What The Heck Is "bmv" All About...

[classixuk]

I just have to ask this question...

Who on earth came up with the phrase "below market value" (BMV)?

It seems to be the new mantra of property developers e.g. "Well, even if there is a crash, it won't affect me. I used to BTL, but now I'm safe as I just BMV".

It seems there are 2 types of BMV:

1) Buying a poorly maintained property BMV that you do up and then sell

2) Buying an already perfect property at BMV.

Lets discuss them!

a) Buying a poorly maintained property BMV that you do up and then sell

How on earth is this considered buying BMV? The bulls think that in a street of terraces where the average property is £100K, that if they buy the run down one that hasn't been updated for 30 years, renovate it and sell at £100K that they are somehow in the business of buying BMV.

Using this philosophy, perhaps I should go to the local scrapyard and buy some 10 year old rusty Ford Fiesta that needs a new engine and lots of welding. If I buy the car for £200 when Fiestas in good working order are selling for £800 have I bought my fiesta at BMV, or have I bought a scrap car at the market value price paid for scrap cars? Hmmnnn...

2) Buying an already perfect property at BMV.

A property is for sale at £100K for 9 months and remains unsold. I offer to purchase at £80K and my offer is accepted. I do nothing to the property. Did I buy that property BMV?

Using this philosophy, perhaps next time I'm in a clothes shop I should approach the clearance rails with delight. Lots of excess stock that did not sell at £10 available for £5. If I buy one, does it mean I now own a top worth £10 but bought BMV, or that I own a top worth a fiver that was previously unsuccessfully marketed at £10?

What on earth is real BMV? If the market is truly willing to pay £10 for something, why would somebody sell it to me for £7? Why not take the tenner I know I can make myself?

Are "below market value" offers the biggest rebranding ever of what used to be called "reduced in price"?

Edited October 30, 2005 by classixuk

[right_freds_dead]

when i was a lad a BMV was a russian troop carrier.

[CrashConnoisseur]

See 'BMV, the myth of below market value':

http://firstrung.co.uk/articles.asp?pageid...&articlekey=834

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.

[...snip...]

Perhaps the abbreviation BMV is a misnoma, CFK would be a more appropriate description, Catching Falling Knives.

For many BTLers I expect the cycle to go like this: BMV -> BMW -> BMX

Edited October 30, 2005 by Jeff Ross

[Dames]

See 'BMV, the myth of below market value':

http://firstrung.co.uk/articles.asp?pageid...&articlekey=834

For many BTLers I expect the cycle to go like this: BMV -> BMW -> BMX

[Converted Lurker]

BMV is the latest fad in abbreviations used a lot on the singing pig site. Apparently lots of little piggies make wads full of cash from mincing around the courts talking to those about to be divorced or repossessed and then offer them a quick fix on the price of their property. They then apparently immediately sell it on, at a small profit, to whom I`ve no idea, or rent it out at an extraordinary yield. I swear I`ve seen pigs fly on that site.

[Guest The_Oldie]

BMV is the latest fad in abbreviations used a lot on the singing pig site. Apparently lots of little piggies make wads full of cash from mincing around the courts talking to those about to be divorced or repossessed and then offer them a quick fix on the price of their property. They then apparently immediately sell it on, at a small profit, to whom I`ve no idea, or rent it out at an extraordinary yield. I swear I`ve seen pigs fly on that site.

My guess is that other charming little tricks like knocking £20K off the offer price on the day of exchange are also employed .

[Father Fred]

I tend to agree that a lot of the time BMV is actually something selling MV to someone who thinks they are being clever.

But typical BMV deals are one's where the owner has inherited the house and jusst wants their grubby mitts on the money ASAP. Sells it to the first buyer who comes along, quite possiblly via an estate agent who is happpy to go along with a lazy vendor and let them accept the offer without pointing out that getting a little more might not take much work.

Or buying a property in need of work, for less than the MV in good condition minus cost of work. This is easier to acheive if the property is so bad that only genuine cash buyers can proceed. I have recently seen a property that will probably sell for £60k - £80k below it's refurbed value. The buyer will probably have costs of £25k plus legals/ EA fees of maybe £5k plus opportunity cost of the cash (say £5k if you assume opportunity cost is the bank). Depending on sale price 10% - 20% profit over 6 months all for having the money and the balls and the hassle of checking up on your builders every week.

There are plenty of people out there who's "job" is buying and selling property. Some of this money is made by luck and a rising market, but the real pros make most of theirs by adding value or offering a desparate seller a service in terms of quick money.

Two final things. It's damn hard to find the right opportunities (which is why so few people do it... if it was easy then it would be the best job in the world). It happens, whether you like it or not, think it right or not, there are people out there making good money by being property dealers.

FF

[teddyboy]

I tend to agree that a lot of the time BMV is actually something selling MV to someone who thinks they are being clever.

But typical BMV deals are one's where the owner has inherited the house and jusst wants their grubby mitts on the money ASAP. Sells it to the first buyer who comes along, quite possiblly via an estate agent who is happpy to go along with a lazy vendor and let them accept the offer without pointing out that getting a little more might not take much work.

Or buying a property in need of work, for less than the MV in good condition minus cost of work. This is easier to acheive if the property is so bad that only genuine cash buyers can proceed. I have recently seen a property that will probably sell for £60k - £80k below it's refurbed value. The buyer will probably have costs of £25k plus legals/ EA fees of maybe £5k plus opportunity cost of the cash (say £5k if you assume opportunity cost is the bank). Depending on sale price 10% - 20% profit over 6 months all for having the money and the balls and the hassle of checking up on your builders every week.

There are plenty of people out there who's "job" is buying and selling property. Some of this money is made by luck and a rising market, but the real pros make most of theirs by adding value or offering a desparate seller a service in terms of quick money.

Two final things. It's damn hard to find the right opportunities (which is why so few people do it... if it was easy then it would be the best job in the world). It happens, whether you like it or not, think it right or not, there are people out there making good money by being property dealers.

FF

As I have just posted on another thread. Good Property will ALWAYS sell, ALL OF THE TIME.

The shrewd investor, buys the best properties at the least possible price and renovates. This makes it a good house, in a good area, in good condition. If someone wants to move to that area and the market value is say £200k for the area and it then becomes a buyers market (ie the market is going DOWN). Someone WILL pay the £200k for that property because its in the RIGHT area and is a PERFECT house.

THE BMV arguement is as valid as AMV. Whatever people are paying for their housing - THAT IS THE VALUE. Whereas people would pay £220K when the last sold for £200K - that is their perogative. This is accepted and then EVERYONE expects thjeir house to sell for £220k - even though they dont have the conservatory or loft conversion!

The same can be said for someone who buys today at £180K. You have NOT lost 20K its simply what someone is prepared to pay!

Unless there is regulation in the housing market it will always be this way - Just hope people realise that PROPERTY CAN GO DOWN!!!**

TB

** SORRY! The property has not really gone down in value - It just hasnt achieved as much as it may have done in a BOUYANT market

Edited October 30, 2005 by teddyboy

[BandWagon]

I tend to agree that a lot of the time BMV is actually something selling MV to someone who thinks they are being clever.

Auctions are a classic case. Muppet pitches up at auction, has seen property with a low guide price.

Muppet doesn't know that they're pitched low to attract fools.

Muppet pays more than anyone else at the auction, yet still thinks they got a bargain because "it's an auction"

I've watched many people pay far too much at auctions...

[maxed out]

See 'BMV, the myth of below market value':

http://firstrung.co.uk/articles.asp?pageid...&articlekey=834

For many BTLers I expect the cycle to go like this: BMV -> BMW -> BMX

Thanks mate, anyone know how to get red wine off a keyboard

[PostalVote]

Thanks mate, anyone know how to get red wine off a keyboard

Have you tried a straw?

[Once in a lifetime]

Properties that would sell below market value.

Also any property selling today or the next few years will be, below ‘market value’!

[Rapid Descent]

We can probably learn lessons from the last crash if we are seriously talking about buying BMV.

Around 1989-1990, the number of repossessions started to ramp up and selling becomes difficult - so desperate sellers (called "motivated sellers" by the BMV muppets so they don't feel so bad about what they are doing) start to appear.

The problem, as many here have pointed out, that in 1990 the market had a long way to fall. So buying 15% BMV in 1990 was 5% AMV just a year or so later, and trying to sell that BMV property for what you think it is worth is not a trivial exercise. Failure to get a quick sale resulted in big losses.

In the last crash, the number of people in arrears hit a maximum in 1993. This would be the best time to try and buy "BMV" - the market was still falling in 93 but much more gently, so if the property turned out to be harder to shift than expecting, it didn't put you into financial distress.

A few people have got away with BMV lately because there are a few remaining mugs paying near peak prices since the property market hit a wall 16 months ago. The sands of time are running out though, this will not last, and a few people will get burned buying BMV at the start of the crash, rather than at the end.

PS. Burnt before - ROFLMAO. Nice.

[Master Of Evil]

This is such a joke.... OF COURSE BMV exists.... all of the examples used are irrelevent... BMV exists because property is a very very very difficult asset to liquidate.... therefore people who sell BMV trade their equity for speed & certainty... price is not the only driving factor... when I buy at 20%+ BMV I offer the seller certaintity of the sale too... even if they dropped to the price I'm buying at and then put on the open market there is no garauntee of a sale... 40% of all agreed offers through EA's fall through.... now if you have an impending event and can afford to sacrifice the equity to make sure that event occurs as desired selling BMV is not an issue... but to simply say that it does nto exist... that what you pay is MV no matter what is pure stupid!!! When directors of a company are offered stock at reduced prices is this not BMV??? When I buy a property for £160k one week and then 6 weeks later sell it on the open market having done nothing to it for £215k... did I not buy BMV... or are you saying that property prices are growing by 34% in 6 weeks... you see the theory is great ... but I'm sorry to tell you in practice.... it IS REAL

And BTW R Descent.... the biggest fall in one single year during the last crash was 13% in a single year.... so if one bought for 20% bmv it would still be 7 % bmv a year later!!!

Now I am the MASTER

[Father Fred]

MoE

Sort of what I was trying to say. BMV exists, plenty of idiots try to do it and get it wrong, but to pretend there isn't money to be made by trading an illiquid asset is as sensible as saying that used car showrooms don't exist. After all, who would sell their car for less than it's worth, and who'd pay more than it's worth, so therefore used car yards are a figment of our imagination. They don't exist! They can't.

Same with second hand jewellers... remember when you last walked past one? Yes? Well you're wrong, it was a starbucks... not possible to make money buying and selling something so it can't exist.

Even if prices were falling 30% a year there'd be people buying at 25% BMV and selling for 10% profit 6 months later.

FF

[Guest wrongmove]

There is an amusing thread about this on TMF

Downturn fuels Beeny boom

....This is bang on the money. Anything needing work is selling for silly money round here. In fact, it is cheaper to buy one that doesn't need work doing to it, such is the perparedness of wannabe developers to over-pay.

I viewed one last week. It was on sale at a guide price of £50k, it needed £30k MINIMUM spending (major subsidance throughout, rear wall bowing, lead pipework no heating or bathroom, pre-war electrics etc etc) and it would have been worth £80k when finished. I know someone who bid £50k and he was outbid. Someone has just over-payed.

I have got one on the market at present. It needs nothing doing to it, but I am seriously tempted to ask the agent to market it as "needs upgrading hence the price"......

M4NKS

[Father Fred]

Very good observation. The fact that 95% of scruffy properties are priced at 5% below ceiling price because they require 10% of their value spent on them proves how hard it is to find a BMV property.

FF

[classixuk]

MoE

Sort of what I was trying to say. BMV exists, plenty of idiots try to do it and get it wrong, but to pretend there isn't money to be made by trading an illiquid asset is as sensible as saying that used car showrooms don't exist. After all, who would sell their car for less than it's worth, and who'd pay more than it's worth, so therefore used car yards are a figment of our imagination. They don't exist! They can't.

Same with second hand jewellers... remember when you last walked past one? Yes? Well you're wrong, it was a starbucks... not possible to make money buying and selling something so it can't exist.

Even if prices were falling 30% a year there'd be people buying at 25% BMV and selling for 10% profit 6 months later.

FF

Well, I'm not in the business of property, but I'm in the business of buying and selling.

I buy from a supplier or wholesaler and sell on to the public at an increased price. I must remember from now on that I am buying from the suppliers at BMV everytime I make a purchase.

Here's a question for you...

If BMV is so fantastic (i.e. "I've bought at 20% BMV so if property prices drop by 20% I won't be affected") how do you explain what will happen to BMV in the future?

For example, you buy a £200K property for 20% BMV today. Property prices drop by 20% over 4 years.

In 4 years time I buy the same property as you did (now worth £160K which is the price you paid for it) but I too buy it at 20% BMV. I do it up and sell it for £160K making a nice profit.

Where's your profit? You've bought for £160K! LOL Or are you suggesting that "BMV" will magically dissappear by the time I come to purchase a property?

Another thing you're forgetting is that if a property is for sale at £200K and doesn't shift over a period of 9 months, you aren't really buying at 20% BMV if you purchase at £160K.

You'd be waiting around 4-5 months for a sale of £180K if you flipped the property (that should be obvious).

[red]

An old maxim of mine, relevant here is...

In a falling market: "Today's bargain, is tomorrow's market value"

...

Bingo.

This sums it up for me.

Interesting to hear the bulls boasting about the 'BMV' bargains they've picked up this year. Next year, those 'bargains' won't look quite so great.

[Converted Lurker]

Very good observation. The fact that 95% of scruffy properties are priced at 5% below ceiling price because they require 10% of their value spent on them proves how hard it is to find a BMV property.

FF

FF you are correct in describing it as the best job in the world if you can get it right. The problem as I see it is that in my area (Wirral) there are probably/arguably 1000 properties for sale. Most of these guys attempting to buy to flip will be operating in the smaller value properties, maybe 100K, definitely below 200K market, of which there are probably only 100, these are mostly in the less attractive areas. Let`s say you have 10 out of the hundred that would have a deal, surely the competition to get these deals from all sides would be intense? Traditional sales through agents, developers, btl, ftb......dificult one to pull off in a market that`s still falling.

Two local anecdotes fresh in my mind. An absolute wreck of a property up for 300K, perfect one in the same road for 350K, probably accept 320K. The guy with the wreck will not budge by much it will take 60K to sort it. Where`s the BMV activity there?

Also a guy bought a house of a couple that are emigrating, they were desperate. They wanted 280K, he agreed to pay 240K and he agreed to let them live in it for the next 3 months while he sold it on for 260K. Now vacant for 3 months extra, his money has been tied up for 6 months. The whole exercise has probably cost him 10K. The house is worth 240K IMHO.

Also I know for a fact that those buying at the local auctions in recent times that simply did nothing and put the property back in the next auction are not winning now.

[Rapid Descent]

And BTW R Descent.... the biggest fall in one single year during the last crash was 13% in a single year.... so if one bought for 20% bmv it would still be 7 % bmv a year later!!!

Only if you consider national averages - which blur the ripple effect out of London.

For example, according to Nationwide, the SE of England fell by around 20% between Q3 1989 and Q3 1990. At the same time, the NW of England grew by around 5%. The average was less than 20%, but that doesn't help very much if you've bought BMV in Kent...

As I said in my post, the conditions over the last year have been pretty good for BMV - properties not selling, but more or less holding their price. These conditions are unlikely to last for long, and when the rug is pulled out from under people's feet, many will get burned.

[Father Fred]

"Well, I'm not in the business of property, but I'm in the business of buying and selling.

I buy from a supplier or wholesaler and sell on to the public at an increased price. I must remember from now on that I am buying from the suppliers at BMV everytime I make a purchase."

There are two markets - retail and wholesale. You are a retailer and the person selling to you is a wholesaler. You are buying at wholesale prices, which are (almost by definition) below retail market value. If you were a retailer who bought at retail market value you would not be in business for very long.

"Here's a question for you...

If BMV is so fantastic (i.e. "I've bought at 20% BMV so if property prices drop by 20% I won't be affected") how do you explain what will happen to BMV in the future?

For example, you buy a £200K property for 20% BMV today. Property prices drop by 20% over 4 years.

In 4 years time I buy the same property as you did (now worth £160K which is the price you paid for it) but I too buy it at 20% BMV. I do it up and sell it for £160K making a nice profit.

Where's your profit? You've bought for £160K! LOL Or are you suggesting that "BMV" will magically dissappear by the time I come to purchase a property?"

As far as I can see if you buy to hold (eg BTL or to owner occupy) the amount you buy BMV is utterly meaningless... the only relevent thing is the amount it is currently valued above what you paid for it. And by Market Value I mean the price a half decent estate agent could sell it for in a month or maybe 2 months (maybe longer in a rural setting where properties are harder to sell as there are less people looking for a given type of property).

If you are buying to sell then it is irrelevent what market value is when you buy it... it only relevent what you sell it for. So if prices are falling 20% per annum and it takes 6 months to sell then you need to buy 10% BMV to break even (assuming no transaction costs). When analysing a deal a prudent investor in todays market will need to offer an amount BMV that takes into account - costs, profit margin required, 'general' risk, and risk of the market falling. In a rapidly rising market (say 3 years ago) the buyer might wish to only take into account costs and profit margin required - he might assume the rising market is his compensation for risk, and clearly he doesn't need to take into account an amouunt for price falls.

"Another thing you're forgetting is that if a property is for sale at £200K and doesn't shift over a period of 9 months, you aren't really buying at 20% BMV if you purchase at £160K.

You'd be waiting around 4-5 months for a sale of £180K if you flipped the property (that should be obvious)."

See my comments above re: MV.

As far as I can see asking prices are irrelevent. What can you sell it for through a half decent agent in a month or two? That's what it is worth today. Theoretically you can buy at 50% off asking price and still have bought at above market value.

FF