The October issue of Realtor Magazine (our industry magazine) had an interesting article about dispelling myths while educating first time home buyers. The third point was about the realities of "bargains".
There are absolutely some bargains in the market... But, often those properties that are the real bargains are NOT the ones that have rock-bottom prices.
The HECK you say...
Really... I have been in some pretty cheap properties in the last few months. It seems that a house priced at $25,000 in a neighborhood or $150,000 homes would be a slam-dunk, right? That deal starts to look WAY less attractive when the issues get added up...
- roof
- mold
- floor coverings
- appliances
- plumbing fixtures
- electical fixtures
- copper wire
- copper plumbing
- landscaping (not to make it pretty, but to stop water from washing away the foundation)
- HVAC
- driveway paving
Seriously, I looked at a house that needed all of that. It would be faster, easier and probably cheaper to bulldoze the house and start over. Since the lot would be worth about $10,000... and it would take about $15,000 to clear the lot and get it ready for a new building... This wasn't a deal.
Of course, most aren't that severe...
However, there are a lot of times where one house will be significantly cheaper than another for sale, but after correcting its issues, it actually ends up costing more. It might be simple things like carpet and appliances, or maybe something more involved, like a roof or HVAC.
This often ties back to "I need to see all of the options", presented earlier. In this case, we just want to get a look to make sure that it really is in that bad of shape.
I have looked at a lot of "bargain" properties and have a pretty good feel for them. There are some great deals, but they are usually not the first ones to present themselves... They are generally in much better shape and slightly more expensive.
Finally...
Remember that the deal properties often still need work. And it is probable that the buyer will have to come up with cash for that work, in addition to downpayment and other closing costs... it isn't something to bootstrap.
Unless otherwise noted, all content of this blog is the property of Lane Bailey, ©2012 Lane Bailey.
I'd love to hear from you...
I see more & more buyers that are not skilled in investing in bank owned properties pursuing them because they offer a value price. Even if you are not an investor you should still keep in mind the cost of unwinding the deferred maintenance that comes along with these type properties.
Buyers seem to get all caught up on the cost per square foot which is a good idea but with all the short sales and bank REO they do need to add the fix-up costs to the total. Great advice.
There are diamonds in the rough for sure. This sounds like a full 203k with the problems and it stays a good deal. The agents get paid at closing, the work begins, the mortgage payments are escrowed for the period of time the home can't be lived in during the course of construction. This is clearly what 203k consultants were made to do... ha. Sorry investors, the 203k still has you blocked.
Lane if I found this house and it had set on the market for a while (and let us assume nothing is wrong with it) I have buyers that would be reluctant to put in an offer because if it is in their budget they would feel something must be wrong with it.
New construction has to be the BEST VALUE in our market. You generally don't have to deal with re-negotiating "lender required repairs", real property that gets stolen during the escrow period gets replaced, most of the time you get a lengthy home warranty. Oh and there is no one's toenails embedded in the carpet. Of course you are going to pay about 15-25% more but if you don't want the headache and you need closing costs, it's built right into the price.
But it's not as cheap as the PUBLISHED list prices (that are getting driven up!)
Lane - You are absolutely right ... A Bargain is only a Bargain if you are fully informed ... "INFORM" something we need to do with our first time buyers.
Thanks guys...