Help: FMV for a White Elephant? (long) - Posted by Stacy (AZ)

Posted by Doris - Va. on January 20, 1999 at 16:56:49:

Perhaps since repair work is already necessary - you could find the right person to redesign the exterior to better conform with the surrounding houses. There are ways to give it a different “look” and turn the entrance to the front etc.

Of course you would need to get it at the right price to allow for this architectural re-do. The right remodeling might turn this “beast” into a
"friendly neighborhood beauty" and an easy sell.

Help: FMV for a White Elephant? (long) - Posted by Stacy (AZ)

Posted by Stacy (AZ) on January 20, 1999 at 01:38:48:

I need some expert help on this one. A woman called my ad needing to get rid of her ex-husband’s house. Sadly, he’s got Lou Gehrig’s disease, and will probably not be leaving the hospital. In the mean time, their two sons (18 and 28) have been living in the house, but their mom wants to get them out of it quickly and into an apartment. The father signed-over the house to the 18 year old (all legal).

I’m having big problems fixing a FMV for the place. The neighborhood is surrounded by houses built around 1939, and is an historic district in downtown Phoenix. However, the father had this 1965 house moved onto the lot in the middle of these older houses seven years ago. The neighborhood houses look well kept for the most part.

Because the lot was too skinny, he put the house on the lot SIDEWAYS. The front, facing the street, is really the side of the house. The real front of the house faces the neighbor to the right, with large oleanders separating the two. There is no garage or carport, so they have to park in the yard. I’ve driven by and seen the outside…it looks like a little house from the street, but is really over 2000 Sq Ft.

I’m going to take a look at the interior tomorrow. The lady describes it as “a mess”. There is a lot of junk inside (that she’ll have cleared-out), and she says the wall-board is in pretty bad shape, and there is some exposed wiring, paint falling from the ceiling, etc. And no heat. The house is owned free and clear, but the payment on the land is about $325/month.

When I look at the comps, all I see (of course) are the sales for the smaller, quaint, 1939 houses. They’re going for about $65/sq.ft. None of them are as big. The largest one is 1500 sq.ft. But, how do I compare this place to anything in the neighborhood? It’s just weird. How much do I discount due to the weird lot placement? And what about the fact that it’s different looking than any in the neighborhood?

My intent is to flip this beast, but I don’t know what to offer on it, since even after it’s fixed-up, it may not be appealing to a potential retail buyer. In all my deals and offers so far, this is the most challenging to judge. Can you give me an idea how I should go about figuring what to offer?

Thanks in advance-

Stacy

Followup: White Elephant - Posted by Stacy (AZ)

Posted by Stacy (AZ) on January 20, 1999 at 23:51:30:

Thanks for your suggestions. All of you have helped a lot. Here’s some more info I didn’t get into before.

Title:
I researched the title, and I only found one trust deed. No other liens show up, hospital or otherwise. Now the way he got the property into his son’s name may not be legit, but I’m not sure. He gave his son a Warranty Deed for the “parcel of Real Property” on 9/95, with no mention of the “improvements”. So, not knowing if parcel always includes the house on the land, I don’t know what this Deed conveys. I’ve never really had to think about the land and house separately before. Oops! I just stepped in a danged elephant dropping.

Then on 9/98, the father quit-claimed the property to his son. What!? I don’t know why. To make matters even a little worse, the father’s first name, last, and middle initial are the same as his son’s. Makes the title search difficult. I even read the father’s will, where he bequeaths all his possessions to his son, recorded on the same day as the Warranty Deed. Do I need to get a quick check by an attorney? The house must have clear title to get a title policy, so if there’s a problem, the sale won’t go through anyway. What do you think?

The Loan:
The trust deed and note have a balance of $25K, according to the mother. I found the name in the recorder’s data base of who I think owns the note (private party). I’m having the mother confirm. My plan is to call this guy and see if I can buy the note at a discount. If I can get the note for, say $19,000 (or less), I’ll have a great bargaining chip. Offer the seller’s some additional cash to walk, and maybe I’ll get the place at a very decent price. You can see why I’m not giving up on this place…yet.

I’ve heard your words, Jim & Lee. I’ll play this one as conservatively as makes sense. I have a feeling I’ll be posting more questions as they come up. I appreciate all of your help very much.

Guess I’ll need to invest in some hip-boots.

Stacy (AZ)

Re: Help: FMV for a White Elephant? (long) - Posted by JPiper

Posted by JPiper on January 20, 1999 at 22:14:17:

Hi Stacy:

You?ve got yourself one this time don?t you??

In my area there are a lot of properties that don?t really fit in?.this tends to happen in older neighborhoods. Large differences in the comps without being able to recognize why someone paid one price versus another. I like this?.it means it?s going to be difficult for everyone else?.to include the appraiser.

The appraiser, as you know, is apt to look at the property from the standpoint of square footage, bedrooms, etc. This could work to your advantage. On the other hand, the property clearly has disadvantages which you have enumerated.

What I would do is to compare the property to the worst properties in the neighborhood, and use the ?uniqueness? of THIS property as a justification as to why I picked those as comps. What I would not do is compare square footage. Later, when I?m selling, I would focus more on size.

When I?m confused I tend to get even more conservative than normal. I give the worst case scenario to everything. So in this case I would assume a longer sale period, higher carrying costs, higher fix up, etc?.all starting from a lower fixed up market value. Assume the worst.

Worst case scenario is that you end up with a property at an extremely low price. Naturally you will have a contingency to walk away with, or perhaps to renegotiate with if you need to. This type of property I don?t worry too much about if I don?t get it?.and this attitude will give you the power to negotiate a very low deal. Again, later if you get it, you switch hats, and talk about the square footage.

I think some of the concerns expressed below are important. I would definitely be concerned with the title situation regarding the deed to the son, and relative to the medical expenses. Timing of this deed might be important?so check the title closely, and perhaps discuss it with an attorney. Make sure you run down all the details.

By the way, make sure you check out that land loan as to it?s existing balance and terms.

This is just like any other deal. It?s a question of checking out the details, and in this case being overly conservative in your estimation of value due to the non-conforming nature of the property.

JPiper

Re: Help: FMV for a White Elephant? (long) - Posted by Lee

Posted by Lee on January 20, 1999 at 20:57:31:

The father signed it over?.. to the 18 year old… looks like you need to be talking to him. Check POA (power of atty.) if poa was used and the document dad used to sign it over to son, first to see what is really going on.
Was the value of the gift over $10,000?

Are their garages or carports at the rest of these (comp.) houses? If not (and there is not enough land avil. to build) I would concider what a potential buyer is/ would be looking for.

500 sqft bigger than all of the other comps? Concider it also 1500 sqft unless your going to remodel it, Then concider it 2500 sqft. LOL!

This part scares me:

EXPOSED WIRING?, PAINT FALLING? Think Electrician and Electrical Inspector. Code Violations?
Lead Based Paint? How do they look at that in your area? Big deal?

Think long and hard about this one.

No heat, not a problem, except for frozen pipes and water heater, allow for it in your offer.

I’ll bet, the $325.00 land payment includes some money for the “house” (it costs a TON to move a house and then connect to utilities).
Find the mortage on the $325.00 note and see if it includes any mention of “improvements”.

BTW… How could a man sign over (give) a house to another that has a mortgage on it… unless it is “Subject To”.

Does the dad (or the dad’s estate) have any leins against him/ it.

AND, WATCH OUT FOR THIS ONE.
Is the hospital paid in full for dad’s lengthly stay.

This deal smells.
Go to the Court House and learn.

Let us know what you find and how you come out.

I don’t mean to sound like a chickin, Cluck Cluck.
I just don’t like surprises, they cost to much!

Lee

Re: Help: FMV for a White Elephant? (long) - Posted by Bill Gatten

Posted by Bill Gatten on January 20, 1999 at 20:03:53:

Stacy,

Why not just use a variationof a simple cost approach, minus the repairs and improvements that will need to be (than can be) done. You know the general square foot market value in the area, and any builder can give your a per-square foot replacement estimate.

What I’d do is interpolate, arriving at a per-square foot number between the two, and subtract all deferred maintenace, clean-up and refurbishment costs, and all anticipated [re]marketing costs. Then I’d subtract at least 10% for the non-conformity (i.e., it’s size relative to the other houses in the area, and its odd positioning on the lot).

Someone smarter than I am will probably have some better advice than this.

Bill

P.S., Then I would put it in a 3rd party land trust, in my own name, and assign a 50% beneficiary interest to a resident co-beneficiary to make all the payments, and… (oh never mind).