Lowballing an REO?

olivesmomDecember 27, 2012

We had planned to build our dream home in a few years, but recently I came across a custom built home that is now bank owned and we are considering making an offer. We could never build for anywhere near this price, so it might make sense.

The home was build in 2007, but has been vacant the entire time. It is almost complete. The kitchen appliances, some plumbing fixtures, light fixtures, landscaping and driveway are missing. All pretty easy fixes, but obviously some work is involved. If we were to buy the house I'd probably replace the bamboo flooring and kitchen cabinets which are both in fine shape but not what I'd like.

The exterior of the home needs to be repainted, or maybe even resided. It looks like natural wood siding and has been neglected. The paint is peeling in some areas and I would imagine there could be mold too. Aso, the roof has a good deal of moss. Might be fine with just a cleaning, I don't know though.

The home has been on the market since June of this year and has been reduced about 90k from the original asking price of 320k. Right now the price per sq foot is $101, which is low for this area- but not that low. I tried looking for comps, it's not that easy as most homes in our area are tract homes on micro sized lots. This house is on a couple of acres. Most homes on acreage here are much larger or much older. If I do enough digging it seems that I could find comps to support an even lower price, or comps to justify something higher.

Regardless, I think the current list price of 235k too high, and the fact that the home still sits proves it. We still need to do an inspection and get bids, but as a rough estimate I was thinking about 50k for the work needing to be done. With that in mind I am considering an offer of 180k. Does that sound like a crazy lowball offer?

I know many think banks are pricing properties right and that lowball offers will the ignored, but clearly this home hasn't been priced right. The condition the home is in, the work that needs to be done and the lack of curb appeal (home sits back between two other lots and is at the the end of a long torn up gravel driveway that has unattractive chain link fences on either side) are turning people off.

So 180k on a REO listed at 235? That's a little less than 80% of the list price. I'd be willing to go up some but not over 200. What do you think?

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I'm curious - don't know where this house is, but if in an area that gets cold, has it been heated while empty? Here, a vacant house that hasn't been heated in winter will have problems.

I don't see anything wrong with making a low-ball offer, but you should make it conditional on a very thorough inspection, as you may be underestimating the cost to make it livable. (Are you doing the work yourself?)

    Bookmark   December 27, 2012 at 6:01AM
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What would the acreage, alone, be worth? There is value in that acreage, even if the house has none.

    Bookmark   December 27, 2012 at 12:11PM
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What about the septic/sewer system? Water? Electric?
Have you built or remodeled before--that is what kind of experience do you have? We remodeled a duplex here in ND that has been empty and wind damaged, but we had build our other home and DH was also very knowledgeable in the field as was our son in law. They resided the house, put a new roof on, replaced all the electric and plumbing. We did bring alot of the materials and appliances from CA because at that time Minot had a very limited supply.
If you could tell the people here a bit more about the area--weather--rural--etc
they could offer better information.

    Bookmark   December 27, 2012 at 5:41PM
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Ottawa: the house has been unheated. However, it doesn't get much below freezing for very long here. Not sure if the inside of the house would ever get below freezing. For sure we would do an inspection, probably even before we write up an offer (if the bank would permit that, I suppose it gets complicated with the whole de-winterizing thing).

Kirk: the 2011 tax assessment for the land is 172k. My guess is the land is worth somewhere between 70-100k.

Marie: We have no experience with this really. We are current homeowners, but that's it. DH is NOT handy. Any work will be contracted out.

The home is located in a semi-rural suburban area. We are in western WA where it is very wet. My main concerns regarding damage would be that of water and mold from the house being unattended for so long and possibly not finished properly before being abandoned.

For whatever reason the previous builder/ owner went with natural wood siding and it appears to not be in the greatest shape. It will need to be scraped and repainted, but I'd probably just reside with hardy board . Birds also appear to have damaged some of the siding, possibly getting into the eaves or maybe the wall- not sure will have to look at it all during inspection.

The electric and natural gas appear to be hooked up but turned off. The house is on a well and has septic.

There is still a lot to research and right now I'm trying to figure out if we are going to be able to get financing. That's our number one hurdle at the moment. If we can get financing lined up then we will move forward with an inspection and bids for the work needing to be done.

    Bookmark   December 27, 2012 at 7:05PM
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If the house has missing appliances, furnaces, or AC units, an FHAand VA loan will not work. You will have to go with a conventional loan. Just be upfront with the lender when applying. That is the first step. And then when you get pre qualified, just submit the offer you think is your best. Either the accept, they counter, or they reject. You will get a certain amount of time where you will be able to perform all of your due diligence. During this time, you can back out of the contract for any and or no reason and get back your deposit.
My experience tells me that you will not be allowed to do an inspection prior to being under contract.

    Bookmark   December 27, 2012 at 7:42PM
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Okay. that helps.
I'm in W. Washington also--suburban area. There have been a few houses in this situation bought up more recently. One notable to me is just a block away from my house. The builder went bellyup in about 2008/9. The house was vacant and interior destroyed during the 2010 census (all finishes had been torn out--tiles gone, fireplace surround off the wall, railing for stairs and treads gone, etc.) Looked good outside, but the critters got in through the fireplace vent that had also been removed, etc.

A contractor eventually bought it REO, "finished" it out, landscaped, and sold for a pretty penny...though not sure how much it cost to do all the work it needed.

Another house about a mile away got as far as "shell" finished but I don't think the siding ever made it--at least not painted. It was just finished up this year--new siding, etc.

So, they are definitely around.

But, if your land is tax assessed at 172k, then, it is probably worth close to 172k. Here in KingCo, they adjust every few years based on real land sales. They can't tax you more than what land comps have been; so they adjust the value of the building on the land, but hold the land valuation to true land value. (A couple years ago, my house, "the improvements" were worth 18k supposedly...because land was worth so much). So, again, really consider if the bank will think your offer worth anything if you are only 8k above land value.

    Bookmark   December 27, 2012 at 11:32PM
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Please be sure to get a termination option.

I once failed to sell (whew!) a house on which I had written an offer;
it was a builder foreclosure.

turns out the "builder" was some sort of shadow company, got a construction loan, made all the draws, never paid any of the subcontractors, & disappeared.

Subs put mechanics' & materialmans' liens on the house & then found that the whole thing was a scam & that their liens were wiped out when the bank foreclosed.

Nobody really knows who cut every electrical wire in the house or who poured cement into all the sinks/tubs/showers/commodes.

Be sure to get that termination option & get inspections.

    Bookmark   December 27, 2012 at 11:45PM
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Kirk: the problem with the tax assessment is that there have been so few land sales in recent years. I think the most recent comp is from 5/11 and it was in a slightly different area and for about five more acres. This specific area is not quite as desirable as some other areas nearby. Plus this lot has some drawbacks. I just can't see it being worth more than 100k, and most likely less than that.

We'll see though. I'm definitely interested, but obtaining a loan is going to be tricky.

    Bookmark   December 28, 2012 at 12:16AM
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Unless you are a cash sale with cash reserves to repair things, you are not in a position of strength to "negotiate" anything on a REO. Especially a low offer. Your offer is unlikely to be accepted. A conventional sales route would be a more successful path for homeownership for you. A "deal" like this is only a deal if you have the liquidity to snap it up and to repair it.

    Bookmark   December 28, 2012 at 7:55AM
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Another thing to consider is an FHA 203K rehab loan. Not sure if you or the property qualify, but it's a great solution for homes that need work and buyers without extra cash to get it done.

    Bookmark   December 28, 2012 at 9:31AM
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GreenDesigns: I'm not sure I follow your logic. So according to you, I should pay more than an REO is worth simply because I require financing? I get that my offer won't be as strong as an all cash deal, but unless I'm in competition with other offers I don't think it matters much.


Looking over the listing last night I realized that the bank has dropped the price by roughly 30k every 45 days or so. If that holds true then they should be lowering the price to around 205k in a week and a half of so. 205 is not that far off from 180, least I don't think so. Now I have to decide if I should hurry to get my offer in before the next price drop. I'm worried that the next one might attract more offers.

    Bookmark   December 28, 2012 at 12:41PM
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I think what GreenDesigns is saying is that a low cash offer is more attractive to the seller than a low offer that involves financing.

Financing adds time (financed sale=at least 5 weeks, often more like 6, & cash sale=maybe a week or so) as well as stipulations & increased "iffiness";
if your lender or insurance carrier requires a new roof, for example, & you can't pay for it, the seller has to either pay for the roof or release the contract & try to find a new buyer.

& what if the seller accepts your offer & you lose your job or get transferred to Timbuktu, or your elderly mother falls & breaks a hip & you have to move to Minnesota to take care of her, or your paid-for car commits suicide, & you have to take out a loan for a new one...
& you can't get your lender to make the loan?

Seller has to start all over & release the contract & find a new buyer.

Corporate owners want to sell their properties (unlike homeowner/occupants, they can't just take the thing off the market & stay in it), & they have systems & formulas to balance net proceeds against risk.

    Bookmark   December 28, 2012 at 1:45PM
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If they are dropping 30k every 45 days, then your offer is at least 90 days away. 90 days, we are in March/April. Someone WILL pick it up then(; winterizing won't be necessary/bank will be more likely to let a house be de-winterized for inspections, etc).

How does your lowball offer look more attractive to the bank than a price drop of 30k which will "attract more buyers"? That is the question you'll need to ask.

    Bookmark   December 28, 2012 at 4:17PM
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Sophie Wheeler

The fact that the home hasn't had any offers yet doesn't mean that it's priced too high. It means that it's priced high for the margin that the cash flippers that typically target these types of properties want to achieve. Which means there probably is a lot more wrong with the property than you've managed to notice. It's all about a formula. If the needed repairs are above % percentage, then the home won't provide enough profit when they attempt to resell it.

Flippers and investors are the type of purchasers that the bank prefers to deal with on REOs because of the minimal amount of hassle and paperwork that they have to deal with. Homeowners who hope to make a REO their home aren't at the top of their list of people to sell to. It's too much hassle. Even at a higher potential price. They'd rather take a lower price with a shorter closing period than have to deal with someone who needs to arrange financing.

If you are seriously interested in this house, the only way that you are going to be able to have a competitive offer to purchase it is if you have a family member that can arrange a private loan for you to be an all cash sale. And you will also need to have a pretty good personal cash cushion to do the renovations that it needs as well. There won't be any "Oops, the inspector says it needs X or the bank won't allow the loan." You either accept it as is, with the funds in place to deal with the issues, or you move on to a more conventional sale.

    Bookmark   December 28, 2012 at 7:23PM
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I find the emphasis on "REO's are for cash investors only" somewhat strange. I freely admit I do not have much experience with bank owned properties, but the few people I know who have bought them and the handful of my neighbors who recently purchased REOs have all been regular homeowners who required financing. Off the top of my head I am thinking of six people who have purchased REOs in the past two years. All of these properties have been newer construction, some former builder inventory. Four of the six purchased for less than list price, two had competition and had to submit a final and best. Maybe it is just my specific area, which is suburban and mostly newer built homes. Flips are just not that common out here.

If the house is still available then we will probably put an offer in next week for somewhere between 175k and 200. I need to get an inspector and contractor out there, just not sure if that should happen before we offer or only once our offer is accepted. FWIW our requested closing will be two weeks, though I honestly doubt the bank will be able to close that quickly. Based on my limited, second-hand knowledge, it's been the banks that are dragging their feet when it comes to closing quickly.

    Bookmark   December 28, 2012 at 9:11PM
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Also, is it really the consensus that an offer of 180k on a 235k listing is lowball? 180k is 76% of list price. If/when the price drops to 205k my offer of 180 will be 87%. That doesn't sound like a lowball offer to me. The house has been on the market as an REO property for seven months now. Since 2008 the home has been on the market as a pre-forclosure / short sale.

    Bookmark   December 28, 2012 at 9:41PM
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First, worry about getting pre qualified for this particular home. You are putting the cart ahead of the horse right now.
Second, take advice from the internet with a grain of salt. IMO, some of the advice you are getting here is strange. Banks do accept financing on REOs all the time. Put in the offer after you get the pre qualification letter and go for it. And don't waste your time putting down a two week close in your offer. For one, it can not happen and second, the seller will think you and your agent are loons and take your offer less seriously. Also, a termination option will be part of the sellers contract and addendums... no need for a separate form. You will be forced to deal with the sellers contract forms anyhow, once it goes to contract. Your particular contract will be overridden by the banks contract and addendums. (99% of the time)Good luck.

    Bookmark   December 29, 2012 at 6:35AM
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Sophie Wheeler

Obviously banks sell REOs to homeowners looking for bargains all the time. But, they are usually pre-qualified, with good financial reserves to handle the renovation issues and they understand that there really won't be any "negotiating" with the bank about a foreclosure if they find out something that they don't like about it.

It's sold as is, and it'll be up to the homeowner to either accept that or walk away. I'm not sure that the OP understands that, or understands how much money they are talking about putting into a neglected property like this when they aren't handy and will not be DIYing anything.

This type of property will suck up dollars in massive amounts when labor has to be paid to do every single little project. REOs are only "opportunities" for homeowner buyers if they are handy enough to deal with the issues, or if they get the home at a REALLY low price and have a lot of financial reserves to deal with the damages. If the price is low enough for the second scenario to happen, then that's when the investors will be among those bidding for the house, and they'll have the less hassle factor working in their favor to award them the house. A cash sale is always preferred to one needing financing. Yes, even if it's a slightly lower price.

Just proceed VERY cautiously into this pit. And you need to develop some DIY skills if you are going to manage to navigate the REO market without losing your shirt on the hind end. It won't do you any good to buy the house for even 50K if it needs 200K worth of repairs that you can't afford to immediately pay someone to do to the home.

    Bookmark   December 29, 2012 at 10:18AM
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I'm aware that the REO is sold as is. I don't expect the bank to fix anything, but I do need the opportunity to have an inspection to determine the condition of the house. As far as DIYing, that won't be happening except for maybe some very minor things like swapping out light fixtures and such.

The loan we are considering includes the money needed to rehab the property. I'm not jumping into this blindly. I intend to get bids for the work, add a cushion for the unexpected and then determine the after repair value. If at that point the house still makes sense we will move forward.

    Bookmark   December 29, 2012 at 1:53PM
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'right now I'm trying to figure out if we are going to be able to get financing. That's our number one hurdle at the moment.'


missed this.

Please get with a good lender & find out what you can actually do before you go any further.

If this house isn't a good bet, there'll be another, & you'll be prepared.

I wish you the best.

    Bookmark   December 29, 2012 at 2:36PM
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Well this was all for naught, they accepted an offer on the property yesterday. Oh well. Thanks for your advice anyhow!

    Bookmark   December 29, 2012 at 3:54PM
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Better go ahead and make arrangements for an approval from a bank anyway if you are even remotely serious about house hunting. It's the only way you're going to be able to make a timely offer on anything that you find. The markets are picking up in activity, even if the prices are still low. It's always better to know where you stand in your ability to make an offer.

    Bookmark   December 30, 2012 at 12:18AM
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A great example of why it is a bad idea to start house hunting w/o a pre qualification letter. Especially if you are hunting for deals. Without getting prequalified, you are at a huge disadvantage compared to the other deal hunter who can move on it w/in minutes of discovering the property.
Holly, why do you just assume the OP has no savings to repair a fixer upper? this is a second home for them. People in this category are usually savvy enough to realize the little details needed to make a transaction work.

    Bookmark   December 30, 2012 at 9:45AM
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"A great example of why it is a bad idea to start house hunting w/o a pre qualification letter.
Especially if you are hunting for deals.
Without getting prequalified, you are at a huge disadvantage compared to the other deal hunter who can move on it w/in minutes of discovering the property."


    Bookmark   December 30, 2012 at 9:53AM
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forgot to say to OP:

You might keep an eye on this.

It would be interesting to see the actual sales price & terms.

    Bookmark   December 30, 2012 at 9:54AM
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Sophie Wheeler

No, this isn't a second home. The OP has been floating the idea of building a home on the BAH forum, but can't get a loan for a new build due to a foreclosure in their past. That of course doesn't preclude them from getting a loan for either building or buying existing in the future, but it does mean that a lot more money will likely be required for the down payment, as well as a higher interest rate accepted. If the credit and savings for building can't happen just yet, then the liquidity for buying a fixer upper is unlikely to exist either.

    Bookmark   December 30, 2012 at 12:03PM
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I see Holly... there is more info here than I knew.

    Bookmark   December 30, 2012 at 2:30PM
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This would have been a second home. As Holly pointed out we do have a forclosure in our past, but we still own the home we are currently in.

We really aren't interested in house hunting right now. I check out listings from time to time out of curiosity, but generally I just like to keep an eye on the few lots we like. This house, and it's low price, caught my eye and I was interested in potentially pursuing it.

Ultimately building will suit us best and I will continue figuring out what I want with regard to that. The house in question wasn't perfect and was far from my dream home, but I might have been willing to settle. I don't know, there were so many factors.

We could have afforded the house but it would have been stressful and tight for the next few months. I am glad to have avoid that. So I'm really not all that bummed about missing out in this house. I just find it annoying that this house sat there for so long and just when we were interested someone else was too. I find it a little strange because it is not like the price just dropped which would have explained more interest in it. Funny thing is, this exact scenario happened to us in the past and seems to happen to other people fairly often too. Guess it is sort of like Murphy's law or something.

I will keep an eye on the property just to see what it ends up selling for if it actually closes. I saw some people leaving the property the other day and it was an older retired couple. My guess is that they put the offer in and it makes sense considering the master on the main and the fact that for the most part this was a cash only purchase. While just an assumption on my part, it seems like a retired couple is much more likely to have the available cash for this type of purchase. Again, I'm curious to see if it even makes it to closing. Regardless I'm over it and even if it becomes available I do not think we will make an offer.

This post was edited by olivesmom on Sat, Jan 12, 13 at 19:37

    Bookmark   December 30, 2012 at 2:55PM
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What most buyers don't get is that the longer a property is on the market, chances are it is that much closer to the average days on the market, which makes it overdue for an offer. It happens A LOT! It has happened to a vacant lot buyer of mine twice this past week.
And, Murphy lurking at every corner doesn't help either.

    Bookmark   January 2, 2013 at 8:07AM
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Just thought I'd update as the property is back on the market. It was pending for about ten days and then went back to active.

I know I said I was done with it, but I might just look into it a bit more. There's a potential "septic situation" and I posted about it in the building a home forum if anyone is interested.

    Bookmark   January 8, 2013 at 7:49PM
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I responded to your post in the building forum prior to seeing this here. It likely went back to active after 10 days because the "buyer" found something during the inspection period that caused them to back out. That same issue may or may not cause you to back out or prevent an offer. That's your choice.

I'll repeat what I said in the building forum--you or your agent need to speak to the listing agent. In many states the listing agent is now legally obligated to inform you of any inspection issues that came up. He or she cannot give you the inspection report, but if he or she knows of a specific issue that is not listed on any disclosures they must inform you of those issues. Go to the most informed source.

    Bookmark   January 9, 2013 at 8:45AM
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Now that they are closed and done, I can write about what happened with my in-laws.
While on the market for forever, my in-laws had the septic tank inspected and cleaned up due to roots and whatever has to be done every 10 years or whatever. Cost a lot, but they knew it had to be done to sell the house.
Two years later, potential buyers made a low-ball offer. They countered with a reasonable offer and it was accepted with an appraisal contingency (rumor was that their agent told them it would appraise for their initial offer, so they'd end up paying the lower amount)
Finally under contract, their buyers had a septic inspection, which passed. However, the inspector made an off-hand remark to the buyers that the septic would have to be replaced within a couple of years because "they only last 30 years" and this system was 25 years old. Then the appraisal came through at purchase price.
Now the buyers are desperate to get the price down, ask for $10K for new septic and other minor stuff from home inspection. MIL calls me, desperate to close this deal, with new house under contract, wanting to kill septic inspector. I remind her that if the inspection passed, she doesn't owe the buyers anything. They shouldn't even be asking because they have no grounds.
She ended up telling them through her agent, that she wanted a copy of the septic inspection and whatever paperwork they had to justify it so that her lawyer could review it (she didn't have a lawyer...yet). And...somehow the contingencies were dropped and they closed smoothly after that.
Just a little warning about inspectors and septic systems.

    Bookmark   January 9, 2013 at 1:38PM
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Olivesmom, did you get your financing arranged?

    Bookmark   January 9, 2013 at 3:41PM
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I was thinking about the previous offer that fell through and now I'm wondering if they would have even had enough time to do an inspection, and if they did it wasn't very thorough because there was no way the house was de-winterized and then winterized again. The previous offer was accepted the weekend before new year's, so at the earliest they had the inspection on the 2nd, usually takes at least 24 hours for the write up, they review it and...walk? Try to negotiate with the bank? Property was moved to active again on the 7th, and it takes this agent a few days to update status apparently. I suppose it is possible to have gone through the inspection process, but it seems awfully short amount of time with the holiday and everything. Who knows.

I'm not sure what the rules are exactly, but I can't imagine the bank is going to disclose anything regarding defects or previous inspections. They obviously know something is wrong with the septic system, but rather than state what they think the issue is they refer everyone to the county for the information.

This post was edited by olivesmom on Sat, Jan 12, 13 at 19:39

    Bookmark   January 9, 2013 at 4:45PM
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It takes very little time, less than 1/2 hour, to de-winterize a property. To winterize it again is also quick.

You may not want to think so, but I had clients that walked that fast on a foreclosure, even over the holidays.

    Bookmark   January 9, 2013 at 6:31PM
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I agree that it is possible that they completed the inspection and ran away, but given the timing it may not have. Based on the septic situation we may run too, I will hopefully find out soon.

In the meantime I've come up with a rough estimate of what we will need to spend. Feedback welcome. Some of these numbers are wild guesses, others I have a pretty good idea about.

New hardwood floor (~1000 sq ft) : $10,000
Kitchen appliances : $9,000
New kitchen counters (soapstone?) : $5,000?
Kitchen backsplash: $1,000?
Kitchen Faucets : $ 2,000
Kitchen Lighting: $250
Kitchen Sink: $600
Bathroom Faucets: $3,000
Toilets: $600
Other Lighting: $1,000
Electrician: $500
Residing exterior (hardie panel) & paint: $20,000
Misc: $1,000
Landscaping: will wait
Deck: will wait
Driveway: $500 for more gravel ( will consider asphalt at a later date)

Total = round up and say $55,000
Add another $20,000 just in case
So 75k needed for repairs
After repair value 350-425k
Current list price 230k

Makes sense to me *IF* (and that's a big IF) there are no incredibly expensive problems uncovered. Still waiting to hear from the county regarding septic. Will probably go the to county office in person next week and depending on answer proceed from there.

    Bookmark   January 9, 2013 at 8:42PM
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$3000 for bathroom faucets?? Holy crap, what kind of faucets are you getting?

Is that "after repair value" something that puts you in line with fully finished comps? If so, then you probably need to do the asphalt driveway, landscaping, and deck to get there.

    Bookmark   January 9, 2013 at 10:09PM
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Sophie Wheeler

New faucets and counters aren't going to take a 230K foreclosure to 425K home. Not even close. And none of that is considered repairs. It's all considered cosmetic trimmings. That really does not add any significant value to a home. It just personalizes it for your taste. Add in all of that upscale trimmings to a 1950's bungalow in the hood, and you're still left with a 1950's bungalow in the hood. Location and square footage (without known systems issues like this house has) and age are the top 3 determiners of value.

Repairs would be dealing with that septic bugaboo. Maybe a new leach field. Or having the electrician fix an improperly grounded service panel. Or to have a plumber put in a new water heater. Or a new roof. Or fixing cracks in the foundation.

Improvements would be building a 20K deck. Or doing 60K in landscaping. Or building an 15K outbuilding to hold the mower. That won't raise the value to 425K either,as they aren't going to be valued as adding 100% of what you spend to the home's value. Maybe 30%. Tops. Adding an addition might give you a greater return. That's additional square footage. Or reconfiguring the space to have a better layout. Tearing down walls. Reconfiguring the space to add a bathroom. Making the asset perform better and have a better base function.

It will take a lot of work and money to get a house that has sat vacant for so long and that has a significant known systems issue to come up to neighborhood comps. It's NOT undoable at all. But, the first things to address would be the home's systems and the repairs that you need to be able to live there. That's "invisible" money, but it's the most important money you will spend on the home.

    Bookmark   January 9, 2013 at 11:23PM
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Weedy: I may have budgeted more than I need for bathroom faucets, but the entire house needs faucets. I would probably just go with midrange stuff, but there is a claw foot tub that will probably require something more expensive, plus the master shower will probably need a fancier one as well.

Holly: I have no illusions that putting a $2,000 faucet in the kitchen is going to bring me to an ARV of 425K. I would be putting the high end faucet in because it is what I want. The ARV of 350-425k is based on comps that have midrange finishes. Pretty much I just need to make it habitable and it's there.

It may be hard to believe that a 230K foreclosure could end up worth 425k with mostly cosmetic stuff, but it's likely to happen. Of course this all depends on what's wrong, but let's say for arguments sake it is what I think it is; six years of neglect, missing appliances, fixtures, landscaping and a few questionable choices made by the previous owner. So all of those things plus the fact that 95% of the potential buyers for this home cannot even consider it because it doesn't qualify for financing. For the remaining 5% I would say the neglect, which probably turns people off right away, plus the hugely intimidating "septic situation" are enough to turn them off even at 230K.

I should also point out that I live in a specific area with a very specific demographic. Most buyers here are looking for a newer home on a microscopic lot in a large development. The market for acerage properties is not as large. Within the acreage market it appears that most homes are on the lower end; as they are older and often smaller, generally complete with multiple outbuildings; or they are towards the higher end as they are much newer, larger, fancier, usually lacking outbuilding instead complete with large attached garages. This particular home falls in between those two ranges, and therefore I think it's market is even smaller.

So small market to begin with made even smaller with the lack of financing. Add to is the host of potential big issues = why it has been unable to sell in six years despite a relatively low price.

That's my opinion anyway and I'm pretty confident in it. However, all of this is just daydreaming on my part. The septic situation needs to be sorted out and an inspection complete before I do anything more than dream.

    Bookmark   January 10, 2013 at 1:33AM
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OP... Right now you are a dreamer. If you want to persue this property, then you need to stop wasting time by visiting the county septic office, guessing at the repairs needed, and hoping you have financing.
1. Get your financing in order, (You will need a printed Proof Of Funds letter even in order just to submit an offer).
2.Stop second guessing what happened to the other buyers... it does not impact your deal what so ever.
3.Stop worrying about the septic. Just hire a septic inspector and in two hours you will know what you have.
4. You Really need to narrow the after repaired vlaue to a single value. Is it $350,000 or $425,000? Your Private Money Lender is not going to lend to you unless he knows exactly what the collateral is worth.

To sum it up, if you want the place, then do something that is taking you steps toward doing just that. Right now, you are setting yourself up for a professionally coached buyer to knock you out of the game again.

    Bookmark   January 10, 2013 at 7:18AM
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I recently went though something very similar to this. First off, you MUST get financing in order, and make sure the lender knows the house needs work. It is often very hard to get financing on a REO that is not habitable at the time of purchase which is often why ones needing work are the best deals.

I missed out on my house originally and was told that it was a done deal, 2 week closing with no contingencies. Well it turns out it wasn't a done deal and it fell though due to financing with the amount of work needed. At the time my house needed about the same dollar figure in repairs.

Back to your question, can you lowball a REO? Well, sometimes... The longer it is on the market the better chance you have, it also depends on how competitively the house is priced. I had to make a cash offer OVER asking price (with a letter from the bank stating we had funds) to get my house. It was only back on the market for two days and they got 5 offers near/at/over asking price. With a REO that has been on the market for a while, you have a much better chance of getting a low ball excepted.

Just remember, an offer (especially a low one) doesn't mean
much to a bank unless you can prove you have the funds to back it up.


    Bookmark   January 10, 2013 at 10:05AM
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This," therefore I think it's market is even smaller" makes this, " a 230K foreclosure could end up worth 425k with mostly cosmetic stuff, but it's likely to happen" even less likely to happen, not more so.

Atypical houses and land don't necessarily increase the value and often one finds the opposite to be true. They are much harder to sell in the future.

    Bookmark   January 10, 2013 at 5:05PM
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What area, specifically, are you in?
It is true, in my area and neighborhood, this 230 to 425 could happen. Indeed it happened just last year--320ish to 699k. So, not impossible. But, not that likely either.

Private financing or not, I'd get a realtor there to give you comps of that house (if finished mid-range). And, see where it lands. And, your financier will likely want to have an appraisal.

    Bookmark   January 10, 2013 at 7:13PM
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Did the house pass the original permits- for electric, for plumbing, etc? That is the first thing since it was never finished. Are the pipes still there? What about furnace, water heater, well pump, filtration for well?

The septic inspection should not be the normal 2 hr test. It needs to be the 2 day test. We had this test done for our current house that had sat empty for a year. The septic is tested to see if the leachfield can handle the constant water. When a septic system is not used, it can dry up and then not take the liquid like it should. Septic systems in our area run around $25,000 and up. Don't get the cheaper test, you need to make sure the septic is functioning properly. Our test was $950. but the inspector dropped it to $900 because my husband helped dig for the cover, 3 ft down, in January, in snow.

We have bought foreclosed properties but we do the majority of work ourselves. I was a realtor when we were doing that so I had knowledge of market value, specifics and of what things would cost.

I can do plumbing, framing, drywall, mudding, painting, fixtures, etc. The only thing I am not comfortable with is electrical work so I hire an electrician for that. I also get permits and make sure things are done to code and correctly.

You say you own a house, so if you get this one, which are you going to live in? Are you selling one? What is the goal with buying this property?

Many people repeat the same behaviors so be careful you don't get in over your head with this property. You originally said that finances would have been tight for you (when the house had the offer from the couple accepted).

A foreclosed property or house that has sat empty will always have unhappy surprises for the new owner. I am just warning you, it has happened on every property we have bought where there ended up being some totally unexpected cost or issue we had to deal with.

People who successfully flip houses usually do much of the work themselves or are in the business so they have people working for them. Be careful with private financing.

    Bookmark   January 12, 2013 at 5:07PM
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So I found out about the septic today. Apparently the home was built on the wrong spot, too far north on the property. The home's position is taking up part of the area designated for the septic. The area to the rear of the house is too wet for a septic system. So the options are to pay the neighbor to the north for an easement or attempt to fit a system in the front, but it would have to be a creative design and most likely can't be done.

The is also a wetland mitigation issue. As well as an issue with the water well.

Basically it's a teardown. A six year old, 2,300 sq ft teardown.
It's pretty sad that there's this nice house sitting there and not much can be done about it. What a waste. I'm surprised the county doesn't condemn it.

Well it makes for a interesting story I suppose. Thanks to everyone for all your advice! Looks like I am back to my dream of building our own home, which unfortunately is several years away.

Here is a link that might be useful: The house if you are curious

This post was edited by olivesmom on Sat, Jan 12, 13 at 19:40

    Bookmark   January 12, 2013 at 5:51PM
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I'm sorry. You sounded so excited and I felt bad warning you about various things. I've been excited about properties before too that have had some fatal flaw that made it impossible to buy or at least stupid to go forward. Sometimes it is lucky to not be able to buy a property and I think this is one of those cases.

The house does look nice but the wood floors look like they are cupping or are warped in the one picture and the next picture it looks like there is a wet or damp spot although maybe it is just the light.

If the builder made the mistake of putting the house in the wrong spot you have to wonder about how well other things were done. A septic system is necessary and a fairly straight forward thing. I am surprised it hadn't already been completed. They have plumbing in, some fixtures but no where for the water to go.

Makes you wonder if electric, gas lines were done right. I think you are lucky to not have been committed to this property.

It's important to know when to walk away. If you really want to find a house to work on, one will come up that is more reasonable with what needs to be done.

    Bookmark   January 12, 2013 at 9:58PM
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Bummer. I wonder what it would cost to lift it and move it. Certainly less than tearing it down or purchasing an easement... It will probably not be a tear down, but probably end up really cheap for a neighbor to buy...

Maple Valley is unlikely to see that house much over 400 if you ask me, but hard to say.

    Bookmark   January 12, 2013 at 11:02PM
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Laura: Thanks for your kind words. I was excited by the possibility, but I knew that it would have been stressful in more ways than one. Sort of a relief to have a concrete reason not to move forward.

The floors were damaged (lack of heating I think), but damage aside they were a really cheap bamboo to begin with plus they were really poorly done. I think the owner may have DIY'd them along with the horrific tile jobs in bathrooms.

I'm just disappointed because I really want to be on some acreage already. Our current lot is so tiny and we have so many neighbors that back up to and along side our home, it is quite ridiculous. I'd like to have a vegetable garden, but I don't have the space. Forget having chickens, which I think would be great fun to do with the kids. Our drive way is so small we cannot even park two cars along side each other without going over edge into the grass. I could go on and on.

However, I should be thankful for what we do have; a newer home in a safe, family friendly area with great schools. We can qualify for an FHA mortgage in 1.5 years and maybe a construction loan in another year or two past that. I just need to sit tight.

Kirk: Honestly I think it is a teardown at this point. The longer it sits the more it deteriorates. Birds have gotten into the siding and according to the agent I spoke with, the birds have damaged some of the electrical work. The lack of heating has damaged the floors. I bet the foundation has a lot of water issues.

The lot was originally part of the property to the north. It was divided up about ten years ago. This home was only 2300 sq ft, so not huge and obviously it couldn't be positioned on the lot without wetland issues. Pretty much the land would only be of use to the neighbor(s). There's just not a suitable spot for a house, and even if you squeezed a smaller home on it there's the whole well issue. Apparently the community well is full? So it needs to be hooked up to the water company and that would be quite expensive considering how far back the house sits from the road.

It's such a shame. A total waste. And honestly, the listing should provide more information. It needs to indicate that is should be viewed as a teardown/ land only. Not to mention the price is WAY too high for a uninhabitable home on wetlands.

    Bookmark   January 13, 2013 at 1:58AM
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The process of finding a DEAL...
researching 100 homes on the internet, driving around looking at 10 homes, and then maybe finding one home that is truly a deal.

    Bookmark   January 13, 2013 at 7:21AM
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I suspected you were talking about this house!

Our new construction is just down the road from this property and I've been keeping an eye on it for years as it came on the market just as we were buying our lot. Local belief is that this house is a complete tear down, last realtor friend that visited it more than a year ago said it smelled damp, there was mold under the windows and the floor was indeed cupping, sure signs of water damage.

It was simple to look up the permit status on the county website, and I believe I read that the drain field area was used as lay down area during construction which is a big no-no out here. In addition, I don't believe the neighbors are too motivated about "easementing" off any of their land to be used as a drainfield. It is true that money motivates, but no septic for this house = no neighbors and people around here like their space even if they don't own it.

I'd be glad to see this house bought up and reno'd so it's no longer an eyesore, but I doubt it'll happen.

    Bookmark   January 16, 2013 at 4:40PM
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NWHobart: It's funny to meet someone who lives so close!

I agree that it is a tear down. What I don't understand is why the bank has the list price so high. Given the property's history/ issues I doubt anyone would want to build on it again, so it would only be of interest to the neighbors. And then there's the cost involved tearing it down- they need to be giving the property away IMO.

Since you are in my area I was wondering if you'd mind sharing who your builder is? I'd also be interested in hearing if you are using a local architect. If you want I can be emailed at: OlivesmomWA at gmail.com. Thanks!

    Bookmark   January 17, 2013 at 3:10PM
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"but I do need the opportunity to have an inspection to determine the condition of the house."

Without all utilities turned on you cannot get a valid picture from an inspection.

Depending on how long the house has been REO they are often turned off to save money.

Some owners are smart enough to realize they are going to have to get them back on for an inspection, others balk at even that modest expense if they are really in the hole.

    Bookmark   January 17, 2013 at 4:38PM
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It is my understanding that unless you have a local bank, prices on REOs are determined by some guy sitting in an office often hundreds of miles away. The are looking at comps without understanding the ugliness or undesirable problems with the property. They never set foot on the site, and have probably not even seen pictures of the property. Eventually they drop the price, but often it takes months until they get to a price that is reasonable.

    Bookmark   January 17, 2013 at 10:31PM
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Hi. I recently bought investment property in a short sale from Bank of America (duplex). The property was brick and absolutely adorable but in a terrible state--every window frame was rotted. We have replaced 60 2x10 joists in the foundation. Poured 19 new piers. I have a list a mile long. As I tally the final bills, I ask myself, was it worth it? Absolutely. I just have this advice as you contemplate your REO:

1. You have nothing to lose by making a lowball offer.
2. Deals on distressed properties can drag on for months. My Bank of America short sale took nine months to complete. I walked away at one point (they were trying to make me pay the seller's lien on the property over and above the asking price) and BofA relisted the property for thousands of dollars cheaper. I snapped it up a second time.
3. I did get a bank loan. Many banks will escrow your funds until you do the repairs.
4. Keep in mind that materials are insanely expensive. It is really tough to make a sound estimate on what rehabilitating a property will cost. You make your best guess but invariably run over.
5. Ultimately, you have to go with your gut. Does it feel right? Then do it. If not, walk away.
6. Most distressed properties are "as is", so you need to get your inspections done before making your offer.

    Bookmark   January 26, 2013 at 8:25PM
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All good points except #6. Just because REOs are sold AS - Is, does NOT mean that the buyer has to accept the property after doing their due diligence. During the buyers Due Diligence period, anywhere from 7 - 15 days, the buyer can back out for any and/or no reason, and get their deposit back. At least that is how it is in NC, and I
believe it is the same across the Country.
Selling a property AS - IS only means that the seller is telling buyers up front that they do not plan on entertaining any repair requests. It does not automatically trap the buyer into going through with the sale if they find something they do not like during the inspections.

    Bookmark   January 26, 2013 at 11:51PM
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