The Great House Hunt

UPDATE: Thanks for coming to my blog. Regardless of how you got here, this series was written in 2008. The market is ever evolving and hopefully you will find this information outdated. A better source of CURRENT information about buying an REO can be found by clicking HERE: REOs in 2010.


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So, you’re ready to go see some properties. With the REOs flooding the market, the term House Hunt is starting to have a new meaning. Looking at some REOs can be an adventure – think “Wild African Safari”. Here are a few tips on what to expect when you get out there… none of this is fiction, it is based on actual experiences; and it includes mundane information that will bore you, but make you more prepared for the day of "the HUNT".  (Watch this video - it will give you a clue! This was prepared by a colleague at another brokerage, but is similar to stories heard around the country!)

Short Sales – In our area, you’ll find that these are often occupied homes, so you must call ahead before going to see the homes. Many times, they're in good shape and very presentable. Sometimes, however, the "depression" of the owners will be obvious.

REOs – Let’s call these what they are – abandoned properties. You never know what you will find.

- There may or may not be a sign out front. You'll likely be greeted by signs that say "WARNING" and then have a bunch of smaller writing...but they will not be warning you of the stuff that they SHOULD be warning you of! - These homes are generally (but not always) “trashed out” – meaning the owner’s stuff that was left behind has been removed. There MAY have been a surface cleaning done. (Tip - DO NOT OPEN THE REFRIGERATOR, even if the house looks clean.) - Previous owners, depressed and angry about their situation, may have deliberately vandalized the home – and sometimes you find some really gross stuff in there. - Locks have likely been changed and the property may be winterized and/or have no utilities in service. Try to plan your trip when there’s plenty of daylight. Sometimes the locks are broken. I had a door knob fall off in my hand once. Bring a screwdriver with you. And, while you’re at it, you might want to bring a flash light, too, and, oh, a pair of rubber gloves never hurt anyone. - Who knows the last time someone checked this property? Check the perimeter of the property, and enter carefully, some of these vacant homes are being occupied by the homeless, or prostitutes. And wild animals, or dead animals (or dead wild animals) are being found inside. - Consider your dress. You could have to walk through the yard to get to the home. The grass could be overgrown (think trash, pet waste, snakes or ticks) or you could enter a home that has a pest infestation. Wearing sandals or heels and a nice suit may not be a good choice.

I do not say any of this to scare you. Banks are taking more pride and doing more to ensure that the properties are presentable. However, I know I wish someone had warned me before I showed a few of these properties!

Traditional Sales – These may be vacant or occupied, so read the showing instructions carefully. They will generally be in presentable shape, they may even be professionally staged. Utilities are usually on, the home is comfortable, and visiting these homes can be pleasurable. Sometimes, they’ll even have nice brochures, smooth jazz playing in the background; there could be take away promo items or even refreshments! Gosh, you’d think these people want to sell! After your first trip out, you’ll be more educated. Look at the prices, consider what cleaning and maintenance costs might be involved. (I had one home inspector make a written recommendation to a buyer client of mine to have the toilet cleaned by a licensed professional.) Talk to your agent about the timelines and potential negotiation and transactional pitfalls to expect from the various types of sellers. Still thinking of focusing on REOs? It’s something to consider. But, make sure you get a good deal.

Now that you have a clue about the market, are you ready?  Well... come on!  Hop in and let's start looking!

My next post will be on preparing the offer for an REO. So, you can stay up and keep reading... or jump in the car with me, and we'll talk on the way to look at houses!

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Ready to Buy?

UPDATE: Thanks for coming to my blog. Regardless of how you got here, this series was written in 2008. The market is ever evolving and hopefully you will find this information outdated. A better source of CURRENT information about buying an REO can be found by clicking HERE: REOs in 2010. FINANCES How much cash do you have to purchase this property? Will you need financing? What will that financing look like? Interview a few lenders. Find someone that has competitive rates and a wide range of products, and find someone that explains things to you well, and most importantly WHO YOU TRUST. Then, examine your options. Consider both the cash for closing and the monthly payments. Don’t forget about taxes and insurance, and HOA fees. (Tips: If you already have a buyer's agent, ask for a referral to a couple of lenders. Other good sources include a bank or lender you already have an established relationship with; and/or a referral from someone you know.) FIND AN AGENT Now, interview a few buyers agents. Most buyers NEED one, but even those that don’t NEED one, will find a great amount of convenience and pleasure in having someone coordinate this process for you and advise you at every turn. Working with a true professional will bring you great value. Plus, if you make a bad decision, and you don’t have a buyer’s agent, who will you blame? (Tips - find good agents through referrals of friends and relatives; but then interview them. All agents are not alike.) LEARN ABOUT THE MARKET An agent can tell you what’s available that meets your criteria based on an automated search. From there, drive the neighborhoods, get a feel for the areas you like best. Have your agent set you up with an automated search so you’ll be notified of homes coming on the market that might fit your criteria. This online studying will be the start of your education about price fluxuations, neighborhoods, available inventory and the activity level in the areas you're considering. If you are an investor, consider the strength of the rental markets, too, and the property price vs. the rental rates. Your agent should be able to help with this. After you’ve selected a few potential neighborhoods, consider looking at a homes. Here, there may be some minor differences between looking at “short sales”, REOs, or traditional sellers. Choose what homes you’ll see based on your criteria and the price. Don’t specifically target REOs, Short Sales or Traditional sales just yet. I learned along time ago to consider what I hear but to make my decisions on my first hand knowledge. Your agent should share their experiences with you, and be able to prep you on what to expect - like the things I will tell you in my next post… So, before you run out to get that first hand knowledge, wait for tomorrow's post. You'll be glad you did.

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You’re an investor or a personal home buyer, and you are looking for a great deal. You’ve heard that “foreclosures” are the way to go, but after reading my last post, you now know that those “layman” are mostly talking about REOs. Anyway, where to start? Start where all buyers should start – outline your goals and get a plan together. Consider: WHAT DO YOU LIKE For a personal purchase, this is about where you'll live and the quality of your life. Consider what your household needs to be comfortable and happy. How much space, what kind of neighborhood, schools, communities amenities. How many bedrooms, bathrooms? What kind of finishes? How big of a yard? How will you get to and from work? For an investment property, who will be your renter? What will they like and need? How will the property be managed? Can you do it or will it be too far from your home? Are you OK with handling maintenance issues? HOW LONG YOU WILL OWN For a personal property, think about how you believe your family will evolve over the next several years. How’s your health? What about your parents – will they be moving in? Do you plan to have kids or do you have kids going off to college? Will you be getting married, divorced, or getting a dog? How’s your job stability? Are you likely to be transferred? If you lost your job could you find another close by? Really think about this. Based on the answers to these questions, how long do you think you’ll own the property? The average is 7 years, by the way. Some people move more often, some people only move once in their adult lives. What kind are you? Here’s a tip – if you won’t live there (or don’t want to own the property) for a MINIMUM of five years, then consider renting. For an investment property, it's part of the basics. Real estate is a solid investment as a long term hold. This not the market for a fix and flip or pure short term speculation – it’s entirely too risky, so skip it. Put your money somewhere safer. If you’re planning a long term hold, more power to you – this is a great time to buy.

What Our Grandparents Taught Us About Real Estate

What did your grandparents teach you about investing in real estate? Likely, they taught you a lot, if you were just listening. I still remember the day my grandmother made her last mortgage payment. Our grandparents, those who lived through the depression (and their children who learned those lessons from their parents), bought homes so that they could get into a fixed loan and could predict their housing costs for the next 30 years; and so that after 30 years, they’d have no housing payment. Over time, they paid down what they owed, and they had something tangible worth serious cash when they died, something they could leave to their children. That’s why they thought of buying as an investment. It’s true – go ask them. If you rent your entire life, you’ll never stop having to pay a monthly housing payment, and when you die, your children may have nothing. Later generations have forgotten these lessons. They bought homes, but then expected the homes would double in value in only a few years. They refinanced every year to pay for cars, vacations, and all sorts of luxury items. They never learned to live within their means, and they thought that because they bought a home, it should pay them an annual bonus. Now, those people are learning that maybe their grandparents knew a little something. Our grandparents still do know quite a bit, after all, one third of the real estate in America is owned free and clear. Those properties are owned by our grandparents. They make no mortgage payment, and their property is worth a small fortune. It’s not too late for us to learn from the wisdom that surrounds us.