Wheelin’, Dealin’, and Stealin’

by brandt

It’s time for another Q&A Session with Uncle Brandt, where I type till my fingers are blistered trying to answer the deep soul-searching questions you all have sent in!  First, obligatory CAT PICTURE.  STORY TIME after the jump.

Thinking kitteh is….thinking of the answers to your questions.

 

After Ashley and I graduated college in Idaho, we moved out to Michigan.  The economy wasn’t the greatest, I didn’t want to be a farmer in Idaho, and Michigan is where I had the most networking contacts to find my first job out of college.  I was hired by a mortgage company, and my first job while I was there was to take the big packages of mortgage documents and be in a “quality control”-type role.  Basically, I sorted them, made sure all the forms were there, and passed the stack on to the next person.

From what I was told, the only way to learn mortgages, and the only way to learn the industry, is to be around it.  That was the extent of my first-day-on-the-job training.  And considering many people buy 2, maybe 3 houses through the course of their life, much of the details and paperwork are left to real estate agents and loan officers, with us the consumer taking their advice.

If you try to look up the information you want to learn on the internet, you’ll get a different answer for the same question from every place you go, as well as the caveat that “Every home is different.”

And it’s not like the internet is a bad thing.  You can look up all your symptoms on WebMD and self-diagnose yourself, but a doctor is the person who has the knowledge and expertise to make sure you’re fixed up correctly.  You could research all day on Morningstar.com and come up with the ideal stock and mutual fund portfolio to maximize your retirement, but wouldn’t you hire someone like a financial planner who works with all these things daily for their advice and expertise?

Since we’ve officially been on this home hunt since August (and I’ve asked about every possible question to my realtor), here’s some FAQ’s that I personally have heard about wheelin’, dealin’, and stealin’ when it comes to houses.

A lot of houses we’ve looked at have prices that seem too good to be true.  Is there anywhere we can look to find the issues with the houses before we take a tour even if we’re falling in love with it?

The first thing we both learned about houses is that if it’s too good to be true, there’s probably an issue.  It might sound cynical, but even in a buyers market like Michigan’s (and the rest of the United State’s) economy is, houses are still going to command market value.  That price might be discounted, just not to what people want.  Let me grab an example:

We looked at a house for sale at $144,900.  It was a bank-owned sale.  The house sold back in 2002 for $255,000.  That’s a quarter of a million dollars.  It was a 4 bedroom 2.5 bathroom house with about 2300 square feet, and it was built-in 1992 in a newer subdivision.  Wow.  That’s a 56% discount from where they originally bought the house at.  What’s the deal with this one?

First, the house needed some work.  It needed probably an entire house-worth of paint.  There was touching up that needed to be done.  It wasn’t move in ready.

Second, home prices in Michigan (from my experience) were over-inflated during the periods of 2000-2007.  I think the economy in Michigan was riding really high off the auto industry, and having gas prices around $1.50 per gallon really helped out.  While the economy did take a dramatic dive in 2008, I think it was in an effort to reset itself.  So the home price back in 2002 of $255,000 was less a sign of what the house was worth and more a sign of the inflated economy we saw at the time.  And I don’t think the resale value is going to hit $255,00 for a long time.  Like, 10+ years.

Third, that house was listed dramatically lower than its actual value, and it was done for a reason.  The bank wanted a bidding war.  They wanted multiple offers to see what price they were looking at.  Then, they wanted to put out a final call for “Highest and Best offer,” where they would see people’s final offer.  If you’re putting an offer in at listing price ($144,900), but are pre-approved for a mortgage as high as $159,000, and a call from the bank goes out for “highest and best,” if you think that house is for you, you’d probably offer $157,000.  Hopefully, you get the house, the bank gets their money, you got a deal.  You didn’t get a steal.

All those factors considered, most of all the houses out there are deals.  My agent had lots of talks with me about “deals vs. steals.”  She said “Brandt, you will probably get a deal.  There are great prices out there, and you’ll be getting a home cheaper than what most would pay for it in a better economy.  But a steal is very rare.  Don’t expect to get a steal, expect to get a deal.”

We started having these conversations because I would look at houses that were $20,000 above my pre-approval and think “I can probably get the house down to just within my pre-approval.”  And you can do that with some houses.  But for every dollar less than asking price you offer, you’re giving up something.  Like I was told, there are deals, but there aren’t really steals.  And if you do get a steal, you’ll be working your brains out to get it.

Now, what about understanding the issues that are wrong with the house?  There’s not much you can do about that.  Sure, you might be able to get some reports possibly from a city or county office relating to that house, but I’m not sure of the privacy issues surrounding that.  Remember this – The pictures you see are going to be the best pictures of the house that show the best parts of the house.  Of course they’re not going to show the nasty wallpaper, or the horrible paint job, or possibly the cracked tile flooring in the bathroom, or the stained carpeting, the hard-water-rusted shower, or the gross countertops in the kitchen.  If there’s major structural things, you’ll probably see that reflected in the price.  But like I’ve been advocating like crazy, you gotta see past the original owner.

I’ve been looking on Realtor.com, Zillow.com, Trulia.com, and everywhere else. Do I really need an agent?

It depends on who you talk to. Granted, this is my first house, and I don’t work in the industry any more, but they can do 3 things that you can’t do.

First, they can get you the MLS Listings. I can’t emphasize how important those are. We needed a bit of help from our agent in determining exactly what we liked, but ever since I’ve been hooked up with her, she got me on the MLS listings and really allowed me to determine what I wanted out of a house. Realtor.com is pretty accurate, Zillow.com and Trulia.com are not. If you see something on Zillow and Trulia, check it against MLS. I’ve had a few houses that I’ve asked for my agent to investigate, and come to find out they’ve been sold for close to 6 months.

Second, they can get you in the thousands of houses that are on the MLS listings. They don’t just give the combination to the locks to anyone, and agents are obligated not to give those combinations out to their clients. There’s been many’a’time when I’ve

Third, I go back to my analogy of checking WebMD and trying to self-diagnose. You can try to do all the research you want on houses and types of loans and all that fun stuff, but your agent is there as the voice of experience. While my agent has been very good about letting me come to my own decisions about the offering price and counter-bids, I also look to her to judge if what I’m thinking is in line with a “reasonable” bid.

How much down do you put on a house?

Good question.  For FHA, the minimum requirement is 3.5% down.  For conventional loans, the norm is usually 20%, but I’ve heard some places that are OK with 10% down.  Check with your lender.

Different house sales usually don’t have special down payment instructions (though house auctions are different – where they require cash, not a mortgage).  So if you’re looking at a short sale, foreclosure, private sale, bank-owned, REO, or anything that requires a mortgage, and you are looking at an FHA loan, it’s going to be 3.5% no matter what.

Which brings me to another point – once you get serious about buying a house, GET A PRE-APPROVAL.  It not only lets you know how much the bank will lend you, but it also shows a firm committment from a bank when you’re getting ready to make your offer.

We’ll probably have more questions to update once we get a bit down the road with our house process, but if you have any questions, please feel free to email us at NewHouseOnTheBlog [at] Gmail [dot] com, or hit us up on Twitter @NewHouseOTBlog.

Edit: Wow, that last paragraph sounded extremely stiff, forced, and kind of desperate.  So how about THANK YOU to everyone who reads (all 5 of you), and hopefully within the next week we’ll have some…information…to tell you.  Don’t get your hopes up….we aren’t.

Edit to the Edit: That sounded a bit fanatical.  We’ve got some sticks in the fire….we’re just waiting for one to light.

Edit to the Edit to the Edit: OK, now that one sounded too vague, so here’s the deal – there’s 3 houses, we’re waiting to hear back from the sellers.  There.

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