Determining Property Selling Price For Quick Sale - Without Leaving Money on the Table
Students sometimes ask me how to "compute" a property's selling price when it's time to sell. I'm not sure if they mean "how to determine it", or "how to mathematically compute it" - big difference. Determining property selling price based on what your expenses will be, is a surefire plan for disaster.
You need to sit down and see how much the tax liability and other costs will be, before you ever buy the property. That consists of:
1. Redemption amount (call county to get)
2. Taxes subsequent to the redemption amount and not included
3. Closing costs ($1000 in my area for cash deals)
4. Amount you pay the owner
5. Commissions (if any)
6. Liens or Mortgages (if any)
The resulting amount has little to do with determining property selling price - it will determine whether you'll want to buy that property in the first place.
To make sure you don't forget anything, it's helpful to have a "seller's net sheet" handy. On this sheet you can fill in all your expenses and see what you'll have deduct from any sales price you fetch for the property.
You should easily be able to find these online for free. Try to find a simple net sheet, not one that breaks every expense down into minute detail.
Determining Property Selling Price - Not Computing It
You can’t compute what you ask for a property based on what’s owed on the property. The market will pay market price only. Buyers will not pay more because you have a lot of expenses.
By determining property selling price based only on the expenses you'll have to pay, and your desired profit results, you can end up with an above-market price. Properties with above-market prices, don't sell.
So the deal needs to work using market price for the property, minus all those expenses, leaving you a profit. A lot of appraisers might take exception to what I'm going to tell you - but determining property selling price is done NOT by computation of numbers, but by comparison.
In my next post we'll break down how to establish a reliable, safe, quick sale price for almost any property. Determining property selling price for our wholesale fixers is much different than determining a retail price for a home.