A Break from the Usual as I Share Our Foreclosure "Secrets"
I have been hesitant to write about the new house as I've been fully expecting it to come crashing down any second now. It's been six months since we moved, and it all still seems a little too good to be true. There's a catch somewhere, and I'm not talking about the water leaking in the basement. There HAS to be a catch and it HAS to be worse than that little aquatic drama.
I say that because, as a lot of people know, we bought this house for well under it's actual value. It was a foreclosure. We paid in excess of $100,000 less than an identical house in a different development sold for around the same time we closed. And, no, that's not a typo. Six figures, baby.
Of course, by "identical" I mean it was identical when it was built three years ago. By the time we went to buy the house, it was in significantly different condition than the other one. SIGNIFICANTLY.
Anyway, this all adds up to people asking us a lot of questions about buying a foreclosure. So, here are some lessons we learned. They may or may not apply to all situations:
1. There is a myth that there are all kinds of super-cheap houses in great condition sitting around. First of all, HAHAHAHAHAHAHAHAHAHAHAHA *gasp* HAHAHAHAHAHAHAHAHAHAHA. There might be in some regions, but it's not the norm. Houses end up foreclosed because people can't afford to live in them. That means they also can't afford to maintain them.
Our house had all kinds of broken stuff and that is why we got it for the price we did. The appraiser happened to show up on the day that it was raining in the family room (because of leaks in the master bath plumbing one story above the family room . . . a LOT of leaks). She also took note of the badly damaged wood floor, the significant amounts of mold in the basement, the dangerous front stairs, the deck to nowhere, scary paint jobs, and all of the holes in the walls. She knocked $100,000 off the value because of all the problems she found.
While we made the repairs for far less than $100,000, we were taking one hell of a risk when we agreed to buy the place. For example, while we were able to clean up the mold with a couple of days work and for less than $200, an estimate put permanent repairs to the problem up over $15,000. It could have worked out that way if the mold had been behind the drywall. We got lucky; it wasn't.
Nearly all foreclosures have the same sorts of issues. It's a risk and all you can do is hire a really good inspector and prepare yourself for the worst.
2. Another lesson I learned through the process is that there is no reason to subscribe to a website that reports to list foreclosures. I tried a few, and never found anything that I couldn't have found on a regular (read: FREE) real estate website (Howard Hanna is my favorite).
The "catch" is that if you are brave enough to be looking at pre-foreclosures, those sites can be very helpful. A "pre-foreclosure" is a house that has a foreclosure pending--one way out of the situation is for the homeowner to sell the house for enough money to cover the outstanding loan. We weren't willing to deal directly with a homeowner and preferred to let a real estate company make a little profit.
Basically, foreclosures are included in MLS listings just like any other house. A Realtor can see that a house is bank (or company)-owned, but it really doesn't matter. I just searched based on price, with a special eye out for houses that seemed like they might be priced a little aggressively.
FYI--foreclosures frequently have very little information available online. I *think* Realtors who specialize in representing banks make less on those bank-owned properties than they do privately-owned ones because they clearly spend less time marketing the houses. There are fewer photos (if any) and information is usually incomplete online. For example, there were only three photos of this house online, and two of them were really bad photos of the kitchen. Nearly every description field in the listing was blank. We looked at the house anyway (because of the price and our familiarity with the neighborhood) and were FLOORED when we saw the place. If the bank's Realtor had tried even a little to market the place, there would have been a bidding war and the house would have sold for a lot more money.
3. If it can go wrong, it will because the bank really doesn't care if they sell the place. We seriously didn't know if we were going to have a house two days before we closed. There were some issues with the bank lying on a disclosure. We knew they had lied, they admitted they had lied, everybody knew it was illegal, but we were left to either ignore it or find another house. The bank wasn't going to budge on price at that point because they really didn't care if they sold the place or not. If it had been privately owned, we would have been looking at a Royal Flush and would have been able to make some demands. But, we weren't dealing with a family who was at risk of losing everything if they didn't make that deal. Banks are willing to start over and they will break a contract in a heartbeat. They already have a bunch of lawyers working for them, so it's really not a big deal.
I could list a ton more stuff, but this is already WAY too long. Another day, perhaps. Hopefully I don't find the catch before then.
Tuesday, February 2, 2010
Reader Comments (14)
a leaky basement around here is as common as a "Pittsburgh Potty". Every time it rains hard enough my basement develops a little stream that heads straight for the drain. But luckily my brother is a contractor and on the day after christmas he did a little investigating and thinks he figured out the problem and once the ground thaws he can repair it. If you need his # DM me on Twitter. He's reasonable and does good work!
@karyn--We know the source of the leak and probably the cause, but there is the minor issue of a giant TV currently in the way of getting to it. A certain husband needs take a REAL look at it (*AHEM*Mr.H*AHEM*). Might DM you for that number if it's over his head once he does.
Part of the reason Realtors make less on foreclosures is because the banks sometimes decide at the last minute that they don't feel like paying the commission they agreed to when they listed the house for sale. Horrible, but it's true.
That, however, shouldn't cause them to market it any less than the other listings they have. But they do and even being in the industry, I understand why they do things that way.
Still, it's a pretty house and I think you've done a great job with not only buying it, but fixing it up as you have. Congrats. :)
@Trinity--I completely understand it, too. Why put a lot of work into something if you might not get paid? Besides, the banks aren't the sellers that are constantly calling to check on progress. The squeaky wheel...
While I would love a deal like you got, I'm far too chicken to adventure into all the unknown.
:)
I agree with Trinity about the banks not paying commission, and they are generally reduced commissions even when they do pay. I ended up with a 1% commission on one bank deal (that I had to split with my broker).
In my experience, a good Realtor does the same job regardless of the price of their commission. My mentor's business is mostly made up of foreclosures right now (we live in AZ) and I can tell you that he markets the $30k homes the same as the $300k homes. Sometimes, there are only so many pictures you can take of a smaller property, but as long as they are a good representation of the home that's all you can do.
I think you guys did a great job researching the area you were interested in so you were able to recognize the bargain when you saw it. You've also been willing to put in the time & effort to bring your home back to where it should be.
I am just glad it all worked out so well for you guys! I can't believe it's been 6 months already. Question for you - have you driven by your old place? My dad can't figure out why I don't have the desire to do that.
@Kellie--All housing purchases contain elements of the unknown. I know for a fact we left a few "surprises" behind for the guy that bought our old place.
@Mirth--Research is EVERYTHING. We knew the reputation of the builder, we knew some of the back-story of the house, and we spent time looking at several other houses that were for sale in the same neighborhood. We threw that all together and then lowered our expectations a little below that reality.
@Jen--I drive past our old place every single day. I wish I didn't!
We bought a foreclosure as well. We are still finding things wrong, like the lateral (sewer) that is going to be replaced this week :( Before that we had to have it routed several times due to it backing up into the house, ewww.
With all of its problems, though, I still love this house and it was in the best condition out of all the ones we could afford.
The house we bought was a foreclosure too, and I think you saw the condition it was in. SCARY. BUT, there is no way we could have bought a house in this neighborhood if it wasn't a foreclosure. We really lucked out and fixed up the house so well that we now have a TON of equity in the house. That does not always happen.
You make some very good points. Great post!
When we moved back to Colorado we were set on buying a foreclosure in an effort to get more house for less money. Hubby and our realtor looked at nearly 300 houses (no, there is not an extra 0 in there) before we found the house we are currently in. We also put in no fewer than 12 offers. There are great deals to be had in foreclosures if you are willing to put in the time and effort - and have a realtor who is willing to do the same. I am so happy yours worked out for you!
(We really lucked out . . . the previous owners were forced to move because of the husband's health problems - they just packed up and left. The majority of the repairs that we have had to to do have been purely because of the homes age and not because they trashed the place.)
@Mirth 1%?! You get Realtor of the Year Award from me. I know people who'd balk and quit a deal because of that (Not saying they're the best in their industry, obviously.)
This is wonderful to read, I m agree with @Mirth You get Realtor of the Year Award from me...
Thanks buddy..
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