in the sales marked up at 50% off, that’s its value. The fact it was once priced up at twice the amount it is now is irrelevant. If you buy that item, that’s its value. If nobody buys it then it’s still not worth the price on the tag.
If I’m offered a property for a price of £50,000 and I’m provided with a valuation or comparables stating it’s worth £100,000 is it really 50% Below Market value?
Let’s face facts, if a property was really worth what the valuation said that’s what it would be sold for under normal circumstances. OK, you might get a few thousand off if somebody is desperate for a quick sale but how much is realistic? Remember the old saying, if it seems to good to be true it probably is.
The reality is that most properties marketed at x% BMV are not below market value at all. They may well be discounted but there’s always a reason. Just because somebody has spoken to every valuer in town and quotes the one that’s prepared to give the highest valuation on paper doesn’t prove anything.
So why is it that so many properties are marketed to so called “armchair investors” in this way?
What’s an armchair investor?
“Armchair Investor” is a phrase that’s been created to describe people who haven’t got the time, skills or inclination to perform due diligence but still want to invest into property. Accordingly, these arm chair investors have to rely on trust and are, therefore, easy targets for con-artists. Remember, the best con-artists are those who come across as extremely nice, knowledgeable, trustworthy people.
Good reasons for a property to appear to be heavily discounted
End of development – a developer may well be prapared to sell the last few propeties of a site at a discount but remember, everybody else chose the others first. There’s always a reason for that.
Auctions – remember that most properties that are sold in an auction have been marketed by an Estate Agent first. There’s usually a good reason why nobody purchased them.
Market dried up – if people can’t get mortgages any more the value of properties falls very quickly. This could be due to a variety of local, national or even worldwide economic or social factors.
Property needs work – very few homeowners want to buy a property that needs work as they want to move into a property they can live in with minimal disruption. The less appealing a property is to the mass market, the less it will sell for.
Unrealistic comparables – a property of a similar style and size can be worth 50% less than something just quarter of a mile away. This can be due to the view, what the property is next to etc. For example, a 1400 sq ft 2 bed with parking for two cars, in a gated community, overlooking a thriving marina could easily be worth double the value of another property just two streets back with no view, limited parking, next door to a food outlet on a busy road. However, unscrupulous people might use the marina view property as a comparable when pitching a ‘deal’ to an armchair investor who hasn’t got the time, skills or inclination to check.
So what does BMV mean to you and how can people avoid falling victim to con-artists who charge huge fees to source so called Below Market Value properties?
What is a true bargain and how would your recognise it?
Mark and his family have been investing in property since 1989, initially in the Norwich area but more recently across the length and breadth of England. Mark created Property118.com as a social network for landlords with a vision of becoming the UK’s largest online property investor directory.
Mark’s experiences and strategies as a landlord are shared here
Previous ArticleBad tenants leave landlord owing £9000