Question for the readers: Shall I make an offer to this home?
Posted by Frugal on November 30th, 2006
In the past few days, my mind is focused on whether I should be buying this home:
- Built in 1995, 3 bedrooms, 2.5 bathrooms, 1940 square feet, detached condominium (just like single family home, but with some legal differences).
- Price is $600,000. Annual property tax + Home owner association dues + Insurance is about $10500, not including any amount of mortgage payment. Part of the $10500 is tax deductible.
- School district is not one of the best, but second rated (actually one of the worst around that particular area).
- Current owner bought it for $680,000. Still haven’t paid 2005 property taxes of some $5000. Apparently, it is not working out for him.
- This property has been on the market for about 160 days total, after probably a couple of rounds of price reductions.
Before my vacation I think the price was $635000. After my vacation, the price is $600000. My agent told me that there are now 2 full price offers. My agent probably is not lying to me, but I don’t know whether the listing agent is telling the truth. I was told that if I don’t make an offer this Friday, I would lose this home. If the seller doesn’t find and accept an offer, he will go into foreclosure.
Dear readers, shall I fork over my money and make a non-contingent offer? I plan to sell my current residence if I buy this. But in this slow housing market, it will probably take a minimum of 3 months if not 6 months to get it sold.
Any advice is appreciated. Thanks.
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December 1st, 2006 at 5:22 am
Don’t do it. The buyer’s market has just started. The housing bubble has just started to pop. In general, whenever you buy something, if you are having to compete against other buyers, you are not getting the best deal. Wait until you are the only buyer. You will get much better prices if you can wait 1-3 years. You don’t want to catch a falling knife. Have you seen this graphic:
http://en.wikipedia.org/wiki/Image:Barrons_shiller_06-20-2005.gif
There will be a reversion to the mean. It just takes time.
Also, start reading the following blog, especially the posts about California, since that is where you are:
http://thehousingbubbleblog.com/
Lots of good info on that blog. Good luck.
December 1st, 2006 at 7:23 am
Can you make an offer with a condition to sell your home 1st?
December 1st, 2006 at 7:26 am
What are the comparable homes in the area selling for? If they are still selling for $680k like the owner originally paid, I would be all over it. Just my two cents … I like your blog by the way. Keep up the good work!
December 1st, 2006 at 9:21 am
Dear Frugal,
It would help if we understood your reasons / motivations for wanting to buy it. Price is low (and dropping??) and you want a bigger house?
Since you appear to think a housing slowdown / crash is in motion, why buy? US property prices are far over-due for much more major downward slide…
And as a peak oilist, perhaps you shd consider housing in areas that provide access and opportunities for self-sufficiency / sustainability… (Eg. space to grow some food)
December 1st, 2006 at 9:29 am
from the information you have given, i definately would NOT buy this home. although you are seeing the falling prices as a buying opportunity, I believe that 2007-2008 will be a decent time to buy again. until then, i feel that housing prices will continue to fall or be stagnant. You have not really listed your reasons for wanting to buy.. are you unhappy with your exisiting home?
from my point of view, you are paying over half a million dollars for not much square footage, not in a good school district, and in a declining market.
perhaps you can provide us with more information on why you think this is a great buy?
December 1st, 2006 at 11:40 am
I think most points have been covered in the above posts, however I think the most important is the first one. Would you be able to sell your house, as you’re looking to use that money to pay for the next one? And for how much? Would you have selling difficulties like the current seller, who’s had to reduce his price? I guess the answers to these questions would determine whether you should buy this house.
December 1st, 2006 at 11:45 am
As a reader of calculated risk and a housing bear I will advise against purchasing this home. The 3-6 months to sell your home is conservative. Average in the country right now is 7.4. I forget where you are located but if you are in the northeast, cali, nevada, florida or phoenix then its even worse. If the only reason is to buy because it seems cheap, then don’t. If you wait a year or so you’ll be able to buy the same home or one just like it for less after foreclosures and the market continue to decline well into late 2008.
December 1st, 2006 at 11:50 am
I advise you to buy the home.
If you are catching a falling knife, it will teach you some life lessons:-
* The lesson of Buy in haste and repent at leisure.
* Don’t ask for financial advice on the internet.
* You should have searched http://www.thehousingbubbleblog.com for inputs on your area
December 1st, 2006 at 12:27 pm
” My agent told me that there are now 2 full price offers. My agent probably is not lying to me, but I don’t know whether the listing agent is telling the truth. I was told that if I don’t make an offer this Friday, I would lose this home. If the seller doesn’t find and accept an offer, he will go into foreclosure.”
THIS IS AN OUTRAGE. THEY HAVE NO BUSINESS TELLING YOU THIS. EITHER SIDE.
December 1st, 2006 at 1:31 pm
I wouldn’t buy the home BUT if you really want the home then I suggest you find out which bank owns the deed (preferably you can trick the current owner into telling you), then call up the bank/mortgage company and tell them you’re interested in the foreclosure property. You may get lucky and work out a deal.
Why I don’t like this deal:
1. Back taxes & current taxes = $10,000 (are you sure there are no other hidden taxes, unpaid fees elsewhere?)
2. Bad school district means you’re going to have to move if you plan/have kids or pay for private $chool expen$es
3. Like others have pointed out, 2007 will be even worse for the housing market than this year, you’ll be catching a falling knife and you will be bleeding badly in my opinion.
Good luck.
December 1st, 2006 at 1:33 pm
I guess it would depend on if you think the property value is likely to increas over time. The house sounds like it’s a good size and probably nice if you’re considering buying it. What is the market for this property likely to do over the next couple years? Is the neighbourhood in a process of revitilization? What trends can you already see at work in this region?
Those would be some questions I would be asking myself.
December 1st, 2006 at 2:00 pm
For your location $600K is a steal
December 1st, 2006 at 4:46 pm
Why would you buy at the point where market distress signs are only starting to blossom? This person is facing foreclosure and very soon, like one to two years, many others will be in this situation. I would wait it out.
In addition, you already point out that you aren’t completely satisfied with the school district and there are taxes in arrears. The discount isn’t that steep. I wouldn’t listen to your agent but look at the stats regarding the current housing market.
Rates will continue to reset in 2007 to the tune of 1 trillion dollars. In addition, appreciation in most Northern California areas has already hit 0 percent. Why the rush to buy a $600,000 condo?
December 1st, 2006 at 5:22 pm
Thanks to everyone who has responded.
I will come back and respond in more details. Lately, I’m just under quite a big stress over this home-buying experience. Shopping for home has always given me LOTS of stress. And then I got to do my work at my day job, etc, etc.
The reason that I want to buy is that I need a bigger home. But knowing what I know and believing in what I believe, it’s like catching the falling knife knowingly. You think and know you probably will get hurt, and may get hurt very bad, and still you kind of have to do it in some way.
$600K is a pretty good deal if it weren’t for the bad school district….
December 3rd, 2006 at 6:50 pm
If you buy it, get a shrink. You’ll need it. Real Estate is the last thing you should be looking at.
December 4th, 2006 at 11:32 pm
The housing market is expected to continue its downward trend as far as my friends, who are experienced real estate investors, are concerned. But if you are also going to have to sell you house, then it may be a wash. If you decide to buy at a later time, when prices are softer, your current place may also suffer a loss in value anyway. So if you do 2 transactions (a buy and sell), the results could be neutral for the most part regardless of when you do the transactions. Good luck with what you plan to do. My sister is struggling with the same situation as you are — she’s already bought a house and is now trying to sell her old one. It’s been hard. PS we live in California.
December 6th, 2006 at 11:47 pm
I think there are too many unknowns to answer this, whats the address , I could obtain more info by knowing that. In California there are MANY areas which are NOT going down in value, and MANY area in which properties are selling in 30 days or less, there are also areas which are experiencing ‘soft landing’s’. There are yet other areas in which housing prices will most likely continue to trend downward for several more months. If in fact, the national average for time on the market is 7.4 months than I can tell you a friend of mine recently sold a similarly priced home in Southern California in about 3 weeks.
December 7th, 2006 at 9:23 am
One additional thing to think about is the utility the home provides. If it increases the quality of life for you and your family, this is very important. Also if you can see your family staying in the home for years it lessens the risk. I would focus more on whether or not you can sell your current home in a timely manner. Perhaps you could price your home slighty lower to attract buyers and stay firm on your price.