Newsletter
Latest Property And Finance News
BMV, the myth of below market value
The housing market is well known for its snappy abbreviations. The latest phenonema described in three letters is the apparent successful purchasing of property at BMV, (below market value). The property is then either rented out or flipped, a term used to describe re-selling the property quickly for a modest profit.
Many purchasers obtain property at reductions by preying on distressed sellers. In fact some purchasers have actively begun to market their desire to buy. Small advertisments in the property sections of local newspapers are a popular method. Usually highlighting that the purchaser is a cash buyer and can help stop the threat of repossession.
Typically the buyer will advertise that they are willing to pay approx.10% below the current market value, a value that they set in negotiation with the vendor.
There are inherent problems with this method of purchase and the resulting position the re-seller may find themselves in. Firstly in establishing a price there are few benchmarks for comparison. There is no trade data available, other than the various reports available and searching price databases for similar properties, to establish what a below market price for the property actually is. Even the most experienced surveyors are struggling to agree valuations in the current climate.
If the adage of the house is only worth what someone is prepared to pay for it is reliable, then this would surely suggest that the BMV figure is irrelevant. The BMV price is in fact the true value. An argument could be put forward that the purchaser is simply helping to chase values down.
Similar to the previous competitiveness of the BTL (buy to let) market place, if failing BTL investors shift their attention to this BMV micro-market, they could indirectly artificially inflate prices on their target properties by outbidding each other.
One major inconsistency is the fact that logically the buyer should be concerned that with potential distressed sales readily available, and with offers being accepted currently that would have been described as derisory twelve months ago, the indications are that the market place remains very unstable overall.
To buy on the basis of a prediction of only a further 10% fall appears over optimistic. Presumably the cash buying purchaser is in fact borrowing from a facility that gives the opportunity of rapid completion. Each month the property remains vacant any potential profit is likely to be eroded by payments, doubly so if the market continues to fall.
As an unregulated social service, relieving a vendor from impending repossession by purchasing the burden from them, should be applauded. However, most preying purchasers are not looking to assist those desperate enough to secure their services.
Perhaps the abbreviation BMV is a misnoma, CFK would be a more appropriate description, Catching Falling Knives.
For first time buyer mortgage advice please click here or phone 0800 5999 007