Archive for April, 2008 —

Backup Bid Update

It’s been a few weeks since I put my backup bid in and I had a couple of other agent friends call the selling agent to “express interest” in the property, hoping to get the message through that there are other buyers willing to bid on this property. If the current buyer misses any deadlines, I want the seller to come to me. So far, I have no reason to be optimistic except the selling agent did let slip that there was some sort of “boundary dispute”. Hopefully that is just the opening I need.

Unfortunately, the seller did not officially accept my backup bid, so even if the first bid falls through, I am not locked in. My bid was below the asking price, but I tried to price it such that it was slightly above the already accepted bid. My feeling is that the selling process has been so long and arduous for the seller that the selling agent (who doesn’t strike me as particularly experienced or skillful) doesn’t want to do anything that will jeopardize the deal. Perhaps he is thinking that if the seller sees a higher bid, it could destabilize what should be the endgame towards his hefty commission.

Continuing to wait…

It’s Never The Last House

Just as I received word that the property on which I placed a backup bid closed, my agent informed me of a property that was being prepared for market, several blocks north of my sweet spot but on a great street and allegedly with a great view of Puget Sound.

I love off-market properties, because they afford you a bit of bargaining power before the place goes on the market. For instance, the seller doesn’t need to pay to stage the place. Also, if they haven’t signed on with an agent yet, they can save at least half of the 6% commission. Furthermore, in this down real estate market, any offer from me is doubly strong, because I can close quickly and am not overly affected by the radically reduced amount of mortgages available since the sub-prime collapse.

On to the Property

My agent arranged for me to see this new place, and upon arriving, we met the real estate agent who the seller was thinking about working with. She had not officially gotten the listing yet, but she smartly had the seller sign a one-day listing agreement in case I decided to put in an offer. This is an extremely important step for a prospective selling agent to take in ensure she gets her 3% in the event of a sale, and it doesn’t require the seller to commit to her long-term.

The house has a lot going for it. It’s a mid-century modern home on a prestigious street with great bones and a nice view of Puget Sound through several tall trees. It has a beautiful butterfly roof which creates a nice, sloping exposed beam ceiling on the inside. The entrance and main floor are on street level and the daylight basement below provides extra bedrooms and other space. It’s definitely the nicest house I’ve seen in my price range, but it needs some serious work.

The house was designed around 1960 and hasn’t been updated in awhile. The owner is an elderly gentleman who is apparently a bit crotchety and refuses to sign the Seller’s Disclosure Statement which makes me instantly suspicious, given the guy is a civil engineer. According to the selling agent, the guy simply decided years ago that he should never have to sign these things for properties he sells and that basically, “it is what it is”. I’m not letting this strange circumstance keep me from buying this house, but it’s certainly going to cause me to triple-check everything.

More importantly, however, the house has a few characteristics which I need to get cool with in order to pull the trigger. Number one, it’s probably too nice of a house to tear down, but possibly not nice enough of a house to make perfect upon an extensive remodel. The biggest issue would be going up a story. From the roof of the existing structure, the view just explodes. It goes from a 90 degree view of the water between trees to a 120 degree of the water and a nearby lighthouse above the trees. The difference is dramatic. If I buy this house, going up a level is an absolute must.

The other thing about the house is that the arrangement of rooms is not ideal. Currently, a lot of the square footage is buried in the daylight basement (with no view) and the master bedroom is pretty small by current day standards.

I’m going to take the evening to think about this and perhaps put a bid in tomorrow. Bid or no bid, however, this house has reminded me of something important to consider when you’re house shopping: whatever house you’re looking at, it’s never the last house. There will always be another one around the corner. Seeing this house lessens the emotional impact of not getting the previous one tremendously.

Offer is in

Today, I decided to submit an official offer on the off-market house I saw yesterday. I am not sure I want the house yet and I definitely need to do some inspections, but my agent’s advice in this case is good: go ahead and lock it up under contract and then spend the next week deciding if you really want it.

Unfortunately, I don’t agree with my agent’s advice on the price I should bid, however. I want to come in $150,000 less than what the seller wants. My agent doesn’t think I should come in more than $50,000 below. This illustrates another reason why I think the value of real estate agents is overrated: their motivation is to get you a house as quickly as possible at any price that is comfortable to you (and thus collect a nice commission). My motivation is to get a house that I want at as low of a price as possible. If I bid $150,000 less than the ask, the seller can always say no and then I can come up quickly to his price, if need be.

So that’s what I just did. We’ll see what happens.

Offer Accepted!

Well what do you know? Bidding $150,000 below the asking price was a good idea! The seller accepted the bid without even countering. Had I listened to my agent’s advice, I’d be on the hook for an extra $100,000.

Lesson: If you feel your real estate agent isn’t correct in their negotiating advice, follow your own intuition.

So now that we’re officially under contract, I have five business days to complete any inspections I’d like to conduct. Since this seller refuses to sign a Seller’s Disclosure Statement, I’m going to be extra careful. If any inspection comes up less than roses, I may back out. I’m planning the following inspections:

In addition, I’ll be calling two groups of architects and builders out to the property to give me their initial thoughts.

Inspections Completed. Deliberations Begin.

Both the sewer and structural inspections are now complete and I have three more days to decide if I want to go ahead and buy the place.

Sewer Inspection

The sewer inspection was an A+ and Hydro Physics even gave me a DVD of the footage from the inside the sewer. It’s pretty interesting. They snake a tiny camera from inside the house all the way to the sewer main in the street. Checking a sewer may seem like an unimportant thing to do, but if there are tree roots down there slowly ruining the line to the sewer main, I’d rather know about it ahead of time.

Structural Inspection

The structural inspection was obviously quite a bit more important. Initially, I had planned to get two separate inspectors in there but Dave Pioli of Criterium Pioli Engineers did such a thorough job that I didn’t need another set of eyes after all.

According to the structural inspection, the general build quality of the house was very good and there were no major issues with its condition. There were, however, signs that the house had been added onto, and probably without a permit. Pioli noticed that the exposed beams over the covered patio didn’t even butt up to each other indicating that part of the patio covering was added on later, and not with a ton of attention to detail. He also found a stabilizer bar across the ceiling of the garage that looked like it wasn’t part of the original construction. Since the seller is an engineer and he refuses to sign the Seller’s Disclosure Statement, it raises a few alarm bells in my head that perhaps he did some of this himself and he knows a bit too much.

Most importantly, however, his opinion was that the house — although structurally sound — was not a good candidate to have a story built onto it. Apparently, when you add a story on, vertical load isn’t usually a big issue; it’s horizontal shear that you have to account for. Horizontal shear occurs when forces like wind or earthquakes push laterally against the house. Apparently, on a house like this, I’d have to build what’s called a “moment frame” just to handle the load.

Final Analysis

After digesting the results of the structural inspection, I’ve come to the conclusion that if I buy this house, I’m going to have to knock it down to get everything I want out of it (particularly a view from a second story). This is a bit disconcerting to me since it’s a pretty nice mid-century modern house that a lot of people would love as-is, but it’s just a fact, unfortunately.

Since this would be a new construction project of two years and not a remodel of a few months, the qualifications of it being a “perfect property” are even tougher to achieve in my mind. I’m not willing to put two years of my life into something that isn’t going to be exactly what I want when I’m done with it. Given that it’s a little far north and the view is more of an A- than an A+, I would put the chances of me going through with the purchase at this point at about 30%.

Much to think about over the next couple of days…

Costs accrued during this stage:

Structural inspection$425.00
Sewer inspection$185.00

No Sale

After a grueling few days of deliberating, I decided to rescind my offer on the place today. I went back and forth several times, but in the end, the overriding factor was that I wasn’t convinced that after two years of construction, it was a place I’d want to live in for perhaps the rest of my life. It’s a dream property… just not my dream property.

It also helped that many people I talked to told me they “sensed” it wasn’t the right property for me. This could only be because of the way I spoke of it, and it’s good to have others tell you that you don’t sound as excited as you may think you are.

Another trick a friend suggested was to get two pieces of paper and write “Buy” on one and “Don’t Buy” on the other and then crumple them into balls and pick one at random. If you are disappointed when you unravel your ball, chances are, you should make the decision that is written on the other sheet. If you are happy, then vice versa. I ended up picking “Buy” and I indeed felt not quite right.

Even though the results of this near-transaction were disappointing in the end, it’s never the last house, and I expect more properties to start coming on the market as the weather in Seattle gets warmer.

UPDATE: A week later the house went on the market and got four offers on the first day. Not a surprise at all to me. If anything, it makes me more confident that I can spot value in this transitional real estate market. Best wishes to the buyer and I hope they shine it up with a nice remodel.