Foreclosure in Dewey>Question Details

Vernelle, Home Buyer in Dewey, AZ

how do you know what to bid at action?

Asked by Vernelle, Dewey, AZ Fri Aug 13, 2010

House needs 60,000 in repairs

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Answers

7
First you start you base off of the comparable home sales to arrive at a fair market value price. Then determine the amount of repairs/ improvements needed to bring the home into similar condition as the comparable sale.

Without knowing the after repair value and price range of the home, it would be hard to determine how much below comps you should bid. You want to give yourself a discount for having to deal with buying a home that needs extensive repairs.

Best of luck!
Web Reference: http://www.jameswehner.com
0 votes Thank Flag Link Wed Nov 10, 2010
If you plan on living there, I would go 80-90k below after repair value (70k for repairs...always add atleast 15% on repairs.....and 10-20k for equity...If it's a foreclosure, you always want some equity to make this worth your while) ...If you are flipping it, I say atleast 110-120k below ARV. As an investor, I like equity and I like room for unforeseen (how long it will sit on market, repair issues, realtor fees for selling it). Now these numbers are loose and also based on a more expensive house....Of course, if the after repair value is 150k...you really can't offer 30k and expect to get it. As an investor, I set a number I want to make as a percentage and figure repairs a a percentage...then fees as a percentage...If it works out, great, if not...run. Set a number and STICK WITH IT. Auctions are fun and you can get caught in the moment...Stick to your guns...remember...its real money you are playing with.
0 votes Thank Flag Link Tue Nov 9, 2010
I'm going off the norm here. Don't get a Realtor or Broker, get the advise and/or help of an experienced investor who buys at these auctions. These guys are pros, and know what they are doing. There should be classes offered in AZ, and you might even be able to get some assistance in your county. This is the best way to go with foreclosure auctions. (I'm assuming it is a foreclosure auction because that is the selected category)
0 votes Thank Flag Link Tue Nov 9, 2010
Hire a real estate agent. You need expert advice on local market conditions and auction standards. There is good general advice below but remember that each house is a completely seperate situation. If you bid too low you may not be considered, if you bid too high you may be paying way more than you have to.
0 votes Thank Flag Link Tue Nov 9, 2010
In addition to the comments already made, you might also want to seriously consider seeking local, professional assistance from a real estate broker or real estate attorney. Buying a property at a trustee's sale is not for the faint hearted or inexperienced and ill advised. There are HUGE risks and unknown variables. Be wise. Secure sound counsel.
0 votes Thank Flag Link Sat Aug 14, 2010
Hello Vernelle,

To answer this question, you first have to answer one of three other questions concerning your exit strategy with the property.

1. Are you interested in keeping the property as your primary residence?
2. Would you prefer to hold and rent the property for income?
3. Do you plan to rehab and sell the property for a capital gain?

The answer to these questions will determine the approach you take in calculating your maximum bid. Let's assume, for calculation purposes, that there are no hidden expenses such as liens other than the purchase loan on title. I would highly recommend working with a REALTOR® in your area. They can help you determine the After Repaired Value of your target property. In addition to that, if you decide to rent it, they will know the market rents that your property can command and help with the structuring of your deal to achieve your desired outcome.

The Formulas

For primary residence: ARV – (repair costs + purchase expenses) = Highest Bid

For a rental property the calculations can become very cumbersome. There are many moving parts that can effect the cash flow of the asset. The goal of holding a property as a rental is cash flow. Talk to your REALTOR® and your CPA or Tax Attorney to determine the strategy that best fits your situation. In the formula below the debt service is determined by your auction purchase price and other monthly expenses, so you will have to work backwards. A very simple formula for rental properties is as follows: Market Rent – Monthly Debt Service = Cash Flow

For Rehab and Sell: ARV – (purchase expenses + repair costs + selling expenses + ROI) = Highest Bid

I hope this helps or at least gets you started in the right direction.
Web Reference: http://bit.ly/9XQBvd
0 votes Thank Flag Link Sat Aug 14, 2010
Dear Vernelle:
First you must determine what the home is worth based on comparables. Then as you have apparently done factor in the repairs, auction costs to determine what it would cost to get the house in the standards for the neighborhood comparables.
0 votes Thank Flag Link Fri Aug 13, 2010
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