Tuesday, November 3, 2009

House Hunting: Finding Bargains in the Chattanooga Real Estate Market

Everyone wants to find a great home at a great price in today’s market.  However, spotting one is difficult given the level of available inventory and the number of confusing messages from family, friends, and others.  Here are three types of properties that you may want to look into when attempting to spot that next great deal.

Homes Owned by or Involved in a Corporate Relocation

Relocation companies exist to aid corporations attract and relocate talent from out of state.  In the past, most relocation companies offered properties at market value and were content to hold to their bottom line as values increased over time.  In a declining market, the relocation companies are now offering the properties below market value; often at a price that would only be available through a bank-owned home or a short sale.  The secret is that occasionally, the employer will pick up the tab on the difference of what may be owed on the home as a part of their employee’s compensation package.  Additionally, the homes are pre-inspected with repairs made prior to being listed for sale.  The downside is that homes involved in a corporate relocation are not that easy to come by however you agent should know the keys to finding these properties.

The Good: Aggressively priced, Motivated Seller, Pre-inspected with repairs made.  
The Bad: Difficult to find and not available in every market.

Bank-Owned Properties (REO)

Bank owned properties are all the rage throughout the United States.  The media has whipped up a frenzy among buyers that EVERY seller is just one payment away from foreclosure, which isn’t true.  Also, most are sold under the guise that there’s absolutely nothing wrong with them, which may be somewhat true.  What is true about a bank owned property, also known as an REO, is that for the RIGHT buyer, they can represent an awesome opportunity.  However, if you are someone who’s only prior home improvement experience consists of vacuuming the floor, an REO is not for you.  If you’re seeking into your first home, an REO is also not for you.  Bank owned properties are sold AS-IS!

When you are looking at bank-owned properties, you must consider the costs associated with bringing the home back up to a livable standard.  Most buyers only consider the obvious problems (broken window, missing appliances) but there may be a whole host of deferred maintenance items that may need to be addressed as well.  If you lost your job today, chances are you’re not going to spend $20,000 on a new roof.  I highly recommend taking along your trusted contractor and an inspector before making an offer on a bank owned home so that you will know what it is you’re actually buying.  Don’t assume that a home that a new, never-lived in home is a great deal and will not have any issues.  The questions you need to consider are at what point did the builder know when they were going to out of money and when did it finally occur?  Also, was the home constructed to code with permits and did it pass all of the inspections?

Finally, REO homes are sold below market value so you need to act quickly and figure out if the bank is offering the home at a fair price or an unreal price.  The banks do not want to own real estate and so they will offer the property below market value as a way to get it off the books quickly.  Chances are that you’re not the only one checking out the home, so you need to be prepared to offer the asking price or more.

During the summer, a buyer approached my team looking for our assistance to purchase a new bank-owned property in a gated neighborhood.  Upon glancing the listing, it seemed the home was too good to be true at the price that was being shown in the listing.  On site, the home looked great with 99% of all of the working being completed with a few punch-list items remaining…so we thought.  Upon further inspection, we discovered the home never passed plumbing, electrical, or the framing inspection and would have to be demolished upon purchase.  Our due-diligence ahead of time saved us from an inevitable lawsuit and we found the buyer another home that better suited their needs.

The Good: Below Market Value, Perfect if you know what you’re doing. 
The Bad: Poor choice for the inexperienced DIY'er or someone with limited cash reserves, due diligence required, must act quickly.

Well-Aged Listings

Cheese and wine are not the only things that get better with age; real estate can as well.  Homes that have been on the market for a substantial length typically yield an excellent price, depending on the motivation of the seller.   The million dollar question is why did the home sit on the market for so long?  Some are over-priced to begin with and the seller chased the market so far down that they ultimately settled with ever the market would yield.  Others were dated and the buyers could not see the potential.  Either way, for the right buyer, searching out a listing that has been on the market long enough to collect social security is an excellent way to score that deal of a lifetime.

The Good: 10-15% below market value. 
The Bad: The age of the listing may be as a result of the seller’s lack of motivation…but you won’t know unless you make an offer.