E-Newsletter Archive

October 2004

This is a beautiful time of year in the mountains. Like you, we’ve been enjoying the fall colors and the slight chill in the air. With the surprise snow on September 19th, we were reminded that winter is just around the corner. Before any more snow falls, take a trip to your local nursery and buy some bulbs to plant for next spring blooms. And since it’s also the time to plant trees, you might decide to plant a flowering dogwood or red maple on your property. Now is also the time to call your favorite chimney sweep. It’s important for your safety to clean your chimney once a year.

The lure of the fixer-upper One persistent myth in real estate is that anyone can make money by buying a fixer-upper or foreclosure property at low cost, doing the renovation work themselves, and then reselling at a profit. more Unlisted homes come at a price Looking for a home to buy can be fun. It can also be tedious and discouraging if you're trying to buy in a market where there are very few homes for sale. more What to do with lowball offers Recently a buyer decided to make an offer on a house that had been on the market for some time. His agent showed him comparable sales information, which indicated that the list price was too high. So, he made a low offer. more

The lure of the fixer-upper

One persistent myth in real estate is that anyone can make money by buying a fixer-upper or foreclosure property at low cost, doing the renovation work themselves, and then reselling at a profit.

Many experienced contractors and career renovators do just that, but first-time buyers can get caught in a web of cost overruns, contractor disputes, and resale problems.

For many first-time buyers, a fixer is the only option, and sometimes the best option. Follow these basic rules of thumb when you consider buying fixer-uppers, foreclosure properties or other real estate "bargains":

• Look for fixer-uppers with only cosmetic problems. Exterior additions or major defect repairs can be costly, and the expense of correcting major structural defects may not add a penny to the market value of the house. Fixers that have only cosmetic problems, such as ancient shag carpeting or bad wallpaper, are ideal for first-time buyers. Cosmetic repairs can be relatively inexpensive, and some fixer-uppers will pay back double their cost. Always have a fixer-upper carefully inspected before you buy.
• Don't pay too much, especially if you want to resell quickly. If you overpay, you may suffer a loss when you sell. In terms of investment potential, the best time to buy a fixer is when the market has bottomed out and is turning around. The worst time to buy is when the market has peaked and is starting to decline. Estimate the value of the property you want to buy. Research the potential market for the restored fixer-upper, and make sure that your plans for the house don't result in an over-improvement for the neighborhood.
• Estimate renovation costs accurately before you buy. If you miscalculate, your profit will dwindle. Ask your contractor for a detailed bid or do your own calculation. Have the property inspected as a condition of the purchase, particularly if you buy it in "as is" condition. You'll reduce the chance of having to fix unanticipated defects.
• Evaluate the floor plan. With a good basic layout even the most hideously decorated house is an ideal fixer-upper. On the other hand, a house that seems a maze of rooms may have a defective floor plan that no amount of paint and paper will remedy.
• Renovate wisely. In planning your remodel, keep resale value in mind--even if you plan to live in the house for some time. Kitchens, bathrooms and storage spaces are important to today's buyers. Curb appeal sells houses, so concentrate on improving the landscaping and front entry. Also, stick to neutral color schemes.

TIP: You may be able to get a seller to pick up all or part of the cost of home improvements if you negotiate for them as repairs required after a home inspection. Many sellers prefer to lower their asking price and sell the property "as is" instead of financing the repairs. This presents fewer problems for the seller and the buyer can close the deal easily.

Other Bargains: A Short Course

Some real estate investors make a career out of buying and selling foreclosure, probate and short-sale properties, but it's a dangerous business for the inexperienced. If you're a first-time buyer, consider working with an agent or lawyer who has experience in such properties.

Foreclosures If a buyer can't keep up with loan payments, their lender will foreclose on the mortgage and put the property up for auction. If the auction fails to produce a buyer, the property reverts to the lender, which then offers it for sale. You can purchase other foreclosure properties through the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). Check local legal ads and, in the case of FHA and VA properties, the Internet. CAUTION If you buy a foreclosure property, you may have to agree to an all-cash deal with no contingencies and buy the property "as is." Always get an inspection to avoid buying a house with major defects. You may also have to deal with eviction proceedings if the current owner hasn't vacated the property.

Probate sales

Probate property is sold to settle the estate of a deceased owner. These properties may be listed with an agent, though some sales take place at a court hearing. Because the estate's executor or a court administrator coordinate the sale, you may or may not get a bargain price. Their interest is to get the best price they can. If the heirs dispute each other over who has the legal right to the property, it may not be saleable until estate matters are settled. Always get an inspection to avoid buying a house with major defects.

Short sales

A short sale occurs when a lender reduces the amount of the loan payoff on a home, which it may do for a seller who can't cover the mortgage due and closing costs in order to sell. Many lenders prefer to clear such a loan from their books, even at a loss, to avoid the cost of foreclosure or having the house in their inventory. This can make for an attractive deal for a bargain-hunting buyer. Make sure your purchase contract includes a time frame (30 days) for the seller to obtain written permission from the lender to conduct a short sale. Prepare for a tough negotiation. As always, get an inspection to avoid buying a house with major defects.

Unlisted homes come at a price

Looking for a home to buy can be fun. It can also be tedious and discouraging if you're trying to buy in a market where there are very few homes for sale.

Some buyers will go to extraordinary lengths to find a home to buy when the listing inventory is low. Recently a buyer asked his agent to contact homeowners in the area where he wanted to live. Even though there weren't any homes for sale in the area, the buyer hoped his agent could convince someone to sell.

The agent's efforts did turn up a prospect. The buyer ended up buying the property. But it took weeks to negotiate the contract, and the buyer paid a premium price. As is often the case with unlisted properties, this owner was willing to sell, but only if he received a price he couldn't refuse.

Many issues come into play when you consider buying a home that's not on the market. A major factor is whether or not the property is really for sale. You could waste a lot of time and energy trying to talk a homeowner into giving up his home when he has no pressing reason to sell, even if at a profit.

The price issue is a concern for both the buyer and seller. When a home is listed on the open market, it's easier to gauge its market value. If buyers are clamoring to buy the listing, the property will probably sell for the asking price, or more. A listing that has been sitting on the market for months may be priced too high for the market.

It's harder to determine the market value of a property that hasn't had the benefit of market exposure. One option is to have the property appraised. However, appraisals, which are done without the aid of market exposure, often don't reflect real market values.

One homeowner had his home appraised for a refinance shortly before selling the property. The property sold for much less than the appraised value. Refinance appraisals can also come in on the low side.

If you buy a property that hasn't been marketed, you will never know if you paid too much. Likewise, the seller will never know if he could have sold for more.

HOUSE HUNTING TIP: Expired listings can offer opportunities for buyers who are having trouble finding a home to buy. An expired listing is a property that was listed for sale, but that didn't sell during the listing period. Sellers of expired listings can lose interest and give up when their home doesn't sell during the listing period. They may decide to wait for a different market, or they may shop for a different agent. In any case, these sellers are often anxious to sell.

Several years ago, a couple was having difficulty finding a place to buy. Their agent remembered an expired listing that she thought would work well for her clients. She contacted the owner who was indeed willing to sell. The seller was just giving the listing a break before putting it back on the market.

Before you buy an expired listing, find out why it didn't sell. It may have been priced too high for the market. Or, the market could have been soft. Study the comparable sales information before deciding what price to pay.

Consider hiring a local real estate agent or real estate attorney to make sure that you're interests are represented, and that all disclosure requirements are complied with.

THE CLOSING: Have the property thoroughly inspected even if you think you're getting a great deal.

What to do with lowball offers

By: Dian Hymer

January 20, 2003

Recently a buyer decided to make an offer on a house that had been on the market for some time. His agent showed him comparable sales information, which indicated that the list price was too high. So, he made a low offer.

The offer price was lower than the seller was willing to accept, so he didn't respond. When the buyer learned that his offer was going nowhere, he asked the seller to give him a counteroffer. The seller did and the buyer accepted. Thirty days later the sale closed.

Another seller was so offended when the buyers' agent presented him with a low offer that he asked the buyers' agent to leave his house. Again, the seller refused to respond to the offer. After many hours of persistent conversation, the seller's agent talked the seller into issuing a counteroffer to the buyers. They accepted and the listing sold.

A seller's reaction to a low offer may be outrage or despair. Some sellers feel insulted by a low offer and want to wait for a better offer, which usually means a higher price. Others feel that countering a low offer is a waste of time.

HOME SELLER TIP: Receiving a low offer is disappointing. But, before rejecting it, try to find out something about the buyers and, particularly why they offered the price they did.

The buyer could be used to negotiating in his line of work. For such a buyer, offering less than the asking price may be nothing more than business as usual. Buyers want to buy at the lowest price possible, just as sellers want the highest price possible. Don't fault a buyer for trying to get a discount, particularly if he's well qualified and sincere in his desire to buy your home.

Buyers often don't know in advance how high they'll be willing to go in order to get the home they want. Sellers may not know their bottom line until they get into the negotiations. Even if a buyer says he won't go higher than a certain price, he may be willing to pay a little more if it makes the difference between putting the deal together and no deal at all.

You may discover that the buyer offered a low price because he thinks your home is listed too high. If so, find out what comparable sales he's using to support his price opinion. Out-of-area buyers and agents may not be up on current market value. In this case, provide comparables sales information that validates your price.

If the buyer's comparables are the same as yours, one of you needs a reality check. Sellers can let pride of ownership get in the way of making a rational decision about selling their home. The better price you dream of may not be forthcoming. Buyers tend to offer less for listings that have been on the market for sometime. Keep an open mind to any offer from a well-qualified buyer.

Most sellers focus on price, sometimes overlooking other terms of the offer that could be negotiated to their advantage. For instance, let's say you're closing on a new home in a few weeks and want to avoid paying for interim financing. It might be advantageous to accept a lower price on the home you're selling provided the buyer agrees to a quick close.

THE CLOSING: Before countering any offer, make sure the buyer is qualified. If the buyer isn't already preapproved, include a provision in your counteroffer that requires the buyer to be preapproved within a day or two.