We live in Westchester county in New York and looked at an old Victorian two family house today that is COMPLETELY TRASHED!!
At least 3 layers of linoleum over the hardwood kitchen floor, makeshift closets that need ripping out. Peeling paint hanging off the walls EVERYWHERE, old 1970s wallpaper, old family debris EVERYWHERE. But there is a solid marble fireplace in the living room.
The first rehab process would be to toss in 3 or 4 grenades and when the smoke clears, send in the contractors! We estimate that the house needs at least 100k in repairs (a total gutting) and the seller is asking $550,000 (NO, THAT IS NOT A TYPO!!). The ARV is about $475,000 - $505,000 in move in condition and this house is TRASHED. And she’s a realtor; she should know better.
Her emotions are tied up in this house because she grew up in it. Our offer has to be about $250,000 maxing out at $300,000. She is allowing us to walk through with a contractor.
Are we off base with our offer? We haven’t presented it yet, but will wait and justify it when the contractor gives us his repair checklist and estimate.
Your offer sounds about right to me (although $100,000 sounds a little high for the rehab). If they won’t significantly lower their price, I’d move on. There a lot more good deals out there.
Mike, thanks for your response. Yes, $100,000 is a lot to me too, but if she accepts a much lower offer ($250,000), perhaps we could roll the closing, holding and repair into the mortgage (about $370,000). After the rehab, it would be handed over to a realtor and go on the market for $490,000 based on my comps).
Since I’m using the banks money, nothing comes out of my pocket, but hopefully we’ll get offers of $450,000-$475,000 which we would gladly accept.
Does this seem like a strategy that would work? We’re in New York so properties are a little higher here. If the contractor comes in over $100,000 for the repairs, we’re walking.
Make your offer and if she sticks to that ridiculous price walk. When you walk through with the contractor ask him if the property needs a gut rehab and maybe you can reduce that number by half. But your numbers are right for the gut rehab because when I did my house I got numbers of $110k - $125k. If you are going to be doing this on a regular basis you should get a contractor to work with that will give you much better numbers because they are going to make money with you on a regular basis. When I finally did the work it only cost $75k.
Yes, I agree with you 100% on the contractor issue. The key here is getting the seller to remove the sentiment from her price and view the property though objective eyes. We literally had to wade through trash, junk and debris.
She wrote us a letter saying that she has REDUCED the price to $550,000 (but when we met with her, she said she “would take $450,000” and that she is going to list it on the MLS for “slightly more”. (Lady, have you taken a GOOD look at t his house lately!)
Like you said, if she doesn’t bring the price waaaay down, we’re moving on. Life’s too short. I appreciate your replies. Keep em coming if you think of anything else. ;D
Welcome to the NY Market! Where sellers think their junk is priceless! Give them your final offer, if she takes it great, if not walk. Than 6 months later and the property still is for sale, make a slightly lower offer, maybe she will deal then. If she sells it for her asking price to some other sucker, cool, you might be able to buy it from the bank in a couple years! lol
The funny thing Dan is that might not happen. When I went to purchase my 1st house I came across a building on Clinton Ave, 5 sty, 4 fam brownstone with 12 - 15 ft ceilings. It was a shell and needed a gut rehab. The contractor I took with me said it was going to be way over $100k and this was 7 yrs ago. The owner was asking $300k which was high then, I offered $200k because I really wanted the house. Another buyer wanted it more they gave the owner his full asking price which was more than the appraised value. The bank gave them the money to purchase and rehab, $300k and they gave it all to the owner.
They found a way to renovate it and now the property is worth between $1.7 - $2 mil easily. The market in NYC is crazy but I love it here.
Right now it’s crazy and is only crazy because of over speculation. If you think this trend is going to last forever, I have bridge I can sell you, cheap. You see that was before things went crazy and prices were more ‘normal’ now we have crap out in the pine lands selling for 200K that three years ago would have only fetched 20K max. Ask yourself, what has changed in the past few years? More higher paying jobs? nope. Strong New York economy? Nope. Over speculation of homes? yep. You see the whole market is based on that some sucker will pay more than you! It’s a fools game right now. Just don’t be the fool holding the bag when it all comes down.
The point I was making is that the sucker you refer to may be able to afford that overpriced trash heap, renovate it and carry. The sucker you are referring to is the same sucker that would buy it renovated at $490k but they are getting it at $425-$450k and getting a cheaper price for the renovation for whatever reason. I don’t want to debate about NYC property values or the economy.
Oh yeah and about the purchasing of that Bridge please make sure you own it before trying to sell it to me because I am not an idiot on any level.
The problem is that you are looking back a few years and saying jeez, if I bought X property I could have sold it for a mint today. That is true now, but we have no way to know that if you buy Y property today that it would be worth 3X in 3 years. You are counting on rapid inflation to make that happen or some on here would call it appreciation. Never let what something sold for in past be your guide as to what it will be worth in the future. Markets do and will correct, only ones who don’t think so are Realtors (R) and they have an interest into selling you something so they can get their ca$h.
No that wasn’t the point I was making. The point I was making is that I thought the seller couldn’t get a better offer because of the condition of the property. When I heard about the offer that he did accept I knew it wasn’t going to work because of the market then. But that buyer made it work. The point I was trying to make was that whom ever purchases this property won’t necessarily go into foreclosure. That was the only point I was trying to make, I am not telling her to purchase it because the value might increase I told her to walk away because the seller is being ridiculous.
Dan and Eve, you both make great points. Dan, you may be right when you say that somebody might come along and pay too much for it and end up foreclosing on it in a few years.
Eve, you are right about the seller being ridiculous and she is a Real Estate broker! Upon my request, she was more than happy to send me comps. Yet, her own comps don’t support her claim that the house has a FMV of $700,000 to $800,000. My comps say $475,000 to $505,000. So there’s NO WAY that I’ll give her a dime over $250,000 for a house that needs 3 or 4 grenades tossed in before actual construction can begin.
She inherited it free and clear. Maybe after she holds it awhile longer, she’ll wise up.