The Inside Edge
Put simply, Below Market Value or BMV properties as those that are available to purchase below their market value. Normally this is because the previous owners experienced financial difficulty or needed to dispose of their property quickly without the protracted sales process. The reason for this is usually the threat of repossession.
The official guidance from the Royal Institute for Chartered Surveyors (RICS) about 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 foundation 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.’
If a property was marketed properly and then a sale agreed, a landlord might consider that they got a BMV bargain. But this isn’t always the case. For instance, let’s say an investor buys a property for £180,000 and a year previous to that a similar property sold for £200,000. The landlord may consider that they have bought the property at 10% BMV. If we look at the guidance set out by RICS the investor has just actually paid the market price.
So, do BMV properties really exist? They do and it all depends on whether the property was fully marketed before sale or not. These situations occur when buyers are given access to ‘motivated or distressed sellers’ who don’t want to go through the normal process of sales and marketing or cannot afford to.
Locating motivated sellers is usually quite simple if you are in a good position to buy. Targeting your local area with adverts or leaflets is one way. You could also contact your local estate agents highlighting your interest in property bargains and that you are a potential cash buyer of residential investment properties. Even if you need to arrange a mortgage for a bargain property it’s still possible to flush out some good deals. Persistence pays in the current market. Make your name and number known and make it clear that you are serious about making a purchase.
As with any industry, the BMV industry is rife with rogues and dishonest middlemen. Those posing as BMV gurus are often anything but and just after preying on those desperate to sell and in a distressful financial position. Their main concern is with making a massive profit between desperate seller and landlord. It is much better and easier to search for BMV properties through local estate agents or by offering your own direct service to local customers.
Of course, there are dangers with buying BMV property and this is mostly down to the provisions of the 1986 Insolvency Act. These provisions could result in a landlord who has bought BMV property legitimately being sued by the previous seller. If several years down the line the seller has become bankrupt they can take out a court order to reverse the sale or claim the difference back between market value and the agreed sale price. The reason for this is because the Insolvency Act allows the trustees of a bankrupt to prevent the bankrupt from giving away or selling assets below the normal market price. A landlord who purchases BMV properties can be exposed to these provisions for up to 5 years. However, there is a way to protect against this instance by asking the seller to execute a Deed of Solvency. This declaration states that the seller was solvent at the time of sale.