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Are you ready to make an offer, but you are worried you will either (1) underbid and miss the property or (2) overbid and pay too much?

Are you thinking about selling, but you are worried you will either (1) overprice and fail to sell or (2) underprice and leave money at the negotiating table?

IHB Fundamental Value Reports calm your worries and give you peace-of-mind.

See for yourself right now!

  1. Sign up for a free IHB Fundamental Value Report by filling in the blanks below.
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  3. A representative of the IHB will email you a PDF of the report.
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IHB Fundamental Value Report

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Reports are available for properties in the Southern California MLS coverage area, and are generally delivered within 24-72 hours after email confirmation. If you wish to receive multiple properties, please contact us a sales@idealhomebrokers.com, and we will get you the reports.

Need to see more?

Below are links to sample reports in PDF format followed by a detailed description of report conents and why you need the information the report contains.

Sample Reports

IHB Fundamental Value Report 14802 Devonshire Ave Tustin, CA 92780.pdf

IHB Fundamental Value Report - Cashflow Investor - 228 Orange Blossom.pdf

IHB Fundamental Value Report - 14811 Groveview Irvine .pdf

IHB Fundamental Value Report  -- 27 Canopy Irvine.pdf

IHB Fundamental Value Report - 126 Arden Irvine.pdf

Cover Sheet

The report cover sheet contains summary information; it has pictures, the address, and a few defining characteristics to identify the property. The first piece of summary data is the asking price, and this is followed by the Comparable Value, the Likely Transaction Price, IHB Current Cashflow Value and the IHB Fundamental Value.

When we prepare a Brokers Opinion of Value, we include what we believe to be the most Likely Transaction Price based on recent comparable sales and the trend of the market. This is our best guess at what the final sales price of this property will be.

The IHB Fundamental Value is based on the rental comps with some subjective adjustment based on a property’s desirability. Since market information is always changing, the report is time sensitive, and it is dated for reference. What follows a sample report for IHB Brokers Opinion of Value 27 Canopy Irvine.pdf

31 Deer Creek -- IHB Fundamental Value Report for Owner Occupant-1

Cost of Ownership and Acquisition

The second page of the report is full of of data and calculations. It looks daunting at first, but it is arranged to provide six (6) data points critical to understanding a property purchase:

  1. Monthly Payment
  2. Monthly Cash Outlays
  3. Monthly Cost of Ownership
  4. Monthly Ownership Gain (loss)
  5. Total Cash Costs
  6. Total Savings Needed

The first three items on the list look superficially similar, but they all provide slightly different information. The monthly payment is the check you will write each month to your lender; pretty basic. We assume conventional 30-year mortgages in our calculations because it is the stable financing of long-term homeowners. We do not run analysis on interest-only or negative amortization financing -- assuming you can find it -- because we strongly discourage the use of these loan programs.

The monthly cash outlays is the total amount of all checks a homeowner will need to write each month to be current on payments, including property taxes, insurance, HOA fees and other expenses. This amount is often much larger than most people realize. Some will try to reduce their monthly cash outlays by deferring property taxes to a lump sum payment every six months, but the expense is still there, and this total can eat up a significant portion of someone’s take-home pay. we recommend using an impound account to pay property taxes to avoid the last-minute scramble.

The monthly cost of ownership is a more accurate accounting of the true cost of owning property. There are many items which add to or subtract from the actual cost of ownership such as (1) income tax savings, (2) equity hidden in the payment, (3) lost income on the downpayment money, and (4) maintenance and replacement reserves.

Once the full cost of ownership is properly calculated, this figure can be compared to the cost of a comparable rental. Any cost savings or ownership premium is reflected here. As mentioned previously, blue chip properties often carry an ownership premium whereas undesirable properties generally demonstrate significant positive cashflow.

The final area of concern is having the cash available to close the deal. The downpayment is an easy expense to identify, but it is not the only cash a buyer will need to obtain the property. Buyers have to budget moving and furnishing expenses, closing costs and interest points (if any) to accurately assess their cash needs. Also, it is not a good idea to spend all your cash on a house and leave no emergency reserves. The spreadsheet estimates 6 months net salary based on the financing qualifications for the loan amount. The total cash costs plus emergency reserves equal the total amount of liquid savings needed to close the transaction.

31 Deer Creek -- IHB Fundamental Value Report for Owner Occupant-2

Estimates of Value

The third page looks at values and sets the stage for negotiation. It is composed of three sections:

  1. Comparative Sales Value and Negotiating Range
  2. Cashflow Value and IHB Fundamental Value
  3. Asking Price and Value Ranges (chart)

In Negotiating for Real Estate, I outlined the negotiation process and described how the top and bottom of the negotiation range is established. The Comp Range is a measure of the highest and lowest prices of recent comparable sales. The Comparable Sales Value is a blend of the mean and the median of comps used to establish value. By blending the two values, it recognizes outliers without putting too much emphasis on them.

In a stable market, properties may trade at a premium or discount to rental parity based on their desirability as owner-occupied housing. The most desirable “blue chip” properties trade at a 10% premium to rental parity, and transitory rental properties trade as low as 25% below rental parity. When the IHB prepares a Brokers Opinion of Value, we subjectively rate the property based on its owner-occupant desirability, and we adjust the cashflow value of based on our market experience. The resulting value is a theoretical basis for a property’s minimum value in the open market. When prices begin to fall, they generally do not stop until all properties in a market reach their fundamental value.

The chart showing asking prices and value ranges displays all the numbers in an intuitive format and shows the relationships between the numbers. For instance, in the chart below, the negotiating range and the comp range is significantly above a property’s current cashflow value. A buyer wanting to pay cashflow value will not obtain this property as market comps reflect a large ownership premium. This is currently the case in Irvine and in the beach communities. It is not the case in most other markets.

31 Deer Creek -- IHB Fundamental Value Report for Owner Occupant-3

Comparable Sales, Comparable Rentals and concept notes

Page four of the report has the raw data on comparable sales and comparable rentals used to generate the report. This important raw data eliminates much confusion and debate over current valuations. The sections on Comparable Sales Value and Likely Transaction Price and Cashflow Value and IHB Fundamental Value generates the most questions and confusion, so a more detailed explanation of these concepts is included.

31 Deer Creek -- IHB Fundamental Value Report for Owner Occupant-4

Financing Implications

Page five looks at how changes in interest rates will impact future resale value, and it contains a comparison of both FHA and conventional financing terms.

31 Deer Creek -- IHB Fundamental Value Report for Owner Occupant-5

Report notes

In an effort to explain many of the concepts and calculations in the report, on pages six and seven, we have included a line-by-line series of notes detailing any assumptions.

Ignorance is ...

George Orwell in 1984 wrote, “Ignorance is Strength” to describe how power is maintained by the few through the ignorance of the many. Those who are responsible for helping people buy and sell homes have preyed on the ignorance of buyers for generations to maintain their strength. They see little reason to change.

Thomas Gray in “Ode on a Distant Prospect of Eton College” wrote the line, “Ignorance is Bliss” to illustrate that ignorance to a problem creates happiness—while the ignorance lasts. This bliss may be welcome at times when the problem is intractable, but ignorance that prevents people from taking appropriate action does not lead to bliss, it leads to pain.

Ignorance is Pain. Ignorance to the housing market can lead to foreclosure and bankruptcy. There is nothing noble or romantic about ignorance to the value of real estate. I have no need to exaggerate the importance of getting this decision right.

I used the tools encapsulated in this report to avoid buying during The Great Housing Bubble. I have shared my methodology with you, and now, the IHB set up to work with you to apply these techniques to your personal situation.

Informed Decisions

I want people to make informed decisions. I wrote about the housing bubble because I wanted people to have information.

Based on these reports, some people will wait, some people will want to buy, and some people will want to sell. We do not attempt to persuade; most people are self-motivated when it comes to real estate, and when contemplating such a large purchase or sale, pressure just makes the process stressful.

You will know when the time is right because my analysis will tell you. It is fun to get caught up in the house-hunting experience and fall in love with a special property. The decision to buy or sell is always an emotional one. We are here to provide data to make sure your emotional decision is also a rational one.

Sign up for our emails and newsletter and get a report on a property of interest below. Get to know the IHB and see the value informed decisions can make in your financial life.

IHB Fundamental Value Report