One of the aspects of wholesaling many people often obsess about is valuations. This is especially true among newbies who are still trying to find their way around. It is crucial to remember however that while important, doing valuations is just a small part of the wholesaling process.
In this episode, our very own Cody Hofhine covered all the basics of doing valuations. Our hope is you’ll gain the clarity and confidence needed when it comes to valuations so you can negotiate with sellers with greater ease. If you’re new to wholesaling, this is one episode you can’t afford to miss!
- The importance of valuations
- Ideal time you should spend doing valuations
- How to calculate the right price to offer
- Why starting low is ideal
- What you should focus on
If you are Ready to Explode Your Wholesaling Business, Click here to Book a Free Strategy Session with me right now!
Subscribe to Wholesaling Inc
I always am asked, “How do I know the value of a property? When I’m out there looking at deals, or when I’m about to look at deals, or I’ve talked to someone, I think they’re motivated, but I just don’t know the value of this property.” If this sounds like you, we are going to start breaking down how you can just do a simple valuation so that you can get out there with a little bit more confidence and hopefully put a home under contract at a deep enough discount where you can make some money, that’s the goal. My name is Cody Hofheinz and I’ve been teaching thousands of students across this great nation how to simply just step by step get their first real estate deal, because once it turns from faith to fact, it’s like it’s on, it’s on baby. At that point, they get out there with a lot more confidence and are able to do more deals.
It’s just like the snowball effect, right? It just gets bigger and bigger the compound effect. So my hope is you can get something that gets you a little bit more clarity, gets you a little bit more confidence so that you can just simply get out there and start doing deals because once you do the deals, it’s addicting, it’s going to roll over to more deals. So how do I know the value of a property and does it really matter? Yes, to a little bit, but I also want you to know that too many individuals, they want to spend too much time messing around with valuations. They’re always like looking for comps and there you have access maybe to the MLS and they’re like comping out, and then they get on Zillow, and then they get on Redfin, and then they get on all these different prop stream and all these different softwares and they start to lose focus on what’s important.
So is valuation important? Yes, I don’t want to say no, but I also want to say it kind of hesitant as well. So you can see my hesitation that I’m like reserved from that because I don’t want you to spend too much time. I don’t want you to think about it too much. It should be something that is five minutes or less, that’s it. If you’re spending more than five minutes valuating a home, you’ve already put too much time into it. So what is it that you can do? So you get the down dirty just like, “What is a price I can do? What is the price I can offer? How do I know where to begin my negotiation?” Because you never want to start high, you always want to anchor low and work your way up. How do you do that? Here’s something that’s just super, super simple.
Whether it’s just Redfin, whether it’s Zillow, whether you do have access to the MLS, what you want to do is wherever your home is, you definitely just want to expand it out like maybe a quarter mile and just find homes that have sold for the last maybe 90 to 180 days, if there isn’t enough homes that have sold, then maybe you’re going to have to go back 12 months. But what you’re going to do is you’re going to start looking what’s sold and just look at those properties and kind of see if they kind of are similar like, “Okay, yeah it’s about the same style,” but you want to really look at the cash sales. So you want to look at the three lowest sold in that area. So if you have 20 homes and you have a bunch of them sold at like 200,000, and then you have a couple sold at like 150,000 or 120,000.
Whatever your lowest ones are, take the three lowest of the solds, and then I want you to add them up so that you get a big number, divided by three, that’s your average. So get your three, get the average of the three lowest sold price properties, and then get your average. Once you have that average, let’s say the average is 120,000. You get the three lowest, you add them up divided by three, you got your average, and that number says 120,000. Do 120,000 times 0.8, what is that number? It is $96,000. So $96,000 guys, $96,000. Now why do I do the 0.8? If you can get your three lowest sold, like majority are sold at 200,000, but there’s these three lowest that the average was 120,000. Then what I want you to do after you get that average is times it by 80%, take 80% of that value.
So times it by 0.8, that gets you to 96,000, that’s like your ballpark start point. Now you’re probably thinking, “Whoa, the homes are selling for 200,000. How am I going to get it for 96?” Again, you have to start low, you can always work your way up, but if you start high, you can never work your way down. Always remember that. So the valuation, just simply get the three lowest sold in the last six months, if you have to go further out nine months or 12 months, that’s okay. Get the three lowest sold, take the average and just do 80% of that value, and that starts to put you in the ballpark where you need to begin your negotiation. Don’t overthink it, don’t go further than that. Don’t be like, “Well, this one has linoleum and this one has hardwood. This one has this and this one has this. This one has granite and this one has Formica.” Don’t go that far, five minutes or less.
You should just simply put a circle around the home that you have about a mile radius and start polling, what are the three lowest sold? Times it by 0.8 or take 80% of that average, and there’s your price point. Hope this has helped. I don’t want this to be drug on any longer than that, but it really should just be short, simple, sweet so that you get out there and really focus on what is important. It’s not the home, it’s not the price, it’s the people. People do business with people they trust, so become someone that they love, like, trust, respect. Be that person and you’ll realize that price will come down. That price, when you’re talking to a motivated seller, they really want to talk to someone that they love, like, respect, and trust, right?
Be that person and you’ll get those contracts. Don’t spend a lot of time on the valuation. Spend more time building rapport, spend more time connecting, spend more time loving and serving, and the byproduct is you’ll get contracts that allow you to buy homes at a deep discount. Now get out there, take massive imperfect action and start getting your next deal or your first deal. And if you need help building your real estate business, head on over to wholesalinginc.com, where we’d be glad to hop on the phone with you, see if it’s a fit and then get you into the tribe. Until next time, get out there and take massive imperfect action, and we’ll see you on the next episode.