Love in the Time of Foreclosure

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A tale of two houses

Pam Weinert

House #1 - The traditional sale
Last night I spent some time with a new client presenting a market analysis of their home. My new clients had been listed with another Realtor for over 200 days, and they were frustrated with the whole process of selling their home.
I explained to them that my taking on their listing would not magically transform the real estate market, and that very good Realtors have been stymied by this once in a career down market.

I did promise to communicate with them often even when I had nothing to say specifically about their home. It is so frustrating for sellers to get their homes ready every day and then have no one even look at their homes for weeks on end. Even with all the publicity out their in media land, sellers still ask the question of themselves "What am I doing wrong?"

House #2 - The short sale

To add to their frustration, located next to my sellers' home is a home that had recently gone under contract in a short sale. Now, the next door neighbors' home is identical to my clients' home.

Both homes were built in the 1970's, probably by the same builder because the homes are nearly identical.

Both homes are raised ranches which are sometimes difficult homes to sell because the floor plan is a bit outdated. The short sale was priced $30,000 under my seller's sales price.

The short sale was in deplorable condition. It needed total updating including a new roof. It is 3,000 square feet of work waiting to happen.

My seller's home is impeccable. It has new windows throughout, new doors, a new kitchen with new appliances, an island, and a very up-to-the-minute copper backsplash. It has new bathrooms, new pergo floors, and beautiful landscaping. It's decorated throughout in neutral colors. In other words, there is nothing to do but move in.

Does a short sale always equal a bargain?

My sellers' frustration that their neighbors home sold for $30,000 less when it's in such deplorable condition and in need of a total re-do is well-justified. And here is the reason I gave them for the buyer's choice...

When it comes to short sales and foreclosures, people think they're getting a bargain and that they can make improvements to a house without having any idea of what those improvements will cost. My sellers are incredibly handy and did much of the work on this home themselves, but they were quick to tell me that even with their labor the repairs and updates were costly. So many buyers out there today think that short sales and foreclosures are the opportunity of a lifetime. And sometimes they are. But in this comparison the short sale falls, well, short.

So, even if your temperament can handle the long delays of buying short or snagging a foreclosure remember, you're getting absolutely NO warranties on anything in this house. If the septic fails after you move in, it's your problem, if the roof leaks, get out the buckets... and the list goes on.

Let's just break down the cost of equalizing these two identical homes.
These prices are approximations and are on the conservative side:

New roof.... $8,000
New kitchen (face lift only).... $10,000
New appliances.... $10,000
New windows throughout.... $15,000
2 new bathrooms.... $20,000
New carpeting.... $8,000
Avoiding the hassle of a short sale & subsequent remodel.... Priceless.

Add to this that by buying a house that is already fixed up you're really using the bank's money rather than your own reserves for the fix-up. Interest rates are low and if you amortized the $30,000 difference between the two homes your long term cost is about $160 per month at 5%.

The moral of the tale

So, when buying in today's market, be aware of the cost of repairs and updating. You may be way ahead of the game to look at a well priced home where the work is already completed over that fixer-upper short sale where the headaches, hassle, time and cost all come out of your pocket.

See you next Wednesday,

-Pam, The Real Estate Mom



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