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Below Market Value Property Industry Explained for Landlords

BELOW MARKET  PROPERTY (BMV)

What are Below Market Value properties?

Below Market properties are perceived to be available below their true market value. Their owners are often facing financial difficulty that means they need to dispose of the property quickly and are looking to avoid a protracted sales process. These sellers are often under the threat of repossession.

Is a property Below Market Value?

Guidance from the Royal Institute for 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.’
 
Therefore, if a property has been properly marketed, before a sale is agreed, it is not perceived to be a 'Below Market Value' property, even if the buyer considers its 'knock down price' worthy of the description.
 
For instance a property investor buys a property for £180,000, when a year previously a similar property sold for £200,000. If the property has been marketed, although the investor might consider that they have obtained the property at 10% BMV - this is not the case under the guidance on valuation standards. The investor has actually just paid the market price.
 

When do BMV properties exist?

Where a BMV property may exist is if the property was not fully marketed first. This situation occurs where 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.  
 
 
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 in this way could be described as being BMV.

The 'Below Market Value' property industry

A 'BMV property industry' has emerged. 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 instant paper profits they have made 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 are known for using hard ‘negotiation to 'encourage' desperate sellers. There only focus is obtaining a significant discount to the market value of the property. They argue that they are providing a useful service for their clients; others would say they prey on the vulnerable, but I am not here to judge.

Beware of the BMV ‘middle men’

However, I will warn any novice property investors to watch out for the agents that circulate the 'BMV property sector.  They target landlords & property investors, promising success and riches to those who follow their leads. Many of these BMV sourcing companies are nothing but sharks, offering supposed BMV property that often isn't. Be warned and be wary of slick sales patter from any men in shiny suits.
 
These 'sharks' also skulk the online property forum and chat rooms, seeking out unsuspecting novice property investors. Many of these BMV 'gurus' either offer to sell a full proof BMV finding system or increasingly to sell potential investors so called BMV leads they have tracked down. Buyers beware!

The dangers of Below Market Value property

There are dangers with buying BMV properties. There is a little known provisions of the 1986 Insolvency Act. The result is that a landlord who legitimately purchases a BMV property could find that several years down the line, and unbeknown to them, the property's seller has become bankrupt, and a trustee is coming after the landlord with a court order to either reverse the sale or claim back the difference between the open market value of the property and the sale price.  
 
This is because the Insolvency Act allows trustees of a bankrupt to protect themselves from the bankrupt giving away their assets or selling them at below the market price. A landlord purchasing a BMV property is potentially exposed to these provisions for up to 5 years assuming no fraud or the parties are associated in any way.
 
It is possible for a landlord who is looking to invest in a BMV property and is worried about getting caught out by this legal loophole to cover them self against having the transaction involving the purchase of a BMV set-aside by the courts. 
 
What landlords need to do is to get the seller to Execute a Deed of Solvency and thereby effectively sign an undertaking to say they were solvent at the time of the sale. A landlord’s solicitor as part of the transaction will then need to arrange an insurance policy to cover the landlord for the two year period from the date of the transaction in which they are exposed to the potential that the seller goes bankrupt and that the trustee can make a claim against the landlord to set-aside the transaction.
 
Professional landlord insurance rates from Alan Boswell Group
 
Related links

Comments (5)

ino
info
#1 - leo ppiah - 05/22/2012 - 00:08
Acting Agent
Hi,

I am a self employed property investment consultant who works for a property developer called FreshStart Living, based in Manchester. We sell BMV investment property. We specialize in student accommodation and residential apartments.

We are currently looking to people on board who can constantly sell property wherever in the world they are. All our properties come with a rental guarantee of up to 10 years, fully managed.

We have an excellent commission structure in place for yourself, outlined below.

Student Pods
• 5% per unit from 1 to 10 units.
• 7% per unit for 10 plus units.
• 10% per unit for 15 plus units.

Apartments
• 4% for all residential units.

If you feel this is something that you could get involved with, please do not hesitate to contact me via email or on 0161 728 5283 or 07970713013.

I look forward to hearing from you.

Kind Regards

Jonathan Evans
#2 - Jonathan Evans - 05/25/2012 - 13:56
Selling properties opportunity
I would like to know more about property sales opportunity.
Although I have no previous experience, ths is something I would love to be involved in. I would give my all to learn if given a chance.

I'm based in Devon and I await to hear from you.

Regards
Esther
#3 - Esther Putt - 11/10/2012 - 22:34
property buying to make profit and sell on
morning i have a good rental potfolio which i manage ,but now want to change direction (keeping my rental business) to an extra direction so i can buy a property BMV use trades men and re sell as profit , clean cut and selling on for profit my accountant has forwarded me your site .

I would be interested in any feed back relevant to this ,
many thanks and look forward to hearing from you .
Regards
Rosemary Robertson
#4 - mrs rosemary Robertson - 03/02/2014 - 13:19
buying property bml, refurbishment , sell on
look forward to hearing back .
looking in london area around the thames surry ,east sussex
as in bmv and refurbmish and sell
#5 - rosemary robertson - 04/20/2014 - 12:40
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