No doubt, one of the most exciting parts of house flipping is selling. You have worked so hard and the sale is the sum total of the multiple steps you have taken. You raised some money having learned how to flip houses with no money, you bought the property, you repaired it and rehabbed it and now you’re ready to sell it.
When Selling – Go Back to ARV
When you first started house flipping, the ARV was the most important number to determine what you thought you could sell the house for once it was rehabbed; now you are ready to sell this sucker. You are probably extremely excited to see if your numbers will all come together.
All those many months of hard work are finally coming to fruition and you are looking forward to leveraging your success to maybe quit your job, start your own business or go along to your next house flip.
ARV is a cornerstone concept for any new house flipper and is the single most important number you need to know when house flipping. ARV is a the sale price you think you can get when you first did your house flipping analysis. ARV or after repair value is the price you hope to get when you sell your house flip.
If you stop and think, the price you sell for is the most important number to crunch when you flip. That number sets the tone for the entire project. If you can get houses really cheap, it doesn't mean it will make you money.
So the ARV from your initial assessment is a huge number that sets the tone for the whole house flipping project. But the real number as to what the “after repair value” is now. This is the number of what you can sell the house for today.
ARV – How It Works When You Sell Your Flip
For example, your broker tells you can sell your house flip for $200,000. Chances are that your real estate broker got the pricing from using comparative houses which have sold in your area. Now, six months after you started, the house looks very nice and you feel that the ARV you projected 6 months ago, you can get it…or maybe more. All you need now is a buyer.
So because the broker tells you the price should be $200,000, do you go out and list the house for $200,000? Definitely not.
Especially when you’re first learning how to flip a house, and even if you've flipped dozens of houses, always get the advice of your team. You should ask the opinion of your real estate broker…she knows the market better than you. Chances are pretty good that there is nobody who knows the market as well as she does.
Chances are she may list the property at 5% above what you want to ultimately sell it for. In our model, to sell our flips fast, we price all our flips aggressively to move quickly as the profit depends on fast sales.
How to Use Real Estate Brokers When Selling
In an ideal scenario, the broker you list the house for sales with is the same one which you bought it from at the start. If you did promise the buying agent that you would sell the same property with her as well, you should keep your word and make sure you do actually list it with her.
This alone will do much for your house flipping reputation. It proves to the real estate broker that you are a credible and honest person, which will come back to you in the end. So if you made this tacit agreement to start, don’t start shopping around for another real estate broker; this is your credibility at risk.
Keep your word and keep your reputation. The house flipping and real estate world is tight knit, so its important to keep your reputation intact.
When your real estate agent does the market analysis and comps, this is vital info to determine if you will get the price you want. Chances are that you kept your eye on the market conditions so you probably have a good idea what to sell it for.
Selling Your Flip: The 2 Likely Scenarios
When you do get all the data back from the market analysis, there are two scenarios: higher or lower than your original ARV. If it’s the latter, that’s when the 70% Rule will save you. The 70% Rule is like an insurance policy against potential harm for you. It insures you against sever market fluctuations as well as overages in costs like rehab, financing costs and other soft costs.
Make sure all your safeguards are in place when you do your initial analysis to make sure you ensure against loss. You do this by buying at 70% or more below what your ARV will be and the 70% includes your repair costs as well.
If you do this properly, you will make money flipping houses – and if you avoid the temptation to break the rules, you will make a profit.
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