Re: How to buy a house in next 96 hrs ??? - Posted by bf
Posted by bf on June 05, 2004 at 24:03:57:
I did this very thing five years ago. The similarities are uncanny. I wanted to buy a house about 10% under value. Single parent, my oldest daughter was coming back to live with me, and I wanted to buy in a particular high school district.
I took the following steps:
Got preapproved for a loan. This made it easy for me to get realtors (and more importantly, sellers) to take me seriously. It was also a must because I am self employed.
Chose one realtor, and worked with him exclusively. I did this because I wanted him to make me his number one priority for five or six days. I came to him with a recommendation from a prior good client who had also purchased in a hurry, so he took me seriously. He saw a real commission coming, not pie in the sky, for spending time with me.
I told him how much I had to put down ($10,000) and my loan approval ($130,000). I told him I had no intention of spending $140,000 under any circumstances, and to get that number out of his head. I told him I was underbuying. I’m self-employed with variable cash flow, and I wanted to be able to make the payments.
I told him my criteria, which were fairly specific, and specifically ordered (that is, I gave him my criteria in the order of importance to ME).
A. It had to be in the particular high school district. I was not looking elsewhere (there was a new high school, and my daughter was coming for senior year. I thought she’d be more comfortable with a lot of other “new” seniors).
B. It had to have a minimum of three bedrooms.
C. It had to have central A/C (we are in Deep South Texas and we run the air until November).
D. It had to be vacant. I needed to move in in fourteen days. I started looking the last week of July, and school started August 15.
E. I had a strong preference for at least two baths, but would settle for 1.5 if I had to. I wanted 2.5
F. I wanted to spend less than $100,000. I was negotiable on this, but did not tell my realtor so, even though he was “technically” working for me. You have to keep your realtor’s story consistent. Don’t tell them what they don’t need to tell other realtors.
G. Fixer was okay by me, but my preference was no fixing.
H. I wanted brick because I felt that resale value in that area was greatly diminished for sided houses. As it turned out, I had no choice, every house for sale in that area was brick three or four sides.
I. Although I did not know it at the time, it turned out that size of the house was an important criteria for me. I told the realtor it was not, and therefore looked at everything regardless of size.
I listened to my realtor when he told me which parts of my parameters were unrealistic. It was a very hot market, and that area was flaming. The chances of my buying anything in that particular area under $100,000 were, in his opinion, unlikely. There were only two listed under $110,000.00 (I think he also thought that when I saw the lesser houses I would consider them unsuitable, to his surprise I offered on one of them).
I therefore raised my sights to $125,000 listing price, but only because I wanted to look at many houses, and be able to make multiple offers. I had no intention of paying that. I did not do this with apparent ease. From my realtor’s perspective, me raising my sights $25,000 was a very unhappy decision. I impressed upon him that I did not want to pay $125,000. I wanted to stay under $100,000. I allowed him to “force” me up. Reluctantly. And I harped on it ocasionally for the next few days. I’m convinced this helped in the end.
The realtor gave me the “yada yada” about list not being the sale price to get me to raise my sights, but what he didn’t know was that I felt 110,000 was my top mortgage, despite my pre-approval.
I NEVER told him that my goal was to purchase under market. My goal, so far as the realtor was concerned, was to purchase within ten days because school was starting and my daughter was coming. This also gave the realtor an “acceptable” reason (in his mind) for me to be submitting multiple bids. It gave him a “story” for the sellers’ realtors. Don’t underestimate the need for this. It got the realtors and the sellers to take me and my short deadlines seriously.
The reason I was actually submitting multiple bids was a) to have more than one choice, b) to have leverage (playing one against the other), and c) to be certain of having a house in 14 days. I really was serious about my deadline.
The realtor printed out the short MLS version of every single house for sale which met the must criteria above. I sat in his conference room, went through them, and chose which ones I wanted to see. I wanted to see everything that was not imminently unsuitable. I eliminated two, and we went looking at everything else that afternoon. (remember, they were all vacant, so appointments not necessary).
We went and saw every single house on the list. I think the total was ten or twelve (I told you it was a hot market and I was looking at low price).
I found three that were acceptable. I eliminated a few others for various reasons–too much fixing for the price asked, obviously not motivated to sell, one had a bad foundation, etc. I submitted offers on all three. Before submitting offers, I had the realtor run the long MLS listing on all three. I wanted to know how long they had been on the market, ownership history, etc. I wrote my offers accordingly.
One of the houses, eminently acceptable and in an extremely desireable separately incorporated city with its own pool, community center, and fire dept., immediately accepted my offer of $79,900 with a $25 binder. Other somewhat larger houses in the immediate neighborhood were selling for $140,000 and up.
It was owned by an absentee landlord who had been trying to sell through MLS for five years, but had gotten no offers for whatever reason. I offered the mortgage; because of the new school district and other factors in the general area, the value of his house had greatly surpassed his mortgage, but I don’t think he knew that.
My offer was substantially less than his asking price, which I do not remember off-hand but was very low for the area; probably right around 99,000. I was very surprised (as were both realtors) that he accepted 20% under asking without negotiating. He would have had to pay the realtor’s commission out of his own pocket. However, it would have gotten him off the hook for the mortgage, and at the time it had been sitting empty for two or three months. This was obviously his criteria, I just lucked into hitting the right button first time at bat.
I still kick myself that I didn’t have the money for two houses. If the house I bought had not been on the market, or had not been priced as low as I ended up purchasing, I would have purchased this house even at full price. Nothing else came even close value-for-money. But I knew I was going to have a kid in college the following year, and I didn’t want to be paying for unforseen renovations that just happen in an older house.
My point, though, is that I had a signed contract for a house that met all my stated criteria–including far more than 10% under actual, verifiable comps after selling costs–in less than three days, well under your 96-hour requirement.
One of the other sellers was not serious, and came back with a full-price counter. I made another offer, to keep the house in play for leverage, but basically eliminated this house from consideration.
The house I ended up purchasing was the third one. After some negotiating, I purchased for 116,000 a house worth (on the date of purchase) $130,000. The builder was building the identical house just down the road (same high school) for that price.
The tipping point, for me, was that this house was only one year old (vs. 30 years for the less expensive house) and needed no work at all, and wouldn’t for the foreseeable future. The other house needed minor renovation (paint and carpet were optional, but it did need a kitchen facelift).
The house I purchased was also nearly 1000 sq. ft. larger, and had 2.5 baths rather than 1.75. Finally, it had a MUCH larger yard (not in my up-front criteria, but it did tip the scales). Both houses, as it turned out, were four-sides brick.
Since I was buying for personal use, and not rental or resale, I allowed factors usually not considered by investors to influence my purchase (otherwise I would have bought the other house). As a result, I ended up paying more than I stated I wanted to pay, but got the house I really wanted, well under market, and my mortgage was no more than I had been willing to go anyway. To this day, because I looked at everything available, I remain convinced there was not a better house for me on the market at that time.
Did I close in 14 days?
No. I signed a final negotiated contract in four or five days. It took three days to do the inspections. The seller was ready to close less than five days after contract. I did not let the contract go on the smaller house until the inspections were done.
However, despite my pre-approval, the mortgage process was a nightmare because I was self-employed. The owner did not want to make more payments and I didn’t want to have to drive my kids to school each day, so we negotiated for me to pay rent and move into the house on Labor Day weekend, as it became apparent that the closing would drag on. I eventually closed on October 18, nearly 3 months after I signed the contract.
Moral to that: pre-approved does not mean pre-approved when you are self-employed.
Epilogue: Was it a good buy?
Yes. Since I was purchasing for personal use and because I was buying on short notice, I expected to overpay. But, I made a few lucky choices, most importantly the location.
The new high school proved far too popular, and I suffered redistricting (both of the other houses I offered on did as well). Unfortunately, because the house was on the edge of the school district, it is now no longer in the school district (though my children were grandfathered). It went to a much less desireable school district. The other two houses went to a much better school district that they had previously been part of. However . . .
I have still gotten substantial appreciation, even in a much less desireable high school district (for future buyers). A nearly identical house (different color brick, much smaller yard, nicer landscaping) six doors down sold three months ago for $159,800. After selling costs, call it $150,000. This means my house has appreciated from $116,000 to (say) 145,000 in not quite five years, not bad for a consumer item.
In two years, my house will be in the new, replacement high school district being built, and I expect appreciation to zoom. This was just luck on my part, the new high school district wasn’t even conceived never mind funded(because the school district got caught by surprise) when I purchased the house. The other two houses I offered on will remain in the high school district they’ve been redistricted to. So I really did get lucky, though it will take two more years, because in the end, my house will be in the most desireable high school district. Some things, you can’t foretell.
What are the musts?
You must be able to access MLS. When you are buying in a hurry, you need a large pool to efficiently look at and make offers on.
You must have an experienced realtor who has credibility with other realtors. You can make low offers all day long on MLS properties, but without a credible agent, the listing agents won’t present them. Sure it’s against the law. Do you see a cop?
You must have pristine credibility with your realtor. If he doesn’t believe you, you’re sunk before you start. If you don’t have a working relationship, get a referral, preferably from a professional just like you who actually purchased from the realtor recommended. Call around and find someone who can recommend you to the realtor you want to use.
Your realtor must have a good story to tell the listing realtors. The realtors MUST believe that you are a serious buyer and that you mean to close, despite the low offers. “Divorced single mother” won’t do it. What’s your marketing hook? And can your realtor parrot it believably without you sitting in the background?
Don’t waste your realtor’s time. Work with one realtor, not many. If you work with several, none will be motivated to spend the time you need to spend to get the deal done in short order.
You must have reasonable criteria. Based on the houses you look at, adjust your criteria. If you are completely unreasonable, you’ll get nothing.
You must have exact criteria. Make a list of what you MUST have, and which things are optional. Order the list. Present it to the realtor in rank order. If it has been a long time since you have purchased a house, you may discover your criteria are slightly off, as I did, but get as close as you can. It makes the offers easier, and gives you selection criteria if you don’t find a “clear best choice.”
What would I do differently?
- I would make sure I was really “approved” not “pre-approved.” Pre-approval means nothing. If you have other sources of cash, you don’t have this problem. And by the way, investor cash usually will NOT work when you are buying for personal use. I nearly lost the deal because of the slow close.
I would have found a way to buy that other house to flip. Or maybe not, I had a lot on my plate that year.
I would have used a local mortgage broker, instead of one recommended to me in a distant city, because I could have gone to his office and grabbed him by the throat.
Seriously, use someone you already have a working relationship with. If I had used my own banker, I would have closed much sooner. Consider a hard-money loan, and then refinance if allowed in your state (wasn’t allowed in Texas at the time). Use a mortgage banker that the REALTOR has worked with before if possible. DO NOT use an out-of-state lender. Pay an extra few dollars in closing fees in return for better service.
Hope this helps, sorry it was so long.