How to find a "good deal" on a house?

djmcmath · 04-06-2008, 05:56 AM

I am now officially in the market to buy a house, preferably within commuting distance of Carderock, MD. I have 11 months before the lease on the apartment expires, so I have plenty of time -- no rush, no stress, just looking for a great deal.

Like most Pelicans, I'm pretty handy with tools. I'm planning on getting a place without a garage (but with a space where a garage ought to be) and building one, for example. If it's a little small, it's ok -- I'm comfortable adding on, within reason. If it's been abused by the previous owners, that's ok -- as long as the fundamentals are ok. Solid foundation, reasonably modern electricals, that sort of thing. I'm willing to accept some risk on a house in mediocre condition, as long as the price is good enough. I have enough time that I can afford to look slowly and carefully, take my time, and make sure it's right.

The great trick is finding the really great deals. How do you find the house where the seller just needs to unload it, and doesn't care what it sells for? How about builders who lost the buyer, and are only partway through building the place? Foreclosures? Bank owned properties where they just wish SOMEONE would start paying the mortgage? Are there websites or books for people like me?

Thanks in advance.
Dan

onewhippedpuppy · 04-06-2008, 06:11 AM

Dan, be careful with foreclosures. The true "bank sale" forclosures often have a number of odd regulations related to them, and without doing your homework you can get screwed. For example, many states allow the former homeowner to come back within one year, pay the mortgage current, and get the house back. Even if you've bought it and improved it. Pro flippers typically contact the former homeowner and buy their rights to reclaim their property. However, I've noticed there are a number of foreclosed properties being listed on the MLS by realtors, owned outright by the bank. They don't seem to be the absolute steals that the true foreclosures are.

Really, it's just about doing your homework. Narrow down the area, and learn every street. LOOK AT AS MANY HOUSES AS YOU CAN! If you have a good feel for what places go for, you'll know a bargain when you see it. Open houses on the weekend are a great way to do this, as they don't require the commitment of a realtor. When you start seriously shopping, get comparitive sale information on any house you're interested in. Your realtor can provide this, and it will give you a good feel for what houses in that area are really selling for. Location is everything, it can easily make your purchase a bargain or a waste of time. Exposure to neighborhoods will give you an idea of whether or not they are on their way up or down.

You're on the right track by willing to do some work, sweat equity is a great way to make money on a house. Unfinished basements are an awesome way to add equity and living area, adding a garage would be as well. When buying a fixer-upper, it's all about potential. Look at what houses in the area are selling for in great condition, as that's approximately what yours will be worth. Enjoy the process, and good luck.

LakeCleElum · 07:35 AM

Dan - You've sure lived in a lot of places since you left Bremerton. I guess the Military does that to you.

I got a great deal on the house I'm in (for sale now) in the late fall of 1991. It was a depressed housing market, weather was bad and the holidays were coming. No one was buying.

I defined an area I wanted to live in (Renton to Maple Valley) and over a period of a few months, drove every street and knew ever house that was for sale. The one I finally bought was a brand new house on an acre and half built by a finish carpenter for his own home. After a year, he couldn't afford to stay there. Short story, he listed with a realtor in Aug. 1991 for $225K - I got it "for sale by owner" in late Nov. for $179K. He couldn't sell to others because he never put in a yard, didn't pave the drive or even build a deck. I called it a "brand new" fix-er'upper"....I put $20K in it and now have it on the market for $595, wanna buy?

http://seattle.craigslist.org/skc/rfs/631376109.html

So, you can find those that "really need to sell". It takes time, patience, and a slow market. Sounds like you have all that going for you. Good luck.

Zeke · 04-06-2008, 10:14 AM

I have been in the home improvement biz for 38 years and I have a couple of thoughts:

A good roof is something to look for. Roofs are very expensive.

Wood rot is expensive to repair.

Plumbing is expensive, electrical can be, but you can do a lot of the work yourself.

-----------------------------------------

OTOH, painting is cheap, done by yourself. Patch plastering is a skill you need to learn.

Carpets are relatively inexpensive; hardwood floors have never been easier than today.

New windows are also relatively inexpensive and you can probably do them yourself.

Doors and moldings do a lot for a house, hire a carpenter for these. A kitchen can be "made over" for a reasonable cost; a new kitchen will cost upwards of 25K. A solid, clean bath is not only a personal pleasure and comfort, is goes a long way towards recouped value and resale appeal (same for the kitchen).

Landscaping is just a lot of work, plain and simple. If you can get the bulk done by a tractor and some labor, go for it. Setting out plants is child's work (buy the right plants). Curb appeal is priceless. Get some low voltage lighting.

There is no substitute for overall square footage.

In short, like a car, interiors are easy to do, small mechanicals are in scope for the DIY'r, major renovations cost big and can sometimes cost you money that cannot be recouped. Do research on "cost vs. value" at various home improvement forums.

Carl_Boehme · 04-06-2008, 03:59 PM

All good advice. One technique that worked for me was to locate a house that I liked that was owned by the 2nd mortgage holder. This bank was in the position of servicing the 1st, maintaining the property and carrying a nonperforming loan on their books. Not a good place for a bank to be. The asking price was high enough to make them well. I calculated what I thought they would take to be rid of the property and wipe the non-performing loan off their books. It worked. I owned the property for twenty years then sold it in 2005 for a very nice profit.

Sometimes this technique is called selling the second short. Good luck with your new house. Some report that as many as two million families may be evicted from their houses in 2008 :-( So you have plenty of time to find the house you want.

Dueller · 04-06-2008, 04:29 PM

A few practical pointers:

1. Buy the least expensive house in the neighborhood.

2. Have your down payment ready in a dedicated account; have your financing lined up and pre-approved so you can pull the trigger quickly. I bought a house for $.75 on the dollar because I could close in less than 30 days. Time to a distressed seller may be more important than getting a higher offer 3 months from now.

3. Cozy up to a banker/mortgage lender and see if they have any customers that need to get out from under a loan in a short sale situation. Not easy due to privacy concerns/fiduciary responsibilities.

4. Don't try to buy property at a foreclosure sale unless you really know what you're doing. Let the bank buy iy and immediately contact the lender tosee if they will sell it to you.

5. Make sure it has a good roof and foundation if its a fixer upper.

6. Time is on your side...shop shop shop. Ride around neighborhoods you like at night to see what houses are vacant. Find out how o search for the record owner from public records so you can contact them directly to see if they're interested in selling.

7. Try to directly contact the listing agent of a house you want...sometimes they will compromise their commision if they don't have to split it with another agent if the deal is close. Especialy in the current market.

8. If the house's mechanicals are older than 8 0r 9 years, try to get the seller to pay for a one year home warranty. If they won't offer to split it with them. Usually runs c. $400/year and can pay for itself if the funace goes out 11 months after you buy the house.

9. For a new house, look for builders in trouble moving their inventory.

djmcmath · 04-06-2008, 04:55 PM

Thanks for the great advice, all. I had a hunch the Pelican crowd would be full of great information.

I especially like the off-the-wall things, like driving around the neighborhood at night to see which places are vacant, or directly contacting the listing agent.

I've heard a bit about the risk involved in buying a foreclosed home, but nobody's gone into the details. I didn't realize it was that crazy. I wonder how often people who've foreclosed come back and evict the new buyers? Given the risks, that may not be at all the right choice for us. I like Dueller's home-builder idea -- any idea how to get a listing of the partially built houses that they need to move?

My wife and I spent the afternoon out looking at open houses, just browsing through neighborhoods. I was blown away with "sticker shock." There were a couple that almost had me dropping into a coma once I got back to the car -- little bitty 40 and 50 year old houses, falling apart, on these tiny little lots, over $500K. Bizarre. It's like I'm taking crazy pills. Wayne -- I've seen your charts, and I totally agree. Either people will maintain prices where they are, and houses will just sell VERY SLOWLY, or prices have to fall.

Bob, thanks for noticing: yes, I've moved a couple of times since Bremerton -- I lived in CT, then VA, now MD. With any luck, I'll be able to slow down some, as I've left the Navy.

Sounds like you did VERY well on your house -- I'd love to pull a deal like that.

I'll keep everyone posted on the adventure.

This is fun, in a totally sick sort of way.

Dan

Dueller · 05:38 PM

Read this thread...particularly my post in post #18. And keep in mind Biosurfer bought the house from the bank and not at the foreclosure sale. Any property lawyers on the board? Need advice!

To be able to know what you're buying at foreclosure, you must know how to determine the title status through a title search to determine what liens are out there and which ones will be extinguished with the sale. Unless you know how to do it, you'll have to hire an atty or title company. And this is before you know what the property will bring at auction.

Simple example...the title search reveals the following:

1st mortgage with balance of $25k at Bank A dated 1/10/1997
2nd Mortgage with balance of $100K at Bank B dated 12/15/2005
HELOC with balance of $5K at Bank A dated 6/15/2006
Property taxes due for current year of $3K
Prior year property taxes due for 2006 of $4K
IRS tax lien dated 1/15/1997 for $22,000
IRS tax lien dated 6/1/2003 for $10,000
Labor Lien dated 12/15/2006 $12,000

Owner is curerent on 1st mortgage; in default on second mortgage. Bank B forecloses. Sale date is 4/15/2008. Property is worth $150K to you. What's your max bid considering some of the liens will attach to the property? If Bank A forecloses instead of Bank B, what's your max bid?

djmcmath · 04-06-2008, 05:51 PM

It's like my worst-case "story problems" from elementary school, except this really matters. Thanks for the property lawyer thread -- that looks to be a great read.

Dan

ed martin · 04-06-2008, 07:17 PM

[QUOTE=onewhippedpuppy;3870235]Dan, be careful with foreclosures. The true "bank sale" foreclosures often have a number of odd regulations related to them, and without doing your homework you can get screwed. For example, many states allow the former homeowner to come back within one year, pay the mortgage current, and get the house back. Even if you've bought it and improved it. Pro flippers typically contact the former homeowner and buy their rights to reclaim their property. However, I've noticed there are a number of foreclosed properties being listed on the MLS by realtors, owned outright by the bank.

In the state of California, the term mortgage is used but in reality it is a misnomer. Here in California the security given is not a contract that hypothicates a property as in a conventional mortgage, but it is a form of deed that hypothecates the title. This way the property can be sold outside of the court in a relatively short period of time with no redemption period for the borrower(Trustee's Sale). If the lender asks for a deficiency judgment then the borrower will have a year to redeem as with a mortgage.

With a conventional mortgage, the court can issue a certificate of sale, but the borrower has a full year to redeem his property. With a Trustee's sale the entire process takes about four months with no further right of redemption by the borrower.

onewhippedpuppy · 04-07-2008, 07:12 AM

That's interesting Ed. I do know that every state is different, so my advice may be totally irrelevant outside of KS.

Dueller, #1 and #2 are excellent. Never buy the nicest house in the neighborhood, you're better off with the house all the neighbors turn their noses up at. That way you can do some work and let the neighbor's property values bring up yours. Despite being above average sized for the neighborhood, our home has the lowest appraised price by far. We purchased it for $40k less than the next lowest sale price over the last 3 years. There are 3 homes in our neighborhood for sale, all are more than $100k than what we BOUGHT our home for about one year ago. Our next-door neighbor is selling for $130k more. Despite being nice, all three of these homes are in need of updating/remodeling. We are in the process of fully remodeling our home, and expect to do very well if/when we sell.

#2 is wise, as you not only know how much you can spend, but know you can get financing. As said before, it allows you to move quickly on a good deal, and there's no worry about the deal falling apart due to not getting financing. It amazes me that some home shoppers wait until AFTER signing a contract to look into financing.

vash · vash's Garage

dan, good luck with the home shopping. bottomline, your emotions will be all over the place. trust me. this applies double if this is your first dance.

i think you definately have to get pre-qualified. no sense shopping for home you cant even afford. best to know what you have to work with. saves on the heartbreaks later.

then use this time to find the best damn real estate agent you can find. remember they work for you. get them to know right up front that you are looking for a RE you can work with and let them know this is their "audition". let them do the footwork for you. they will know your budget (from you being prequaled) and they will know the neighborhoods. most importantly, they know other agents. their network is valuable. i had one agent that just printed me out a list and i drove to each home. at this one property, the selling agent asked me, "where is your real estate agent?". i told her our strategy, and she laid out the proper way he should be treating me. i immediately switched to her. she would call, and drive me around to homes. way better gig.

look 171 · 04-07-2008, 08:12 AM

Quote:

Originally Posted by vash

dan, good luck with the home shopping. bottomline, your emotions will be all over the place. trust me. this applies double if this is your first dance.

i think you definately have to get pre-qualified. no sense shopping for home you cant even afford. best to know what you have to work with. saves on the heartbreaks later.

then use this time to find the best damn real estate agent you can find. remember they work for you. get them to know right up front that you are looking for a RE you can work with and let them know this is their "audition". let them do the footwork for you. they will know your budget (from you being prequaled) and they will know the neighborhoods. most importantly, they know other agents. their network is valuable. i had one agent that just printed me out a list and i drove to each home. at this one property, the selling agent asked me, "where is your real estate agent?". i told her our strategy, and she laid out the proper way he should be treating me. i immediately switched to her. she would call, and drive me around to homes. way better gig.

I disagree with you about driving you around to homes. I'll drive myself. they always want to get in and show you every home because they might get lucky or push you to buy. wrong house right location or whatever, you know if its a house you don't want to spend anytime to look, you could move on drive to the next one without having to small talk riding in the same car. Find the ones fyou want to see and go see them with the agent.

notfarnow · 08:37 AM

Depending on whether or not you plan to live there while you renovate, you may want to reconsider getting a house without a garage.

We bought our house as a "fixer-upper" in a great area, and got a good price. It has a ~20x25 garage. Without that space, I think the renovations would have been hell.

You'll really appreciate having a large space where you can leave your tools out for weeks on end, have stinky paints drying or even work away till the wee hours while wife/kids are asleep.

If you won't be living there while you work away, this won't matter as much

Quote:

Originally Posted by onewhippedpuppy

Never buy the nicest house in the neighborhood, you're better off with the house all the neighbors turn their noses up at. That way you can do some work and let the neighbor's property values bring up yours.

The neighbors will also be much more tolerant of noise and other "inconveniences" if you are fixing up a house that may have kept their property values down.

One morning I was apoligizing to my neighbor for sanding the floors till 2am. He said that he didn't even hear it, but if he did, he wouldn't complain. "every $100 you put into that house probably gives my house $25 in value. It's the best money I never spent"

KFC911 · 04-07-2008, 08:40 AM

For my first house purchase many years ago, I sought out (through references of a co-worker) a "buyer's agent" to take me through the process even though I had located the house I wanted. Unless things have changed, the way I understood it, agents have a fiduciary responsibity on behalf of the seller to look out for "the seller's" best interests (although I have no doubt that RE agents are foremost looking out for "numero uno"). She made some easy $, as I located the house, we went to take a look, and a few hours later had committed to buy (I was already pre-approved). My other purchases have been with no realtors involved, but as a first-time buyer, I was glad to have someone "on my side" throughout the process. Someone correct me if this is no longer the case, but that worked well for me the first time around.

onewhippedpuppy · 04-07-2008, 08:58 AM

Our agent was not allowed to act as both a buyer's agent and a seller's agent. If we had been interested in one of their listings, they would have had to get another agent to represent us. Probably the best way to go, but many are not like this.

Also, see what resources are available online. Our county has a website that allows you to search for both appraised value and actual sale values (up to 3 years ago). You can search for one certain home, or look at homes in the area. Incredibly valuable tool.

KFC911 · 04-07-2008, 09:09 AM

Quote:

Originally Posted by onewhippedpuppy

Our agent was not allowed to act as both a buyer's agent and a seller's agent.....

I don't want to pass along "bad info" (someone please correct me if I'm wrong), but the way I understood it, unless you specifically enlist one as a "buyer's agent", both agents (i.e. the one who lists the house, and the one who "shows" it), are legally required to act in the best interests of the "seller", and not you "the buyer".

ed martin · 04-07-2008, 10:23 AM

Quote:

Originally Posted by KC911

I don't want to pass along "bad info" (someone please correct me if I'm wrong), but the way I understood it, unless you specifically enlist one as a "buyer's agent", both agents (i.e. the one who lists the house, and the one who "shows" it), are legally required to act in the best interests of the "seller", and not you "the buyer".

When a broker or agent acts for both buyer and seller, this is called dual agency. As the seller's agent owes a fiduciary obligation to the seller's and the buyer's agent owes a fiduciary obligation to the buyer, there is an inherent conflict of interest. Some of the more reputable companies forbid this type of agency as it can be fraught with liability.

vash · vash's Garage

Quote:

Originally Posted by look 171

I disagree with you about driving you around to homes. I'll drive myself. they always want to get in and show you every home because they might get lucky or push you to buy. wrong house right location or whatever, you know if its a house you don't want to spend anytime to look, you could move on drive to the next one without having to small talk riding in the same car. Find the ones fyou want to see and go see them with the agent.

serious? damn, i had a list of "likes" and "dislikes" all worked out before i ever set foot in her car. she showed me several properties weeks before they ever went up on some list. in the bay area, at the time..that was huge. i didnt have that much $$ to outbid the next rich fool. i got the jump on folks if i wanted to put in an offer. i guess different strokes for different folks........

onewhippedpuppy · 04-07-2008, 02:01 PM

Quote:

Originally Posted by ed martin

When a broker or agent acts for both buyer and seller, this is called dual agency. As the seller's agent owes a fiduciary obligation to the seller's and the buyer's agent owes a fiduciary obligation to the buyer, there is an inherent conflict of interest. Some of the more reputable companies forbid this type of agency as it can be fraught with liability.

Yup. We enlisted them as a "buyer's agent". They are with Prudential, so it may have just been their company policy.