What are Below Market Value (BMV) properties?
BMV is an abbreviation for the term Below Market Value.
Below Market Value (BMV) properties are residential properties that are available below their market value. This is normally because the owners are faced with some kind of financial difficulty and want to or need to dispose of their property quickly and without going through a protracted marketing and sales process. The precursor to this is quite often the threat of repossession.
In recent years, a whole new industry has sprung up around Below Market Value (BMV) properties. Property investment chat rooms are full of individuals claiming to have found a Below Market Value (BMV) property at a 10%,15% even 20% below its market value.
As a trained surveyor my first reaction to this is ‘poppy cock’. There really is no such thing.
The guidance from the Royal Institute of Chartered Surveyors on how a surveyor should value residential property is contained in Appendix 5.1 of the Royal Institute for Chartered Surveyors Appraisal and Valuation Standards (Red Book). The basis for the valuation of a residential investment property is normally its’ market value. Market value is defined in the Chartered Surveyors hand-book as:
‘The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.’
How do I beat the credit crunch?
Where a Below Market Value (BMV) property could exist is if the property was not fully marketed first. This situation occurs where property buyers are able to access so called ‘distressed or motivated sellers’ who cannot afford or want to go through the normal marketing and sales exercise. To find out how to access motivated sellers.
It is also true that because of the speed and unpredictable nature of the auction process (you are never sure how many and what buyers you are going to get) it is possible that properties bought through auction could be described as being Below Market Value (BMV)
The Below Market Value (BMV) Property Industry
The new Below Market Value (BMV) property industry has emerged during the current property boom because companies have latched onto the large potential profits of buying property at a discount and then renting these investment properties back to their original owners. Favourable financing conditions have meant that these companies have used their instant paper profits they make on these transactions to borrow additional funds to expand their operations. The industry even has its’ own trade organisation called the Property Buyers Association (PROBAS) comprising of companies that offer to purchase a distressed sellers property for cash as well as sorting out the legal side of the transaction.
Morally there are arguments for and against these companies who use their ‘negotiating’ skills and the desperate situation of the seller, (who often need to get their hands on cash fast;) to obtain a significant discount to the value of the property. They argue that they are providing a useful service for their clients; others would say they prey on the vulnerability and desperation of the less fortunate members of our society.
Beware of the Below Market Value (BMV) ‘middle men’
This new industry has given rise to a spin off sector aimed at landlords & property investors who want to emulate the success of these companies by locating their own ‘motivated sellers’ and purchasing Below Market Value (BMV) properties that they either keep or sell on at an instant profit. Companies and individuals have set up to exploit this property investor led feeding frenzy. Property investment chat rooms such as Russ Whitney have been taken over by chumps masquerading as property professionals, whose previous job, if they had one was probably opening the door to a load of drunken teenagers in a city centre bar.
These individuals set themselves up as Below Market Value (BMV) gurus and introducers either offering to sell their full-proof Below Market Value (BMV) finding system or increasingly to sell potential investors so called Below Market Value (BMV) leads to individuals they have tracked down who are ‘desperate to sell’.
The question is always, why? Why would these individuals be passing on leads for so called Below Market Value (BMV) properties if they are such great deals? The simple answer is that they are ‘chancers’. If they can sell a few leads for a couple hundred pounds and then an introducer’s fee for the sale of a property at a couple of thousand, it’s not a bad days ‘pay’!
One only has to look at the whole off-plan debacle for parallels. Here again naive and overly ambitious property investors were manipulated by unscrupulous middle men out to make a ‘fast buck’. The result is that many property investors have been left high and dry having over paid for new investments and are now facing financial heartache for many years to come.