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  • Property-a-holics

    Market Value Vs. Ceiling Price ....

     
    Hi all, I was wondering if I could pick the clever brains from the Tribes members on the following:
     
    A question on market value (mv) and ceiling prices (cp). Thanks to all before-hand who have spoken and replied to me now I understand and
    know the difference between the two as a lot of people think they are the
    same.
     
    If the market value on x street on 3 bed terraced is 100k, and the ceiling price a similar property sold for was for 125k
    5 years ago, it is very unlikely you can get that ceiling price if the market is
    paying a 100k.
     
    My question is if the MV and ceiling price are both 100k, why can you not add value and go above this - is this because nobody is
    going to pay over the maximum that has previously been paid for the ceiling i.e.
    100k?
     
    By the way Rich, I'm not too sure what you meant by if the street can take a max 100k [that price has never been exceeded] that is
    neither market value or a ceiling price?Thanks FD.
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    The CP of the street is the MAXIMUM PRICE that any property has ever achieved in the street, throughout the history of the street. Remember that there may be a spread of properties - 2, 3, 4, bed etc - so those would all be sub-divided into CP of that particular type of property.
    The CP may have been achieved at a time of boom or because someone added massive value/extended an existing property ... or both.
    It is possible to break the CP, depending on adding value and/or market rises.
    However, the CP is a good indicator of the max. that has been achieved and you should use it to be realistic and conservative in your estimates of what a similar property, done up to the same standard, can achieve.
    I would only use it as a rough guide though.
    Recent sold comparables are a far better indicator imho.
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    Thanks Vanessa.
    Ignoring supply and demand/rising market, natural appreciation, why can't the market value of a property be higher than the ceiling value?
    For example, if the property is at its ceiling price ie market value is 100k currently and the ceiling price was 100k, can the MV never go over - Can it go over by a refurb?
    I read that if the ceiling value is eg 200k no matter how much money you added to the property it would still be worth 200k.?
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    Fernando,
    Excuse me for jumping into a question that you have directed at Vanessa. However, we have been speaking off forum about related matters for the past few days.
    The answer to your question is relatively simple.
    Value is subjective, ie an opinion, an estimate, not proven.
    A ceiling price is objective, price paid and therefore proven.
    Fact trumps Opinion every time!
    Rob
    Property Consultant, Wakefield, West Yorkshire
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    Hi Rob,
    No thats fine .Yes I need to get back to you about our talk, you, Vanessa, lisa and rich and john have all been fab for your replies.
    Rgds
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    Ceiling price is tha max the property has sold for & an experts opinion that x property in any street would probably sell for.
    Today market value is dependent on recent sold comparables in an given area, location, size of property etc.
    My question to the experts is, if the open market value of properties in x street today were worth 100k from recent sold comps and in x street no property had gone beyond 100k (ceiling value) but a ceiling value in Y street around the corner (of an identical property,size, beds etc) was £110k, is is true that prices cannot be pushed from your own streets ceiling value?
    So the property in x street can not be pushed to a ceiling value of y street which is around the corner at £110k?
    As my take on ceiling value is no matter how much money is injected you cannot go above your OWN streets ceiling value? But comps are based on comps in the area.
    Can anyone shed any light?
    D.
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    You could potentially push the ceiling price - but THERE IS NO GUARANTEEE - so it is a risky strategy if you are trying to create a profit. The property is only worth what someone is willing to pay for it. If someone wants it as their dream home, then they may pay £10K more. But a valuer will never think like that.
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    Hello Vanessa.
    So basically its your own streets ceiling price you cannot go above. What's the general reasoning this cannot be done, is it because the ceiling has never been exceeded for that street that it becomes risky for others to pay more?
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    You can go above it ... but you have only gone above it when you have sold at that price. You can say you have broken the ceiling price when the money is in your bank account. Not before. So until that point it is purely hypothetical and speculative - and there is an inherent risk in that.
    Not sure why this is so important to you? Are you trying to construct a NMD deal or are you trying to squeeze more profit out of a refurbishment and need it to sell at more than the ceiling price to achieve that?
    Perhaps if you expalined, I can be more specific in my replies.
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    Tangent:
    Investors will crow over a new ceiling price ... but if someone sells a property for 50% BMV in their street, they will deny that now all the houses are worth the net price of the BMV sale.
    What is the difference? I don't see any. Both are "extenuating circumstances" but why should the ceiling price one be allowed, but the BMV one considered a "one off" and not relevant?
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    Hi Vanessa, - No do not get involved in NMD deals at all, deposit and remortagage only!
    You make a sound valid point in the latter post.
    Ok- after reading the above this is purely for my understanding (after buying few properties) on how the process/values work, as I thought I knew it lol. I think it is very important for one (and others) to get a gist and a clear understanding to avoid any mistakes on what/what cannot work with spreads.
    Its clear all streets have a market value (what they are worth now) and the max they sold for at any given point.
    i] Why is there a clear expectation that if the ceiling prices were x on x road, they can not be exceeded with no amount of money injected? Surely when market value and property prices increase this will be exceeded.
    ii] If OMV & both CP for the street is x price today so it cannot potentially be exceeded, why is it risky to try and get eg 20k more from a comp of a ceiling price of a property which sold for 20k more around the corner as it is similar?
    The reason Im asking for the second point is, lets say the property on x street is worth 100k, and the mortgage is 90k and the cp on the street is 100k. If you could buy it for 90k cash, and spend x amount to make it to the cp of property on y street at 120k, you could potentially make a profit.
    I know if the market is paying 100k its worth 100k. So unless the market is rising how do you exceed the ceiling price of a property when the omv is the same ie 100k from a refurb?
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