What really is Below Market Value?
The term Below Market Value is often misused, particularly by estate agents and developers. They make a property deal, look a lot better by marketing it as Below Market Value.
You need to make sure the property you are purchasing is genuinely below market value.
This guide is to give you a better understanding of what Below Market Value is, and, to help guide you through exactly how you can find a property that is genuinely Below Market Value yourself.
What does Below Market Value really mean?
Below Market Value is a fancy term for getting a good deal and what you need to do is establish the properties real value.
Once you have established its real value, you can negotiate the purchase price lower than its real value and that is how you achieve Below Market Value.
What Below Market Value isn’t is taking the asking price, knocking some money off, and then believing you have achieved Below Market Value. It is easy to think that by doing that you have achieved Below Market Value.
For example, if someone offered to sell you a calculator, and said they normally want £10.00 but today they would sell it to you for £5.00 you could believe that it is Below Market Value.
However, it’s not. Just because the asking price is £10.00 the real value of the calculator might be £3.00. Therefore, you haven’t really got a good deal at all, but the marketing suggests that you do.
If you were able to buy the calculator for £1.50 then you can argue that you have got real Below Market Value and a good deal.
The good thing about buying a property is you can achieve real Below Market Value and even better, it is not a secret club for a select few people on how to achieve it.
You need to assess the real price of a property so you can make sure the price you are negotiating is the real value and not the asking price.
To do this, there are a few things you need to do. Check local selling prices for comparable properties to see what else is being sold for in the area.
This will begin to give you an idea of the value. For example, if you are looking at a two bedroom flat, what are other like-for-like two bedroom flats are being marketed in the area?
The next thing to do is start calling estate agents, and finding out what they believe two bedroom flats in that area are worth.
A level up from that is to start researching sold prices of similar properties. Go onto Rightmove or Zoopla and search the actual sold prices. See if there are any other like-for-like two bedroom flats that have sold recently.
You should now be starting to get a good understanding of what else has been sold in the area which is of a similar type of property you are looking to purchase and this will give you an understanding of the real value of the properties.
Finally, and probably the most effective tool is pay a surveyor (not a surveyor the mortgage company would send) to assess the value of the property. Doing this does cost money but will give you the best indication of whether you are buying below market value or not.
There are several steps you can take to establish whether the property is below market value or not. The main thing is you don’t just do one, do as many as possible, or even better all of them and that will confirm the property really is below market value.
How can you achieve buying a Below Market Value property?
Here is a list of some of the main ways you can achieve purchasing a below market value property:
Go to property auctions, these often have properties that are potentially below market value.
Do your research not just on the value of what you feel the properties are worth and NEVER go to an auction buying blind. Make sure you have viewed the properties, and also read the legal packs as well to make sure there is nothing that will be a cause of concern.
Even if you are not ready to buy, watching property auctions is a good and easy way to research below market value properties.
Often if a property is in an auction, it is there for a reason. Is it because of the condition/state it is in? Is it because of a legal issue? Maybe it is both? These are the things you need to pay attention to.
Buying at auction can be a good way of buying below market value, however, remember you can do all the work/research and then be outbid.
It might sound easy, but it isn’t and it takes a lot of work buying through auctions.
There are plenty of networking meetings that you can attend. Some are good, some are bad, but the great thing about the networking meetings is you will meet other investors who have already got established portfolios and who are experienced.
If you do find a good network of people at these events, they may have knowledge of below market value deals because their network is larger than yours. They might put you in the direction of a deal they can’t do themselves.
If you are prepared to put the time and effort to go to these events, you will get to know more people, and it is another good place where you can find below market value properties. It requires time and effort, like auctions, but it is potentially a good way of sourcing below market value property.
New-build properties are another good opportunity for gaining a below market value property.
If you just walk into a showroom of a development and ask for a discount, you might get one, but more than likely it won’t be much of a discount.
You need to be tactical when you go and look for a property from a developer that you’re trying to achieve below market value from.
If the development is at its early stages, the developer might be looking to get sales straight away and if you are willing to go in and buy off-plan, having done the relevant research, then there is an opportunity to get below market value.
Also, if the developer has one or two houses or apartments left on a big site at the end of the build, they will really just want to get off the site as soon as possible, because they’ll be paying sales staff to stay on the site and man the office.
There is a great opportunity there if you can buy more than one, or work with someone to buy the last few, and therefore put yourself in a strong negotiating position where you can get a deal. The beginning of the development, the end of the development are two opportunities for getting new-build discounts.
Another and probably less known way is if the builder is on the stock exchange, each year they will list their targets of what they’re trying to achieve and how many units they expect to sell.
As it comes nearer to the companies year end, if they haven’t reached that figure, they will then need to sell units.
You just need to do the research and make sure you understand when the builders year end is and then approach them two/three months before. Let them know you are serious and that you can complete quickly and if you can prove yourself as a serious buyer, they may be willing to do business.
Although it does require a fair bit of work, there is good potential to achieve below market value.
Work with estate agents and, build up relationships with them. They may be able to notify you of any potential opportunities that are coming or have come onto their books.
It could be a repossessed property, or someone that needs to sell quickly or any number of reasons why the potential of below market value is possible.
This is going to take a lot of work and you need to build a very good relationship with the estate agents and they need to know you’re very serious, as they won’t want to waste their time with someone who is going to either turn down a good opportunity, or take their time over it.
The reason why they work with investors is that they are quick, they are efficient, and they are serious. They know what they want, they set those guidelines out to the estate agent, and the estate agent knows they are serious, and therefore it is an easy sale for them if they put the right opportunity in front of that individual.
Beware, the challenge you will have is other people will be trying this as well and the problem is, the estate agent doesn’t know you.
You need to quickly build up your credibility, show them you’re not messing around, give them guidelines, and work on your relationship with them. If you do all of the above, and you are prepared to put the time in, then there is an opportunity you may be able to achieve below market value.
The property industry tries to make out that there is a secret club or secret way of finding BMV properties but by using these four tactics you can achieve buying below market value properties.
We hope you found this guide useful and we would love your feedback, please leave a comment below.
If you do have any questions or would like help in purchasing investment properties, please call into our office in West Street, Chichester or call us on 01243 252984 and we will be delighted to help you.