Sunday, December 16, 2007

Seriously Seeking “Advise”

Kool-Aid Victorian House by ~smokleopian

I’m not much of a condo person and have been watching the market for the past couple of years in hopes of an upgrade to a real house (or multiplex) that isn’t subject to the whims of an HOA.
Other than tracking a few properties online, I haven’t been actively looking and instead waiting for prices to drop. One of them is a short sale that has dropped nearly 300K below the Zillow Zestimate and looks like a pretty sweet deal, so I viewed it today and am considering making an offer. Supposedly two other offers were already submitted. Ideally, I would prefer to make an offer subject to sale of my condo, yet I do have a line of credit that would allow me to put 20% down without contingencies and enough equity to list my place at a below market value. While it’s an old house (with the structural issues one finds in Victorians), whoever owned the place before the “facing foreclosure guy”, put some money into upgrading plumbing, electrical, central heating and air conditioning, automatic watering, etc., so it’s not in bad shape in comparison to many similar ones I’ve looked into and has the added bonus of commercial zoning in a downtown location, so if all else fails could be raised and replaced with a commercial building. In essence, I like the location, the house has potential and the price is quite nice, but I’m risk adverse and unsure whether to risk an offer without a contingency of sale – even if I could wing it for a few months.
Onto the bizarre viewing experience today…The place was supposedly vacant, but this guy was there apparently cleaning and said we couldn’t view one of the bedrooms because someone was asleep in there. He didn’t have a strong command of the English language (to say the least), so we assumed he was hired by the selling agent in preparation for an open house she was holding an hour later. Well we later realized the “cleaning guy” was in fact the “owner” of the house and bought it over a year ago for over 100% financing. He currently owes one lender 600K and the 2nd 150K and it’s currently listed for significantly less. He seemed so nonchalant about the whole thing one would never know he owned the house. When we asked him specific questions about the roof, electrical, zoning, etc. he really didn’t seem to have a clue. Apparently when it was first listed there were appliances that are now missing. He said they were broken, but one wonders if he pawned them to pay mortgage payments he couldn’t afford. Overall, it was a perfect example of why there’s a mortgage meltdown. If the guy barely knew anything about the electrical upgrades, roof, plumbing, retrofitting, etc. of the house he bought for over 3 quarters of a million dollars how could he possibly understand what he was getting himself into? Given his poor English, I wonder if his original brokers spoke Spanish. Most likely, they didn’t or if they did, clearly didn’t explain what he was financially responsible for. WTF?

26 comments:

Ogg the Caveman said...

Murst!

Whatever you do, I hope it turns out to be a sweet deal. Good luck.

Anonymous said...

You seem keenly interested. Maybe too much so? In this state of mind, ask yourself if you are really able to listen to anyone's advice?

I get this from breathless tone to your post.

Don't get me wrong; it just reads as if you are ready to pull the trigger and you want someone to bless this decision and simply agree that you should go forth and buy.

Perhaps it is a real steal.

OTOH, perhaps it is not. In any event, your timing seems premature given current market conditions and most projections for the next 2-5 years.

So if you are indeed in a hurry to buy, this might be a tad hasty.

Adding to that, the condition seems, from your description, iffy.

It couldn't hurt to a pay a few hundred for an inspection. If you could do that without a commitment, maybe that would be a worthwhile and managable expense.

Maybe the failed fliptard, who seems (from your description) disinterested or simply apathetic, could be convinced to allow inspection prior to "putting in an offer."

Based on the greater fool theory, I wouldn't do it, simply based on the limited information of your post.

But if you plan to stay there for ten years and the monthly PITI taint no big thang and well within your means, you still might make the mistake of buying a money pit.

serinitis said...

Random thoughts

1. Were permits used for the upgrades. Were they signed off? If unpermitted or a stop order is there, you could be buying a big mess.
2. Get the inspection.
3. Is the place going to be empty when you buy it? The bank thought it was empty, but it is not. You may be stuck with an eviction if this is not spelled out in the contract.
4. There is no market for fixers right now so that could be the reason the place is cheap. It is not hard to do all the work yourself, though it is time consuming and the place does become a big mess.
5. replacement appliances can be purchased cheaply on Craigslist.
6. Unless the raw land is worth about 50K more than you are paying for the house, it is not cost effective to have the raize it contingency. Drop that thought from your planning
7. The Zillow estimate is likely to be off if it is a big house in a small house neighborhood. That could have been the tool used by scammers to get the straw buyer in who currently owns it. Use zillow to look at the prices of other houses near it. Figure out why the zestimate is so different.
8. Plan on winging it for more than a few months.
8.

serinitis said...

P.S

Good luck

serinitis said...
This comment has been removed by the author.
serinitis said...

One more thought, offer $15K to the second mortgage holder to buy mortgage. If any of those other bidders are real, they have to pay you full value to get rid of you

Ogg the Caveman said...

On further consideration:

I know you've been looking for a long time. I hope you're not feeling desperate or that nothing like this will come around again. There will be other possibilities in the future. The worst thing you could do is let frustration or desperation influence your decision. If you have to choose between waiting and making a bad deal now, wait.

But if you think that this house is a good deal and you can see yourself living in it long-term and you're in a position to weather any short- to medium-term price drops, then that's another matter. From my rural perspective it's difficult to see such a place as worth nearly half a million, but you know the local market far better than I do.

Being more than a little bit risk-averse I would take a cold, hard look at the financials, especially the down side. Is there a chance that you could find yourself needing to sell in the near term? What if the value of the house drops further before rebounding (quite likely IMO)? As Serinitis says, don't count on the commercial option to bail you out unless you know the land is worth enough.

If I was in your shoes and I'd satisfied myself on all those counts, I'd probably make an offer contingent on the sale of the condo. As you know sales have been pretty flat in your area, and you wouldn't want to get stuck making payments on both long term. But ultimately it's your money and your risk, so you'll have to weigh all of the factors yourself.

What I've just said sounds pretty negative. I don't mean to discourage you or to imply that the house is a bad deal. It might very well be a sweet deal. Just be sure to think about the down side as well as the up side.

Akubi said...

@Anonymous,
Actually, I’m actually not in a hurry to buy and have been watching the market for years. I had been planning to wait at least another year or so yet this seems like a good price, location and house for me, but after sleeping on it I feel a bit less excited about the place.

@Anonymous and @Serinitis,
The property was in escrow (fell through due to some issue with one of the banks from what I've been told) so I have a copy of a termite report from last month. The main issue was dry rot and decay of the front porch and some more minor issues with an estimated repair cost totaling about 8K.

@Serinitis,
Since the property hasn’t *yet* been foreclosed on, I would assume the “owner” has a right to live there doesn’t he? As far as the Zestimate, it is actually a relatively small house in a big house neighborhood, so neighboring homes are upwards of a million dollars yet more comparable homes recently sold for less than the Zestimate, i.e. $626 per sq ft vs. $683 per sq ft.

@Ogg,
After sleeping on it, I’m leaning more in the direction of a pending sale of condo offer.

Akubi said...

Regarding permits, there was nothing included in the disclosures about them and I doubt the "owner" has a clue.

Peripheral Visionary said...

My advise . . . err advice, for what it's worth:

- Don't buy until you sell. Two payments will kill you unless you can rent out your current place for positive cash flow (which doesn't sound likely.) And you need to be brutally realistic on price; think of the price on your condo that would have people beating down the door to buy, and people *might* take it at that price. Maybe.

- Inspections. What the people above me said. Pretend as if somebody from a developing country has been living there for a year, stripping the place bare to pay for food because, well, that appears to be exactly the case.

- Old houses are nice. That's the one positive point I have; well-maintained, it should hold its appeal and only become more charming over the years. This country is flooded with faux-luxury oversized tract houses; the one type of property that's in limited supply is beautiful older homes.

- Paragraphs. They're nice :). Or it might just be my browser.

serinitis said...

I suppose an owner can be allowed to stay in his own home :(

A call to your city's building division can find out if there are any permit issues.

Termite inspection is different from a house inspection. The house usually costs a couple hundred. You need this as well. This inspector will checks a lot more things than the termite inspector does.

If in doubt, delay. If you think house prices are getting near where you will step in. You may want to sell your condo now (or in the spring) and just rent until your dream house comes available.

Akubi said...

It’s a shot in the dark given multiple offers, but my current plan is to offer the asking price minus the 8K termite repairs and contingent upon the sale of my condo as well as a termite inspection of my own plus house and foundation inspections.

@PV, BTW I agree with you about old houses and much prefer Arts and Crafts and Victorian houses over “faux-luxury oversized tract houses.” Even though this particular house was built well over 100 years ago, the redwood siding looks much better than some houses built 10 years ago. While old foundations and age-related decay can create a problem (note this did survive the 1906 earthquake), overall they seem to be much better made than the "faux-luxury oversized tract houses."

Ogg the Caveman said...

Good luck.

Akubi said...

Change of plans: No offer.

The selling agent told my agent that the other offers had few contingencies, so it doesn't seem worth pursuing at this point.

NotAnOptimist said...

Don't worry, other opportunities will appear. I just wanted to share that I used to go house-hunting w/ my mom every weekend for 3 years and we never found anything that really felt right. It took another 4 years before my family finally moved out of an apartment, and they've never been happier. Good things come to those who wait... or something like that.

Just as a FYI, (I'm sure you already know this) selling during the winter months tends to be much harder than during spring (it's much easier to make a place look good when the sun's shining and birds are chirping in the background). Not sure exactly what area you're looking in, but personally, I believe the residential housing market will continue to soften for at least the next 2 years, so there's plenty of time. Good luck!

Akubi said...

@NotanOptimist,
You’re right – my parents weren’t looking but just happened to find a foreclosure deal in the 80’s that worked veru well for them, so I keep hoping I’ll find the same, but no matter how much one scrimps and saves (and I’ve always done much more of that than my parents) it is a lot more of a risk as a single person in an extraordinarily expensive location.
@PV,
Forgot to mention it was a veritable “brain dump” hence my lack of paragraphs.

Anonymous said...
This comment has been removed by the author.
wagga said...

@Edgar

Monet Pit? Where?

@Akubi

Or you could just read some Sarah Graves (Repair To Her Grave, Dead Cat Bounce, et al & experience it vicariously.

Ogg the Caveman said...

@ Wagga:

Monet Pit is a coffee shop in Corvalis, Oregon that's mainly frequented by art students. It's not entirely clear how Akubi's real estate ventures would benefit from her hanging out there, but perhaps Edgar knows something I don't.

Anonymous said...

The t is right next to the y on the keyboard, sheesh! You guts are ruthless!

Akubi said...

Monet as in the painter?

@Edgar,
You didn't have to delete your comment because of a typo!

@Wagga,
Home repair and homicide are an interesting combination. I'll have to check her out. Since they're easy to pick from wherever one left off, I like reading mysteries on the bus.

I should really stop searching real estate listings for "sweet deals" for at least another year or so, but it has become a bit of a habit over the past few years.

Anonymous said...

@Edgar,
You didn't have to delete your comment because of a typo!


Those guts were both giving me grief over a typo, why shouldn't I?

Ogg the Caveman said...

@ Edgar:

Relax. I was just teasing tou.

Anonymous said...

MoneY Pit

NotAnOptimist said...

Akubi:
it is a lot more of a risk as a single person in an extraordinarily expensive location
Yeah, housing prices in the Bay Area are ridiculous. It wasn't until I moved up to the PNW that I realized $400K for a single family house is NOT generally considered inexpensive. About that single thing though, I can help out there... (Ogg don't beat me up too much) ;)

Completely OT: random question (for anyone reading this, actually):
If you were female, and one of your best female friends gave you an engraved heart-shaped pendant for Christmas... what would you think?

Ogg the Caveman said...

@ NotAnOptimist:

Rather than beating you up, I'll just congratulate you on your excellent taste in women.