Foresight
Author: Tom Gimer
Principal/Counsel
When I walk into a home we’re evaluating for a potential real estate auction, I often know immediately who is going to buy it. No, not the identity of the buyer (that only rarely occurs)… but the type of buyer.
Generally speaking, a property is either going to be purchased by an end-user (a homeowner for a residential property, a small business owner who is going to operate his or her business from a small commercial property, or some other buyer who is going to immediately occupy the property) or an investor (someone who is intends to hold the property for long or short term profit by renting it, rehabilitating it or otherwise).
The type and location of the property as well as its current condition are important factors in determining who the ultimate buyer will be. A end-user is probably not going to purchase a shell or a property in need of considerable repairs. An investor is probably not going to purchase a luxury home in turn-key condition in a neighborhood with few rental properties. You get the idea.
The end-user will, in evaluating the property as a “home”, consider such criteria as proximity to shopping, where the kids will play, the suitability of the layout of the home, future improvements, etc. Since the investor has no intention of residing in the property, she will have far less emotion involved in the process, allowing her to evaluate the financial aspects of the transaction using one or more of several commonly used formulas. The “value” placed on the same property by the two groups will often differ considerably.
One of our most important jobs is determining the price at which a property will be considered for an auction campaign. Having the foresight to identify the buyer is an essential element of that process. We enroll only a small portion of the properties we evaluate (often because their owners value them differently than would-be buyers will), and sitting down with one of our associates to go over the details is usually an eye-opening experience for sellers, and something we highly recommend.
