Sunday, October 21, 2007

Ready to buy. Stafford REOs vs Auctions vs fixer-uppers

QUESTION:
Frank,
I currently live in the NoVA market (well, it's considered that anyhow). We're looking in Stafford County, where we have a 1+ year supply of homes, REOs growing by the day, and it's all leaving me a bit lost as far as "home values" are concerned. I mean, why would I buy a "fixer upper" at $339, when I can go 2 miles down the street and buy a brand new home (similar size, with granite, upgraded cabinets and a finished basement) for the same price (same square footage of main house)?

My budget is pretty small (want to keep the total loan at $250k), but I need all the square footage I can get (in the right places)

We are primarily looking at REOs,
with the thought that in this market, the banks will be a lot less "offended" by a low-ball offer, and more likely to take it. We are headed to an auction in one week (the opening bid is $50k), the house is a REO that has been on the market for over a year (last listing was $339). It needs a *LOT* of work (roof showing wear, all new floors, paint, appliances and bathrooms (UGH!). We don't plan to bid more than $200k for the property, but I don't want to make a huge mistake either.
OR, should I be looking at REOs around $400k that don't need any work and just make low-ball offers to the banks?

If you were my realtor -- what would you suggest I do?
(we have secured financing for a loan that is *much lower* than what we could qualify for. Our total income is $120k, and our outstanding debt is minimal.).

I'd appreciate your advice. I'm not in a rush to purchase and can wait -- but after living in a basement with 2 kids for 4 years, I'd really like to have my own home again!
thanks.
Linda

MY REPLY:

Hey Lisa,
I know that buying a bank property sounds sexy and all, as if you can get half price or something, but that isn't happening. You would think that banks are jumping all over any offers. Actually the opposite is true. They take sometimes as long as 3 months to reply to offers and they just aren't motivated. It is very strange.
I assume you read my blog about REO & SOL homes? "SOL" Homes defined

As for that auction, let me know how it goes. Most auctions around here are fake marketing tricks. A good auctioneer will get 90% of list. People think they will get a steal and that bids everything up.

If I was your Realtor, I would say to increase your budget by 10%. I know it sounds salesy, but 90% of my buyers have a "what I think is reasonable" price in mind, yet they all have taste buds right outside that "budget." This tries to explain why: Buy Bigger! You’re Only Borrowing It...

As for gut jobs vs fixer uppers vs move in ready, it is a personal preference. I HATE all forms of rehab. The workers never show up, everything costs more, takes longer etc etc. But if you like it, sure you can be better off getting a place in worse condition for a lower price. I tend to steer away from SUPER dumps as they can have hidden problems like mold or needing to be condemned. I'd prefer a place that with $20k you can do wonders to it, with 75% of the budget for the kitchen and bathrooms, and maybe new windows. Consider hiring a stager (normally used for selling) to help renovate your place for less.

Good luck!
Frank Borges LL0SA Broker FranklyRealty.com
(please report typos)
keywords: Stafford homes foreclosures, loudoun, forclosures, foreclosed, foreclosure, Bank Owned, liquidation county fairfax, staging, renovations .

Wednesday, October 17, 2007

Buyers using Multiple Contracts at once?

Question:
Frank,
Question for you about an old blog entry earlier this year (your blog is great by the way). In it you mentioned that having more than ONE offer to purchase out at a time is unethical / illegal. While I agree it is somewhat difficult, I do not think it is illegal. Any offer can be withdrawn before it is accepted, and therefore assuming one is 'fast' they could negotiate multiple offers / counters at the same time and not withdraw anything until an offer is ratified. Of course the buyer runs the 'risk' of having two ratify so close in time that he / she does not get the others withdrawn. But I fail to understand how it is unethical or illegal to do so? Sellers and agents may HATE this of course. Do I have this right?
Joe

Answer:
Hey Joe.
DISCLAIMER: I am not a lawyer. This means you are to disregard anything that I say and verify it with a lawyer. Think of it as me giving you questions to ask them.

Ok, now that I've discredited the value of anything here forward... I believe that there might be something in contract law that requires that an offer be made in good faith, as in the buyer is going into the contract with full intent and i
s wanting to buy THAT place.
And the risks of two places saying yes, is actually pretty huge. With the gray area of what is "delivery" the buyer agent would have to nullify the other offers within seconds of receiving a ratified contract. I personally like to eat dinner,but one hour away from the fax could cost my client thousands.

Yes you might be able to use an "out" like HOA docs, but I believe you might have nullified the contract before that right begins if you have 2 places under contract with no intent to perform on BOTH.

I would have to get more details from a lawyer as to exactly what is legal.
As for ethical, I also believe the the Realtor's code of ethics precludes agents from doing that.

Anyhow, why not just put a 5pm deadline and make the 2nd other offer at 5:01pm? There is nothing wrong with that, and I do that all the time. Or you can make it nullify in an hour and tell them "technically the offer is no longer good, but you can still 'counter' by crossing off the deadline and sending it over." At that point it is a counter (even if the price is agreed to)
In other words
1) Buyers offer $500k for property 1 , deadline in 1 hour
2) Buyer waits 1 hour and puts in an offer on property #2 (after deadline on property 1 passes)
3) Seller of Property 1 signs 90 minutes later (signs, not "ratifies") contract. Maybe crossing off deadline, thus making it a "counter" technically
3) At THAT point, the Buyer:
a) Nullifies offer for property 2
b) Signs counter for property 1 to be RATIFIED

There are ways to do it like that, but I don't like having two outstanding offers, and I won't do it.

Now the quesiton should be "ok, give me HOW you CAN do it" (I hate "no" answers, I like "ok, tell me how I can effectively do what I want to do")

If you are an investor and disclose your intent to use multiple offers, you might be able to put "Purchase is placing offers on multiple properties. This offer is nullified upon acceptance of another offer" that MIGHT fly, but you would have to ask an attorney.

Make sure you subscribe to the blog and pass it on!
Thanks

Frank Borges LL0SA- Realtor/Broker FranklyRealty.com