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COMMENTARY by Tom Ruff of The Information Market 8 ARMLS STAT APRIL 2017
Fix and Flip: A property purchased and sold again within 61 and 365 days, or 366 days in a leap year, of the original purchase date via a nonbrokerage model mously said, “The secret to success is to own nothing, but control everything.” Wholesalers will take this adage to heart. A dozen or so companies dominate our local market. They actively solicit distressed properties, estate sales, absentee and out-of-state owners. The primary players in this market will have an active list of investors to whom they market their properties. These properties will also appear for sale on their individual websites. The median year built for all homes acquired by wholesalers in Maricopa County is 1971 with a median purchase price of $120,000. As for the markup by the wholesaler, it’s what the market will bear and the percentage gains can vary wildly. By our definition, wholesaling accounts for 13.96% of all flips.
The Light Fix For the purposes of our discussion, light fixes are properties that are purchased and sold again between 31 and 60 days. The days between sales are calculated from the publicly recorded deeds and do not necessary imply the true days between acquisition and resale. These flips will involve cosmetic upgrades like new carpet and paint. Our definition of light fix ups account for 5.06% of our flip market. Only 26% of these flips were purchased on the MLS. The median year built for these homes is 1981 with a median purchase price of $140,000. At the conclusion of the flip, these properties will sell on average 22% higher than the original purchase price. The Fix and Flip Fix and flips are fun to study. In fact, that 45% are originally purchased on the MLS and 89% are sold on the MLS gives us ample opportunity to view the before and after pictures. Fix and flips are first and foremost a business modNew Brokerage Model While each of their business models have distinct differences, they both buy directly from the seller and by acquisition of properties through their various marketing and advertising campaigns. Their acquisitions are purchased off of the MLS, but the majority of their sales are listed. They are also active at trustee sales. Over the past year in Maricopa County, the two together have accounted for 15.82% of all flips in Maricopa County. The rate of their acquisitions has been increasing as has their funding. In May of last year, they accounted for 8% of all flips. In March of this year, that percentage rose to nearly 23%. The median sales price of their acquisitions over the past year was $204,946 and the median year built for these acquisitions was 2000. The center point for the number of days between the original purchase and when the property is sold is 104 days. There are a handful of properties that sold within 30 days as well as a handful that took up to nearly a year to sell.
Wholesale Real estate wholesaling is flipping, except the time frame is much shorter and no repairs are made to the home before the wholesaler sells it. A double escrow is a set of real estate transactions involving two contracts of sale for the same property to two different back-to-back buyers, for the same or different price, arranged to close on the same day. Nelson Rockefeller fa- 9 ARMLS STAT APRIL 2017 el. A single flip can show us the lowest price in a neighborhood and on the flip side, the highest price. They also show us what design upgrades are popular and the features that current buyers prefer. Again, fix and flips are a business, they know what sells. Our definition of fix and flips account for 65.16% of all flips in our market. The average flip takes 180 days with an average gross margin of 43%. Even with a high gross average, this is not an arena for amateurs inspired by reality TV. Losses do occur. The median purchase price of the original purchase is $164,900 and the median and average year of construction is 1981. Fix and flips are really about opportunity by purchasing an undervalued asset, improving that asset and then selling that asset at a profit. The Sun City ZIP code of 85351 is surprisingly a perfect example, it’s the ZIP code with the highest number of fix and flips in the Valley over the past year. Another aspect of fix and flips that is fun to watch has to do with gentrification, older neighborhoods getting hip. A close eye on what’s happening in the fix and flip arena will offer insights into the next hot and upcoming hood. The ARMLS Pending Price Index (PPI) Last month STAT projected a median sales price for March of $233,000. The actual median sales price was $234,000, $1,000 higher than the mathematical model projection. Our mathematical projections have been trending slightly lower than the actual results. Looking ahead to May 2017, the PPI projects a median sales price of $239,900. With limited supply and steady demand, particularly at the lower price points, the median sales price will definitely increase in May. 10 ARMLS STAT APRIL 2017 MLS sales volume in March 2017 was 8,666, 4.5% higher than the 8,293 total last year. This accounted for 134 fewer sales than our projected total of 8,800. Sales volume for the first four months of 2017 is 9.4% higher than 2017, with 30,149 sales in 2017 compared to 27,554 for the first 4 months of 2016. It should be noted, there was one more business day last April than this April. If we look at a daily sales average there were 433.3 sales per day in 2017 and only 395.9 sales per day in 2016 or a 9.45% increase, which is directly in line with our year-over-year sales total. We begin May with 7,427 pending contracts, 4,701 UCB listings and 583 CCBS, giving us a total of 12,711 residential listings practically under contract. This compares to 13,115 of the same type of listings at this time last year. Even though we enter May with fewer residential listings practically under contract this year, I’m still projecting the sales volume in May 2017 to exceed the volume of 8,676 of May 2016. STAT is projecting 8,950 sales in May, a number I obviously just pulled out of a hat. There were 20 business days in 2016 and 21 business days this year.