Thursday, August 03, 2006

Bargain hunting for houses

People have often asked me how we buy a house that's undervalued. It's important because most people make their money in the buy, not in what they do to the house afterward. That's certainly been true for us. You have to know the market intimately enough to recognize a bargain when you see it. So what am I doing to find the next house?

1. Checking the computer listings obsessively, as in five times a day. If something good is listed, chances are it will be snapped up the first day. Did you know even Craig's List has real estate ads?
2. Combing through old listings. Two of our buys sat on the market for months and months because they showed so poorly. (To us, a plus!) Look long and hard at these uglies. We were able to make a low offer to the sellers, who were ready to move on with life.
3. Driving through the neighborhoods we like, noting "for sale by owner" signs. Keep a blank contract in the car so you could stop immediately and talk to the owners if you find a treasure. We missed a Green Hills cottage for $150,000 when a man driving by did just that.
4. Checking the week's HUD foreclosure list. We bought our second home this way. Even though it was a dump, we had looked at enough houses to know anything in West Nashville for under $65,000 was good.
5. Putting out the word to friends and family. It helps to have all the eyes you can watching and listening on your behalf! We'll be going to an absolute auction that friend and reader Ann spotted for us.

And on the estate sale house, my agent asked the partners in her firm for advice. They suggested we try to meet with the original owner face-to-face and see if we could pay her for the first option to buy the house, should the appraisal fall within our price range. We could not reach her by phone yesterday. Instead, I wrote a very personal letter explaining how much we loved her home and asking her to consider our family first as she readies the home for sale. This approach tips our hand when it comes to bargaining, but if we are able to buy the house for what we think it will appraise for, it will be a great investment.


Anonymous said...

Oh good! You sound so knowledgeable about this, I'm hoping you can answer a few questions for me.

Mr. MoneyDummy and I are in the market to buy our first home. We're not looking for an investment property, just a house with an affordable payment.

I've tried to do a lot of research, but I'm not certain what precisely I need to know or how to find it out. Plus, I keep getting a lot of conflicting advice: yes, you need a realtor, no you don't. Buy a bargain home, stay away from bargain homes. There are still good deals on the market, you're at the mercy of the realtors . . . you get the idea.

So, I guess what I'm saying is that I'm so confused I don't even know what to ask. What, in your expert opinion, is the FIRST thing a person who wants to get a bargain on a home should know, do, or research?

Anonymous said...

LOL. I'm still waiting for your advice, but in the meantime, I popped over to the HUD foreclosure list website. My state, along with a few others, had zero listings. I found this odd since most of the other states had dozens. Does zero listings mean that there just don't happent to be any, or does it mean that these states simply don't participate in the program or make the information available on the Internet?

AnnMarie said...

I'm so glad you wrote the letter! I was going to suggest that--but I'm reading the past week's posts due to being on a business trip this week. You never know why someone might choose to accept your particular offer so it can't hurt!

For MoneyDummy--one thing to keep in mind is whether you can personally fix things up or not. My husband and I almost bought a great deal this spring, until we finally remembered that we aren't very good DIYers (yet!). We thought about all the work we could do on the house, but frankly, if we were going to do all that kind of work we would have already done some of it on our own house. And we haven't! Therefor, it's not a good buy for us.

I'm a fan of using a buyer's agent, especially for first timers. They are YOUR agent, so they work for you, not for the home seller. (In fact, our agent tried REALLY hard to convince us to not buy this house. And he was right!)

I think the first thing you should do is figure out what you guys want in a house. (Ours were our price range, distance from work [I walk], a yard for dogs, condition of house. Neighborhood was not a priority for us, for example.) Then start going to open houses to get a feel for the type of home offered in your price range and see if it matches what you want. This will help you get a sense of your neck of the woods. (I avoided talking to the agents if I could. I wasn't looking to be sold a house or find a realtor. They can be really hard sells, so be careful.)

Meredith said...

Mrs. Moneydummy, I think the reason your state is not showing on the HUD Bidselect page is that bidding for your region may be handled by a different government contracted company. You can try the main gov webpage for HUD and navigate from there.

Anyway, the HUD system is way too complicated for a first time homebuyer! You'll need an agent to purchase a home through HUD, either way. Definitely start working with an agent. The SELLER pays for your agent's commission, so there is no cost to you. An agent is able to access tax records and full listing information for all houses selling in your region. Even though we ended up finding our last three homes on our own (by computer, driving by, or on the HUD page), we still used an agent each time to help us through the transaction.

As far as finding a bargain, you should consider EVERY home purchase as an investor. It is the biggest investment most of us will ever make. If you can buy a home that's undervalued (selling for less than it's worth, for whatever reason) or one that's in a rapidly appreciating neighborhood, you'll build equity without even trying. If you purchase any old home that strikes your fancy, particularly one in a new construction area, you may not be able to get your money back if you have to sell it two years later. Even if this is your dream home, life happens!