Property research is a necessary part of the property auction process. After selecting a few properties from the Auction Tumbler Filter System, it is time to dig a little deeper.
Get an Online estimated market value from websites such a Zillow.com, eppraissal.com, homes.com and numerous others. They can give you quick snapshots of what they believe the estimated value to be. They are all using home grown algorithm's to give you an estimate. They also include a "comps" type technique since properties sold is public information. These types of online estimates are ok for a quick glance, but generally can be a little outdated, and sometimes quite off. It is however a quick easy to get reference. Gather 5 of these online estimated values and take an average of the 5. Than subtract 5% from this final value to be safe.
Research the assessed value. Assessed value is the value that the government has assessed to the property for taxing purposes. Assessed value can be outdated if the property was not recently sold. If the real estate market has been increasing in value, and the property was last assessed 18 months ago, you would want to estimate the assessed value to be higher than what is currently displayed. This is because the government will assess the property according the current market conditions.
We suggest physically visiting the the property and neighborhood before making a purchase. It may take 40 minutes to visit a property, but that is less time than some of the other required research techniques below. The property will likely be locked. Be aware that visiting such a property is technically trespassing, go at your own risk. Take pictures with your phone. Write notes down in an email with the address and send it to yourself. If you see a neighbor or someone walking, do not be afraid to say hi and ask them about the property.
You will need to figure out how much the property is worth in its current condition, and how much it is worth fixed up (if that is in your plan). Real estate agents generally predict property value with a system called "comps". "Comps", is short for comparables. The general theory is, find 3 closely related properties in the area that were most recently sold. Based on those values, you can adjust your properties value based on its uniqueness. For example: if the three comps sold for $45,000, $49,000, $53,000, you know that your property will likely sell for $48,000 if it is similar to the ones that sold.
Hire a third party company to do a background check, aka "title search". The property should have a "clean chain of title", in which the history of who the property was sold to and from is clearly defined back to the properties origins. The average cost of title research can vary from anywhere from $45 to $160, on average is around $120. They will not guarantee or insure anything. They only do research. It is possible to do title research on your own, and I encourage you to begin researching this area when you get time. Visit title research section.
*This is only an example*
Start from an estimated market value than subtract the costs of rehab, fees, and the profit you want to make from market value.
Online estimated market value: $55,000.
Current Assessed value: $40,000, 1.5 years old.
Your new estimated assessed value: 45,000
Comp Research: 49,000, 43,000, 52,000
Total Average Expected Market Value: $48,000
We have come up with a game plan to rehab the property and resell it to a cash investor.
We have visited the property and seen that it is in decent condition but needs a potential $10,000 in work.
Rehab Costs: $10,000 Estimated Auction costs: $300
Carrying Costs for 2 months: $500
Total Costs: $10,800
Break Even Acquisition: $48,000 - $10,800 = $37,200
Desired Profit: $10,000
Final bid price = Break Even - desired profit
$37,200 - $10,000 = Bid amount of $27,200 to pull a 10k profit.
Max bid amount to pull a $10,000 profit on this property is $27,200.
Now when you go to the bidding you know this is the highest you can go to turn your plan into reality.