Nolo's Essential Guide to Buying Your First Home (43 page)
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Authors: Ilona Bray,Alayna Schroeder,Marcia Stewart
Tags: #Law, #Business & Economics, #House buying, #Property, #Real Estate
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ou’re already frequenting the open-house circuit, and you’ve got a good agent. But maybe the perfect house hasn’t yet appeared, or at least not at a price you can afford. It’s not hopeless! Check out some creative alternatives, including:
ou’re already frequenting the open-house circuit, and you’ve got a good agent. But maybe the perfect house hasn’t yet appeared, or at least not at a price you can afford. It’s not hopeless! Check out some creative alternatives, including:
• houses that have stalled on the market
• starter houses
• potential remodels and fixer-uppers
• space that can be shared with a co-owner or renter
• FSBOs (houses “For Sale by Owner,” without a seller’s agent), and
• foreclosures and probate sales.
As Ira Serkes, a Berkeley RE/MAX Realtor® counsels, “The house you want, at the price you want to pay, may not actually exist. But it’s important not to compromise on essential features such as neighborhood safety and number of bedrooms. Once you’ve gotten to know current market realities, and adjusted your expectations accordingly, finding a house you’re happy with will happen much faster.”
Castoffs: Searching for Overlooked HousesIn every market, some houses have been on sale for so long that buyers have moved on and lost interest—which gives you a chance to step in and offer a lower price. Houses get overlooked for a broad variety of reasons: Maybe they’re priced too high, have cosmetic problems, or are unattractive to most buyers (because of a bad layout or a location on a busy street).They may even be “stigmatized properties,” meaning they were the site of a crime, suicide or other death, rumored environmental dangers, haunting, or some other occurrence that gives buyers the creeps (and lowers the house’s market value).
We haven’t exactly made such houses sound appealing—but whether you should be interested at all comes down to two questions:
• If the house was simply overpriced, is the seller ready to sell it for what it’s really worth?
• If the house has other problems, do they happen to be ones you can live with or feasibly change?
For example, when retired Realtor® Carol Neil was helping her daughter househunt in the always-competitive San Francisco market, she found they were getting outbid, and couldn’t locate anything suitable for an acceptable price. So Carol went into the MLS and searched for listings tagged “expired” or “price reduction.” Carol says, “It’s wise to watch price reductions and visit the properties to see what the original ‘flaw’ was: cosmetics, price, or the property itself.”
Carol’s search led to a house with a view of the ocean and within walking distance of the elementary school that her grandsons attended. The problem? It was overpriced, because it smelled of cigarette smoke and was badly decorated, with tacky pink curtains and carpets—totally fixable, but hard for buyers to look beyond. The seller had rejected the only bid, expecting multiple, higher offers. When Carol’s daughter came in four months later offering a price that accounted for the house’s problems, the seller at last became realistic and accepted.
How’d They Sell That House?After a famous murder in a house, it doesn’t fare well on the real estate market:• Nicole Brown Simpson’s 3,400-square-foot condo languished on the market for two years before selling for $200,000 below the asking price. The buyers changed the address and remodeled.• Jeffrey Dahmer’s Milwaukee apartment building was so stigmatized by his series of gruesome murders that the entire neighborhood’s occupancy rates went from 80% to 20%. The building itself was demolished by developers.• In 2006, almost ten years after JonBenét Ramsey’s body was found in the basement of her family’s Boulder, Colorado mansion, it was put on the market for $1.7 million—about $300,000 less than its estimated value. It brought in only $650,000, and has passed through several owners’ hands since.
Your agent can help you with searches like Carol’s and offer insights as to why a house hasn’t yet sold. If the problem is serious, or the seller appears extremely ,unrealistic, cross it off your list. But some houses may still remain prospects to pick up at an affordable price. You may be a unique match for a particular property—for example, if you’re unfazed by a house’s criminal history. Also, some stigmas are more rumor than fact—maybe the former occupant actually died in the hospital, or an inspection turns up a logical reason for the spooky clanking noises.
TIPNewly constructed home seekers: You too can find castoffs.
New-home discounts usually happen when a developer finishes an entire community, but some houses remain unsold or deals have fallen through. Meanwhile, the developer is eager to move on to the next project. You might see these advertised as “builder closeouts.”
Every buyer’s Dream List starts out ambitious—that’s what dreams are for. Now that you’ve explored the market, you can decide whether to scale down your dreams concerning size, location, amenities, or something else. Perhaps you can get by without an office, or the kids can share for now (hey, the Cosby kids did it!). Or you might be able to identify a neighborhood that’s up and coming. Watch where the artists go! As with New York’s SoHo in the 1970s, artists are often the brave souls who turn a dicey neighborhood into a desirable one.
With a starter house you get your foot in the door of the real estate market, start building equity, and save enough to buy a bigger or better place in the not-too-distant future. It’s a particularly solid strategy if you can expect increases in your income—for example, you or your partner will be graduating from school and getting a job soon. But even without saving, increases in the house’s value and your equity can help launch you into the next house.
Smallest House in the WorldAccording to Guinness World Records, this title is held by a fisherman’s house in Conwy, a village in North Wales. Looking not unlike a British telephone booth (complete with red paint), the house contains just two tiny rooms atop one another, connected by a staircase. The house was built in the 19th century, which may explain why it has no toilet.
A few cautions apply to buying a starter house, however:
•
Buying ain’t cheap.
You’re going to have significant transaction costs each time: closing costs, agent commissions, and moving expenses.
•
Don’t expect house price to drop proportionally to size.
Even if the house is matchbox-sized, you have to pay a reasonable amount for the land it sits on, particularly in a nice neighborhood.
•
Select the right mortgage.
Make sure your mortgage doesn’t have prepayment penalties. Also avoid loans with points, because you might not recoup their cost.
•
Plan for any drop in value in the next few years.
If the value of your home drops, you won’t be building much equity and might have to sell at a loss. That could make it tough for you to afford a bigger or better home.
Don’t be scared by the number of cautions. Many homebuyers adopt this starter-home strategy. It allows you to start enjoying the benefits of homeownership right away, learn the ropes of being a homeowner, and develop a realistic sense of when and how you can move to your next place.
Have It Your Way: Buying a Fixer-Upper or House You Can Add on ToBuying a house that needs a major overhaul, or will support an addition, is a great strategy for some buyers. The advantages are obvious: Pay less, and exercise your own excellent taste to produce a house you’ll love living in and may sell at a profit. Plus, if the place is livable now, you can make these changes later, when you have more cash or equity (which you can borrow against).
How to Get on Extreme MakeoverHere’s your backup plan for that fixer-upper: ABC’s
Extreme Makeover Home Edition
is always looking for new contestants. Go to
http://abc.go.com
. Click “Shows,” then “Extreme Makeover: Home Edition”; then scroll to the bottom and click “Casting” for application details. Also, HGTV’s various series and specials are always looking for recruits (see
www.HGTV.com
).
Buy a house we could add on to.
Erica and Carl had recently married and planned to have kids. But, says Erica, “All the houses in our price range were too small, too far from our offices, or had no usable back yard space—and we had an image of hanging out with family and friends on a back deck. After a year’s searching, we decided to buy small and add on. We found a well-priced two-bedroom, to which we added a second bathroom and a deck soon after buying. That depleted our savings, but five years later, right before our second child, the house had gone up in value enough for us to qualify for a home equity loan and add another bedroom.”
How Much Fixing-Up You Can HandleErica and Carl had recently married and planned to have kids. But, says Erica, “All the houses in our price range were too small, too far from our offices, or had no usable back yard space—and we had an image of hanging out with family and friends on a back deck. After a year’s searching, we decided to buy small and add on. We found a well-priced two-bedroom, to which we added a second bathroom and a deck soon after buying. That depleted our savings, but five years later, right before our second child, the house had gone up in value enough for us to qualify for a home equity loan and add another bedroom.”
Ideally, you’d like a house where the fix-ups are minor—like getting rid of the paisley wallpaper and mustard linoleum. Unfortunately, other homebuyers and investors are also looking for easy fixers, so huge bargains are sometimes hard to find. Nevertheless, a certain number of cosmetic fixers will remain overlooked, particularly if they look unappealing from the street (some potential buyers won’t even get out of their car).
Sisters Are Fixing It forThemselvesWho says home repairs are “man’s work”? Anyone who’s repair-challenged can take advantage of fix-it resources such as
www.bejane.com
, with tutorials, message boards, and a list of “Cool Tools.” And Tupperware-partyesque Tomboy Tools workshops include hammers and demos (see
www.tomboytools.com
). Or try these books:•
Dare to Repair: A Do-It-Herself Guide to Fixing (Almost) Anything in the Home,
by Julie Sussman and Stephanie Glakas-Tenet (Storey Publishing). With its Rosie the Riveter cover, it’s easy to spot and teaches tasks from unclogging sinks to patching drywall.•
Chix Can Fix: 100 Home-Improvement Projects and True Tales From the Diva of Do-It-Yourself,
by Norma Vally (Studio). Seen her on the Discovery Channel? Now you can read her lively instructions and stories on dealing with plumbing, electricity, walls, floors, doors, and windows.•
The Tuff Chix Guide to Easy Home Improvement
, by Paige Hemmis (Plume). Another star author, from Extreme Makeover. This book focuses on home repair advice for novices.
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