How To Determine the List Price For Your Flip
By RBD Ventures, Inc.
Although it is true that you make your money when you buy, the deal isn’t done until you sell the property. Also, if you go over budget or your after repair value (ARV) was wrong you could see your potential profit margins shrink quickly. Real estate investors determine the ARV of their flip by using a comparative market analysis or CMA (known as “comps” in the real estate world). If you don’t have access to your local Multiple Listing Service to generate comps you will either have to use an online website like Zillow or Redfin to get this data.
As part of our due diligence before buying any property we run comps to determine the ARV. Taken into consideration with the repair cost estimate, expected holding costs, and our desired profit margin, the ARV tells us what we can offer on the house.
A few days before the home renovation is complete and ready to go on the market for sale we will re-run comps again to obtain the most current data. This new data can either help or hurt but nevertheless you need to be aware of it in order to price your house right. When comparing the data, we always compare “Apples to Apples”, meaning we are comparing our newly renovated home to other sold newly renovated homes in our CMA. If your property compares to properties that have sold for $410,000 in terms of size, location and condition, you should be listing your flip for at least $410,000.
Ideally we would like to see at least sold 3 comps within the last 90 days in a half mile radius of our flip to support our listing price. If you can’t find other newly renovated homes in your CMA to compare yours to then you need to look for comparable homes that are closest to the condition of your home. For example, you would want to find homes in your CMA that were recently updated within the last 5 years or so. In this case, it’s usually a home owner, not an investor that did the updating.
Determining what to list your flip for can be challenging and takes practice, and it is really more of an art than a science. Nevertheless you need to get good at it and remember you are going to determine what to sell your flip for when you buy and then run another CMA when you go to sell your flip to obtain the must current data to support your listing price.