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So I'm a bit torn as to what to do. I was planning on submitting another offer about $5,000 higher than my first offer. Given this new information, I'm fairly certain that would be rejected as well. Instead, I think I may wait and see if the property is still available next week, between Christmas and New Years. If it is, the seller should have the prospect of another needless mortgage payment firmly in mind and may be more receptive. Also, during the holiday lull (which is also going on right now), there may be fewer offers to choose from. I suspect the seller may be waiting until after the holidays to see what offers she might get. Hopefully, if Christmas comes and goes and the place is still unsold, her resolve might weaken a bit.
On a different note, I was checking my referrer logs this morning and noticed that over 25% of the last 100 visitors here came via a link at Blueprint For Financial Prosperity. I'd like to thank Jim for the nice blurb and link. Welcome to those that have come from there!
The previous property I made an offer on is still for sale. If it's still available tomorrow, I will submit another offer. Supposedly, this is another seller who wanted a quick close.
UPDATE: Just got the call and yes, the exact words used were "ridiculous offer." I made my speech about my offer being a sure thing and the agent said sarcastically, "and all she has to do is give up $35,000 of equity." I replied "She wants a fast close and everything comes with a price." (By the way, I came up with my figure by taking 76% of the listing price.)
One thing she did say was that the fact that I was not using an agent would not save the seller 3% commission because she had a listing agreement that specified she would pay 6% commission no matter what. Well, either the seller signed the worst listing agreement in history or that agent is lying. The listing agreements I have seen say the full commission will be paid to the listing agent only if the agent also acts as a buyer's agent. She would not be acting as my agent and therefore should not get paid for doing so.
Oh well.. Another one to put in the file for follow up in a week or two.
In retrospect, I should have done a few small things differently. First, I should have asked if she would tell me why it fell out of escrow. That might have allowed me to emphasize the pluses of my offer better. For instance, if it fell out due to the buyer being unable to get financing, I could tell her that was guaranteed not to happen with me, since I was paying all cash. Second, instead of re-emphasizing my ability to close quickly, I should have again mentioned it was an as-is offer and that I would not back out from something the home inspection might turn up. (The house was in very good shape, by the way.) This and the financing issue are the two most likely reasons for falling out of escrow, so I should have shown how those would not be a problem with my offer. Instead, I emphasized fast closing, which was mentioned in the listing, but probably wasn't that big of a deal at this point, since it had only been back on the market a day or two. But, in my defense, I did get the agent's call while I was shopping at Costco and I was caught a bit off guard.
I'm not put off in the least about losing this property (or the agent's attitude of treating my offer like it was a joke). Active Arizona MLS listings are at levels that haven't been seen in years. It is no longer a seller's market. It may take a while for Realtors and sellers to realize this, but they will eventually. It's just a matter of time before I come across the truly motivated seller that will accept my offer. Until then, I'm treating this as a declining market and keeping my bids low to be a bit conservative.
I'm not sure I agree with this. As the author states, in Louisiana and other hurricane-damaged areas, it does seem to make sense not to foreclose. But everywhere else? I can't see it. Banks balance sheets contain entries for non-performing and under-performing loans, so the balance sheet still takes a hit. (And this is not even considering the lack of income non-payment of loans causes the bank, which also shows up on the balance sheets.) If investors see lots of underperforming loans on the books, I think questions are going to be raised about the bank's business practices: Why is the bank lending to deadbeats? Why is the bank continuing to lose money on these loans rather than cut their losses? Now, I do think banks have a bit of wiggle room here. Because of the hurricanes, they can claim higher than normal amounts of non-performing loans and get away with it, which allows them to hold off on foreclosures across the nation and not just in disaster areas, since they most likely aren't going to break out the loans by state in the financial reports. But this is a temporary reprieve and dragging it out will only delay the inevitable. Indeed, it will make it worse as each month that goes by without a payment is that much more money the bank has lost.
It also appears that current data does not support the author's conclusions. The article is based on data up to the second quarter of 2005 - data that is several months old. As I mentioned before, foreclosures have actually increased nationwide in the last couple of months. (And interestingly, that article attributes part of the rise to increases in foreclosures in hurricane disaster areas - exactly the opposite of what the Slate article predicts.)
I called up the escrow officer I used for the sale of my last property, since she was so helpful. She definitely remembered me :-) and said there was no problem closing in 7 days.
So now I'm just waiting to hear back from the seller. And of course, I have the usual self-doubts now: should I have offered less, what if the house is a disaster, etc. I've called my agent to request some comps to see if her values are in line with my values. It's a bit scary now, given the current price declining environment. I suppose if I get cold feet, I can back out at the counter-offer. The seller will need to write a counter to change the COE date and make the deposit non-refundable. I told the agent those changes were ok, so if I do back out, it will probably piss him off, but better that than be stuck with a bad deal.
I spent a couple of hours searching the MLS for motivated sellers. I came across several properties and narrowed the list down to three. I then called the agents and got some information about each property.
Property A was a small house in Mesa. The listing said the seller was motivated, but after talking to the listing agent, I didn't get that feeling. I can't pick out any one thing that made me feel that way. It was just a feeling. Anyway, the property was at the upper end of my price range, so I passed on it.
Property B was a house in Phoenix. The listing said the owner had passed away and a son was selling the house. It was being sold "as-is" and the owner knew there was a leak in the roof, but would not fix it. This sounded good, so I called the agent and was told the property was actually owned by three sons (which I already knew from a property records search) and that they had a couple of offers already. The agent was meeting with all three sons that afternoon. I didn't have a chance to write up an offer and fax it in and was planning on doing that this morning. Just for the heck of it, I looked up the property again this morning to see if the sons had accepted any of the offers. The status is no longer "available", but "TOM," which I believe stands for Taken Off Market. I haven't spoken to the agent yet, but I'm guessing the sons did not accept any of the offers and took the property off the market for some reason. Perhaps they want to wait a bit before selling, perhaps there are estate issues. I don't know. I'm going to go ahead and fax in my offer anyway. Maybe it will generate a phone call from the agent with some more details. Given that three people are involved and they have already received a couple offers, I don't expect my offer to be accepted.
Property C was a small house in south Phoenix. Again, the listing said the owner was motivated and to bring all offers. The agent told me the owner currently lives in Show Low and is at the property only occasionally. A records search shows he bought the property in 1995 for about $46,000. The agent said he's put in new electrical, new plumbing, and one year ago, he put in a new roof. The picture shows the outside to be in ok shape, but you can tell it's vacant. I figured with the owner living 150+ miles out of town, he's probably well motivated. I faxed an offer yesterday afternoon that was about $40,000 under the list price, but, as always, I included a cover sheet pointing out the positives of my offer: all cash, quick closing, and pointed out that I was not using an agent, so the seller will save X dollars in commission (where X is 3% of my offer). No response yet.
I also talked to a Realtor about getting daily MLS listings emailed to me. His website allows you to set that up yourself, but the only criteria I could specify was price range and cities. He called me up after receiving my request and I told him what I was looking for and that I was hoping to get a listing of properties that used certain keywords in the listing agent's comments field. He said he thought he could do that and would set me up. I see this morning I've gotten two emails from him, but I haven't checked them out yet, so I don't know how successful he was.
What surprises me is the Arizona statistic. Actually, in looking at the data state by state, 25 states had a decrease in the number of foreclosures. So half the states in the country experienced a decrease in foreclosures, but the increased numbers in the other states more than made up for them. I would have expected increases in more states. As interest rates rise, it seems inevitable that those with variable rate mortgages will fall behind. However, there is some lag between the interest rate increase and mortgages going into default, since the mortgage company will usually give the home owner a couple of months of being late before starting foreclosure proceedings. Expect more increases in the future and prepare yourself for the opportunities they present!
I get emails occasionally from people selling properties that have tenants in them with leases with an option to purchase, usually 1 or 2 years out. Many times, the purchase price is fixed, but I have seen some that say the purchase price is the appraised value in 1 or 2 years, or whenever the option runs out. I was just thinking this morning that those types of options might be dangerous for the investor buying it today. Prices are at near-historic highs today and there seems to be a general consensus that the real estate market will crash soon. If it does, the investor could end up in a position of being forced to sell the house for less than he paid for it. If the market collapses, or even suffers a small decline, the appraised value in the future could be less than what it was bought for.
Just something to keep in mind. And, of course, if you don't believe the market will decline, this shouldn't give you cause for concern.
I'm getting some work done on my house - we needed some drip irrigation lines installed in the backyard, my fountain is leaking and needs to be fixed, and I'm having a bunch of electrical work done inside the house.
I had to call 5 companies to get someone to install the drip lines. Three companies never returned my call and one said they only do work within a 10 mile radius from their office. The fifth guy returned my call after about 3 days. He missed his first appointment and, about a week later, came out for an estimate. The work was finally done yesterday.
Similar problems with the fountain - no one wanted to work on it. I finally got a referral from a local real estate investor. This guy came out to look at it, again after missing his first appointment (but, to be fair, he missed it because he broke his ankle). He gave me some things to try, which I did, and I verified it was the fountain that was leaking and not something else. I called him back and again, he didn't return my phone call. A couple days later, I got hold of him and he said he didn't call back because his dad had to go in the hospital for heart surgery. So that delay is understandable too. But he was supposed to have fixed the fountain on Monday or Tuesday and it's still not done.
The electrician I am using has great referrals and is doing work for some family members. However, it took him three weeks to come out and do the first half of the job. For the second half, he needed to order some parts. He was supposed to be back Monday to finish and he never showed up. He's a great electrician and works fast, but he is just really busy. It's frustrating.
So I've been spending the last 1.5 months trying to get these little tasks done. No one follows up on their own and I have to babysit each person. Argh!
Ok, just had to vent. I'm going out of town next week for the Thanksgiving holiday, so no updates here for a while.
This property would be a good rental, but I don't think it would work for a flip. As is standard with foreclosures, there was a fair amount of trash and holes in the walls present. The kitchen needs new appliances and new cabinets. In fact, all the cabinets in the house need to be replaced. The bathrooms weren't too bad, but they would at least need new sinks and vanities. The furnace was missing. Of course, carpet and paint would be needed. The backyard also had a fair amount of trash that would need to be hauled away - a couch, some dressers, tires, etc. The house was also built in the early 1970s, so there could be aluminum wiring issues. All in all, I think there are enough things that need to be done that I would need to hire a contractor to coordinate and supervise the repairs instead of just using a handyman.
It's too bad really. I like the neighborhood. It's an older neighborhood, but the houses and yards are well kept. The house across the street is being remodeled and will have a really classy front facade. I figure you probably could still make about $5,000 on a flip, but that's not enough profit to take on such a large project, especially when you take into account possible cost overruns and any repairs my cursory examination might have missed, not to mention the cooling of the local real estate market. But, as I said before, I think it would make a good rental.
I'm curious to see where this guy got his comp figures from. I found two recent sales close to that price range, but they are in better neighborhoods (although just a couple blocks away). Coincidently, if you take 80% of the midpoint of his comp range ($212,500), you get his exact selling price - $170,000. Since I listed 80% of FMV as one of my buying criteria in my email, it makes me wonder if he just worked backwards from his selling price to tell me a comp range that would meet my requirements.
- 34% of North American capacity of propylene is shut down
- 68% of North American capacity of butadiene is shut down
- 53% of North American capacity of paraxylene is shut down
- 40% of North American capacity of benzene is shut down
- 59% of North American capacity of cyclohexane is shut down
The upshot of all this is that they are increasing their prices by $1 per yard, effective November 1. Take this into account when figuring your next rehab job.
If a good deal comes my way, I won't turn it down, but I'm not going to be actively searching for properties until I clear up a couple of my backlogs. Which reminds me, one of the things I need to do is send some follow-up emails to the folks who responded to my entry about needing birddogs. I need to see if they are still birddogging and let them know I have funds available again.
Anyhow, here are the numbers on this property:
Fix Up Costs
|Costs Subtotal ||- $143,254.87 |
|Late Close Of Escrow Fees Collected ||$800.00 |
|Selling Costs ||-$8,155.50 |
|Property Taxes ||- $872.59 |
|Income Subtotal ||$172,771.91 |
|Misc. LLC Expenses ||- $500.00 |
|Profit ||$29,017.04 |
|Time Property Held|| |
Total Return (ROI)
Fix Up Costs include the repairs I made plus utility payments during the time I held the property. Misc. LLC Expenses include the costs of running the business - a fax line, office supplies, etc. While not technically related to this property, this is the only property I've sold this year, so the profits of the entire LLC are really the same as the profits made by this one property.
All in all, that's not bad. If you look back to the rough estimates I made when I bought the place (check the Comments section), it seems I was wildly optimistic :-) I guessed $2,500 for fix up costs and I went way over that. Part of that was a $2,000 loss to the first cabinet guy. I also didn't originally intend on replacing the cabinets, which was about another $5,000. Additionally, I didn't know the house had aluminum wiring that would need to be fixed to the tune of about $1,000. But even excluding those unseen $8,000 costs, I still was over my fix up estimate by about $4,500.
Of course, I was also off on my estimate of the time it would take to get the property back on the market. I figured 2 months and it was closer to seven! But again, 2 months of that was my own fault for letting the ordeal with the first cabinet guy drag on and on. (FYI, if I had not used the first cabinet guy, I would have saved $2,000 and 2 months, which would have brought my profit to $31,017.04 and the holding time would have been reduced to 154 days, giving an ROI of 21.7% and an annualized ROI of 51.4%. And if I hadn't had to raise my buying price by $8,000, I could have had even better numbers... Woulda coulda shoulda....) It's almost embarrassing to look at entries titled "House 11 Should Be Listed By This Weekend!" that were posted 6 months ago. I was so naive :-)
The good news is I was also wrong on my estimate of the selling price. I estimated it would sell for $149,900 and we ended up selling for much more than that. Part of this error was due to me basing my estimate on past sales in the area rather than current listings, and part was due to the increased holding time - property values were rising dramatically as the cabinet ordeal dragged on and I profited from that.
So my investors are happy, I learned a lot, and we all made some money on this deal. Now it's on to the next one!
I should also mention that her husband is a principle at www.buyazforeclosures.com, a company that buys and resells foreclosures. His business is picking up after being down for about 8 months, so more foreclosures are happening.
Opportunities are starting to present themselves to those who can see them. Remember: you make your money when you buy, not when you sell!
In other news, I called my bank to check on the status of the wire transfer and was told their computers were down. They will call me back when they are up.
YAAAAAYYYYY!!!! I'll have final figures tomorrow and will then post the details of the investment - ROI, etc.
I just got off the phone with the escrow officer and she said the lender had just one last requirement - they wanted a letter of explanation from the buyer about one of his renters or something. I didn't get many details because I don't want to get involved with that, but I was told that the loan officer wrote the letter and is getting the buyer to sign it. He shouldn't have to overnight it to them or anything, so hopefully we will close today. And no, we have no idea why it has taken the lender over 1.5 months to request this letter.
I found out it is the buyer who is paying the $50 a day fee. And yesterday was a bank holiday, so the funds couldn't have been wired to me anyway.
For those of you looking for a lender or dealing with a buyer's lender, the company that is giving my buyer such a hard time is Argent Mortgage. I recommend avoiding them like the plague.
One good thing is that we were able to get the buyer to agree to a $50 a day fee for each day they are past the scheduled close of escrow. I stole this idea from a comment Empty Spaces made on Hespy's Real Estate blog. The fee is retroactive to the day the Cure Notice period ended, so as of yesterday, it was at $650.
I didn't want to miss out on any weekend traffic if I had to put the house back on the market, so my agent and the escrow agent discussed our options. The only reason anyone can think of now for the lender's behavior is that, for some reason, they want to have this loan funded in October instead of September and they were delaying us until Monday. Technically, we are no longer under contract with the current buyer, since we've already delivered the Cure Notice, so we've put the house back on the market. However, the escrow officer is leaving the escrow open in her system until Monday (today), in case loan docs suddenly appear. If they do, the house goes to the buyer. If they don't, I'll get his deposit and we'll move on to another buyer.
The house went back on the market at around 11:30 AM Friday and I ran back out there to put the lockbox back on. Within 4 hours, we had an offer come in. By Sunday, we had 5 offers. Unfortunately, none of them are very strong. Most are for full price or more, but they usually want me to credit back 1%- 3% of the price for closing costs. Most are also being bought with 100% financing and only have a $500 earnest money deposit. Not too promising. We asked a couple of them if they would increase the deposit to $1,000 and make it non-refundable after the inspection period. They all rejected that. (One buyer already lost a deposit because they couldn't get financing before escrow closed. This person has been looking for a house for 6 months. He obviously doesn't have good credit.)
On Sunday, we did get one offer that looks promising. It's for full price, but they want me to contribute 1% cash back. They don't want a home warranty, they are putting down $1,000 earnest money, and they will pay for the inspection. The agent said the 1% cash back wasn't really required and they would probably drop it, if we asked. The agent also doesn't think making the deposit non-refundable will be a big deal. So towards the end of the day today, (so the first buyer's lender has a chance to submit docs), we will counter that offer and see how it goes.
I feel bad for the first buyer. He really likes the house and wants it, but his lender is really screwing him. If I was him, I'd be threatening a lawsuit, or at the very least, a complaint with the state's banking commission. This lender is not returning phone calls and that directly caused him to lose $2,000 (or it will, if they don't come through today.)
The only reason I am still giving the first buyer a chance is that I won't have to wait another month for a new escrow. This buyer already has the keys and has already done his inspection. I have also already taken the utilities out of my name. If I have to have another escrow, we're talking another month, minimum, and I'll have to get the utilities turned back on, which will probably entail some costs. The $2,000 I'd make would more than cover it, but I want to move on to the next project now.
Anyway, the buyer has taken the entire day off work and he's ready to sign the docs the moment they arrive. The lender's funds are already at the title office and they are just waiting the lender's authorization to release them to me. Unfortunately, that probably won't come until tomorrow, after the signed docs have been overnighted back. We're hopeful that the lender will accept a faxed version of the documents to release the funds today and they won't require us to wait until tomorrow when they receive the originals.
I told the escrow agent that I would give them another day, but she said she wasn't going to tell them that, in order to get some pressure on them to get this resolved.
I'm giving them another day because this delay is purely administrative - the buyer's loan has been approved and there isn't a chance of him being turned down anymore. Now, the lender is just being pretty anal about the issue. (The escrow agent said this is typical behavior for this lender.)
Another reason I let the buyer have another day was that today was my first day at my new job. The first day is always pretty hectic, so I didn't want another item to worry about.
A friend brought to my attention the fact that the $26 for four days of property taxes figure I gave seemed a bit high. Turns out, he was right and I made a calculation error. The actual amount is about $12 for four days. But in reviewing this, I discovered the HUD statement had me overpaying my taxes by $1. They listed the first half of the year's taxes at $561.31 instead of $560.31. OK, it's only a dollar difference, but still. I can stand by my claim that the HUD statement always contains errors! :-)
At the end of the day, I still had not heard back from my agent or the escrow officer, so I called the escrow officer and spoke with her. She had still not received any loan docs. I told her as far as I was concerned, the buyer was now in breach of contract and has lost his earnest money deposit. She told me that I needed to submit a Cure Period Notice. I had no idea what this was, so I called my agent to find out.
Now, keep in mind the contract addendum I signed extended the close of escrow date to Sep. 20th. It was now Sep. 21st and escrow was still not closed. It seems to me this is a pretty clear case of breach of contract.
Unfortunately, this new pro-buyer contract has a provision that, should either party not meet the terms of the contract, they must give the other party an opportunity to "cure" or correct any problems. This is known as the Cure Period Notice. The cure period lasts 3 days. Had I know this, I would not have agreed to extend the close of escrow date and instead would have just started the cure period. After all, they wanted a two day extension and the cure period is 3 days. But I didn't know that and now the buyer has until Monday to get his loan issues straightened out. If it doesn't happen, the house goes back on the market and I get his $2,000 earnest money deposit. At least, I hope I do.
Another pro-buyer provision in the contract is that a failure to secure a loan is not considered non-compliance with the contract and so the earnest money is refundable. Fortunately, we also specified that the earnest money was non-refundable after the inspection period ended. My agent assures me that this will override the other part of the contract which says it is refundable, but it's not really something I'm looking forward to testing.
Escrow was supposed to close today and this morning, I called the escrow officer. She said the buyer's lender had spoken with her and told her she would have the docs "very soon." The day went by and I got a call from her this afternoon at 5:00 PM. She still didn't have the docs. The lender said she would have them tomorrow. This is the same thing he told us Friday.
So I called my agent and let her know my displeasure. She called the buyer's agent and got her voicemail, so she left a message indicating that I wasn't happy. We're going to give them one more day only, and I am not going to sign another extension. If the loan doesn't fund tomorrow, the house goes back on the market and the buyer loses his $2,000 earnest money deposit. (I'm glad we made the deposit non-refundable after the inspection period ended.) Based on this, I expect to hear something from the buyer fairly early in the morning.
The buyer had his final inspection and everything was ok except for no hot water. The house has an electric water heater and I know for a fact the circuit breaker for that is turned off. I don't know why it is, but I know yesterday when I was out there, I had to check the circuit box to make sure the blanks were installed, and I noticed that one particular breaker was off. Since I didn't need hot water at the place, I left it off. We told the buyer and they are ok with that.
Also yesterday, I picked up my lockbox, hid the key outside, and put the other copies of the keys inside. My agent passed this info on to the buyer, which is when they went to do their final inspection.
One thing I am curious about is that my HUD settlement shows I am paying the property taxes up through Friday. With the extension, there are now another 4 days of taxes due while I own the place. Since the delay was not any fault of my own, I don't think I should have to pay the additional tax. I'm curious to see if the escrow company modifies the HUD settlement document to show this. It only amounts to about $26, so if they don't, I'm not going to make a big deal out of it. However, it will be something I keep in mind for the next time. The extension was done just as a contract addendum, so if I run into this situation again and the delay in closing is not my fault, I'll counter the addendum and include the request that the other party is responsible for taxes beyond the original close date.
I never want to schedule a close of escrow on a Friday again. If some problem comes up (and one usually does), nothing can be done until after the weekend is over. Rather than stress out over the weekend, it would be nice to have a business day the next day for things to get resolved.
Her only opening for a signing time today is 3:30 PM, which doesn't really work for me. I'm to blame for this, since I neglected to set up a signing time in advance. But, since her office is pretty far from me, she said she could email me the documents and I could sign them. There is only one page that needs to be notarized, so I will have that done when I go out for lunch today. Then, I'll call her and she'll send a courier to pick up the papers.
Based on the preliminary numbers, it looks like I'll be making around $25,000 on this property. I'll do a more detailed analysis once everything becomes final and the money is in my account.
The reason I say the closing date is theoretical is because she has still not received docs from the buyer's lender. Additionally, she is having problems with her email (which is why I never received the HUD statement she emailed me last week), so who knows if everything will come together today.
Yesterday, the assistant called me back and apologized for not knowing who I was earlier and then told me all the work on the property was done. He said the venting was done, the window was replaced, etc. This was good news!
This morning, I went out and checked on the property. What I found was pretty upsetting. Only about half of the items on my checklist were done. The two vent pipes were not fixed, despite what the assistant told me. The electrical box did not have blanks installed. The master bedroom ceiling fan and lights did not work. Caulking around the master bath shower was not fixed. In addition to this, there were more things that needed to be fixed: the master bedroom door strike plate was adjusted and the door closed correctly, but one screw was missing from the doorknob, so that was loose. The handle to the screen door leading to the back patio was missing and the screen was ripped in two places. I also discovered the air conditioning was left running and there was a hose bib in the back that was dripping. Those things were probably going for 2 weeks, so that will raise my utility costs.
I called the handyman this morning and left a pretty angry voicemail. At the time I was leaving it, he called me and left a message for me. His message stated all the work was done, according to his assistant - the same thing I was told. However, in my message to him, I listed all the things that were not done, plus the new problems that needed to be fixed. I told him I was pissed that I met with him over two weeks ago and he told me the job would take 1 day, yet over two weeks later, it still wasn't done. I demanded he call me back today to explain what was going on and that I wanted the work done by 5 PM tomorrow, since escrow closes the day after that.
About 30 minutes later, I got another message from him. (I missed the call because I was talking with some co-workers about my upcoming departure.) His message said he was sorry things weren't done. He thought he had things covered when he left for vacation, but apparently he didn't. He said he would go over to the house today and get everything done, then call me this evening with a report. He also said there would be no charge for all the work.
We shall see...
I've called him Sunday, Monday, and today. All I get is his voicemail and he hasn't returned my messages. I haven't had a chance to go over to the house yet, so I don't know if anything has been done. This will probably be the last time I use him.
I also called my handyman this morning to see how things were going. I got his voicemail and left a message.
Truthfully, I think I am only trying to get credit for my company for purely academic reasons. Since this company pays for everything in full, it really doesn't have a need for credit. But learning the process will help me with future businesses that may need it and that is why I am trying.
From what I can tell, this property is not yet listed in the MLS, so the owner may not have an agent yet. I'm going to send him a letter today and hopefully, if he does decide to sell, I can do it without an agent, thus saving him some money on commissions (which, of course, means I don't have to pay as much).
I did some research on him this morning and it looks like it's the second mortgage that is foreclosing. He bought the property as a new home from the builder in 1995 and refinanced once in 1997. The home owner's association also filed a lien against the property in 2004 for about $2,000 in unpaid fees and took him to court to get that paid in 2005. The civil judgment hasn't been released yet, meaning he still owes them. With late fees and court fees, the amount is now around $2,800.
So my letter will emphasize that I used to be his neighbor, that I can buy his house quickly if he wants to sell it, and that he can save some big bucks on commissions by dealing with me. If I don't hear anything back in a week or two, I'll send a follow up letter. I sure hope the closing on the house I am selling now goes smoothly. It's scheduled to close on 9/16. If all goes well with this guy, I may need my cash by then!
- Fascia boards and trim have wood rot / deterioration on northwest corner of patio cover. I will fix this. There is about a 6 inch section of wood at the corner that has some wood rot. You can tell the bottom half of the piece of wood was replaced previously. It looks like whoever did the work previously didn't get all the rot.
- Electric panel cover missing blanks. I will fix this. This showed up on the inspection I had performed when I bought the house. I had mentioned to the electricians I hired that I wanted this fixed, but I guess they forgot. This isn't a big deal. Basically it looks like two circuits were moved in the electrical box and the blanks that cover the old breaker locations were not installed.
- Screen door at main entry needs repair / replacement. I will fix this. The inside handle is missing.
- Laundry drain pipe vent needs to be installed up through the roof to the outside. I will fix this. The laundry room of this property is attached to the enclosed patio and the vent pipe extends up to the ceiling and stops, so it vents into the room. I made things a bit easy here for my handyman because the range vent hood I bought was a non-venting model. The old one vented to the roof. Since the laundry room is on the other side of the kitchen wall, we're going to extend the laundry vent pipe in the attic and join it to the old range vent pipe, which is not being used anymore. My handyman won't need to cut any new holes in the roof this way. This item also showed up on my inspection.
- Closet door guides in the guest bedrooms are missing. The closet door in one of the bedrooms needs to be adjusted. I'll fix this.
- One of the guest bedrooms has a broken window. When I looked at this, the crack is a little 1.5 inch semicircular crack that runs from one edge, out a tiny bit into the window, then back to the edge. I was going to not fix this because it's such a tiny crack, but my handyman tells me replacing the window isn't difficult and the glass should only cost about $20, so I'll fix this as well.
- Ceiling fans and lights in master bedroom and one guest bedroom do not work. I know these work because I checked them when I bought the house. The problem with the one in the guest bedroom was that the fan direction switch was in-between positions. I pushed it all the way up and it worked. Issue solved! The one in the master bedroom however, doesn't work. I know this one worked before and, when I had the electrician pigtail all the aluminum wiring, I had him do the fans as well. His work order shows he did this fan and that he tested it afterwards. I checked the circuit breaker and that was ok, so I have no idea why this fan decided to stop working. My handyman will check it out and, if necessary, replace the fan with a cheap one.
- Drain leak at kitchen sink. I don't see it. I filled both sides of the sink with water and let them drain simultaneously. No leak. I let the water run for a while on both sides and saw no leak. The only thing I can think of is that, if you feel the bottom of the cabinet, there is a spot under the drain pipe that feels like there might have been water there once, but I imagine that happened during the installation of the cabinets and sink. So I just tightened all the plumbing joints and reported the leak was fixed.
- Exhaust fan from hall bathroom terminates in attic instead of outside. This is something else that showed up on my inspection and I had asked my handyman to fix it earlier, which apparently, he didn't do. The attic entrance is actually in that bathroom, right next to the fan, so all I had to do was open the hatch and I could see the vent hose not going anywhere. There is a vent in the attic wall right next to it. I suggested to my handyman that he might be able to route the vent hose to that, thus avoiding the need to put a hole in the roof. He said he'd check to make sure that was ok code-wise before doing it. Anyway, this is another item I will fix.
- Interior water pressure is low and both bathrooms. I will not fix this. Truthfully, the water pressure seems fine to me.
- Main entryway security light not working. Fixed this. Just needed to replace the lightbulb.
- Master bedroom door strike plate needs adjusting. The door doesn't latch closed unless you push hard. What a ticky-tack thing. I'll fix this.
- Caulking needed around shower enclosures. I'll fix this. The caulking has some gaps in it in both bathrooms where the drywall meets the shower enclosure.
I sent my response to the buyer's list to my agent. She's typing it up on the correct form for my signature and then we will fax it back to the buyer for his approval. Tomorrow is the end of his inspection period and the point at which his deposit becomes non-refundable.
If you do call in, watch out for the upsell. (Watch for it on their website too.) All you need is a D&B number. They will try to sell you a whole credit building package. The one on the website is $499 and the one they pitched on the phone was $799. For the purposes of building business credit, you really don't need these (from what I've read).
I received an application in the mail from Chase Bank for a business credit card. Normally, I throw these in the trash, but this one caught my eye because it offers a cashback bonus. You earn 3% cashback on purchases at gas stations, restaurants, office supply stores, and home improvement and hardware stores. All other purchases earn 1% back. Based on what I have read on other personal finance blogs like Savvy Saver and Personal Finance For The New Age, this sounds like a pretty good deal. There is no annual fee and all charges for the first year are at 0% interest. After that however, the interest rates are killer. They offer the program at three different levels: The Elite level gives you a 8.99% rate. The other two levels (I forget what they are called) give you a 13.99% and a 20.99% rate. Of course, they don't tell you what level you will qualify for until after you apply. But reading the fine print discloses some additional gotchas: They can change the program at any time. They can change the interest rate at any time. They can changed fix interest rates to variable or variable to fixed at any time. And, the killer, the interest rate will NEVER go lower than 8.49%, 13.49%, or 20.49%, depending on what level you qualify for.
I would never get a card with terms like this for my personal use. In fact, I probably wouldn't even get this card for a business. However, I am lucky in that my house flipping business is basically a cash business. I have my investor's money to use for all expenditures and therefore, I never need to carry a balance on a credit card. So now I'll use this card to buy all the appliances and materials needed for rehabbing a home, collect the 3% cashback bonus, and then pay off the bill in full each month.
FYI, I couldn't find this offer on Chase's website anywhere, so it might not be offered online.
Today, I received a fax from my agent of the earnest money deposit receipt. I also received a contract addendum that changes the name of the buyer from agent's name and nominees to the name of the agent's father, the actual buyer. This is functionally equivalent to assigning the contract but was done via a contract addendum rather than a separate assignment document. My agent also said she did not receive my signed agency disclosure and listing agreement that I faxed last week, so I had to re-fax those.
When I got home, I had a paperwork package from the escrow company waiting for me with more stuff to fill out:
- Proceeds Authorization - how I want my money from the sale delivered to me
- Seller's Escrow Information - data needed by the escrow company (any mortgages, any HOA, assessments, my social security number, etc.)
- Terms of escrow - the terms and conditions of escrow. This is standard legal stuff detailing the escrow company's role and duties.
- Notice of Title Policy Discounts - notification that I may be eligible for discounts on title insurance because I recently purchased title insurance when I bought the place.
- Checklist of things I need to do.
If past history is any indication, in addition to the above documents, I will probably need to provide a copy of the articles of incorporation of my LLC to prove I am the manager and am authorized to act on behalf of the LLC.
The title policy discount is a nice touch. I knew that if you got title insurance recently through the same company, you could get a discount, but this says I may get a discount even if the policy was purchased through another company.
And speaking of discounts, I need to make sure they give me investor rates. My agent told them , but I like to follow up myself to make sure.
In addition to doing a good job, the landscape company was willing to work with me. Normally, they collect payment at the property after the job is complete. Since the property is vacant, they couldn't do this. Believe it or not, this company does not accept credit cards, so I couldn't even pay over the phone. They suggested that I leave a check under the doormat, but I told them the property was an hour away from my house and I couldn't do that easily. They agreed to let me mail in the payment that day. And they performed the work on a Saturday too!
While I was at the house this morning, a neighbor came over and started talking to me. He said the landscape company had a bunch of people working there. We got to talking some more about the previous owner and the neighbor was probing me for what I paid for the house and what I sold it for. I didn't see any harm in telling him. He's glad that the sales price is high because it helps his home value. I did find out a funny story about the previous owner: I guess he liked to tell stories with a little bit of embellishment. As the neighbor told me, according to the previous owner, I bought the house by bringing over cash and counting it out to him on the hood of his car!
In other news, I submitted the SPDS to the new buyer on Thursday. I haven't heard anything else yet on the sale and I'm just waiting now for them to have their inspection completed.
YOU MUST SEE THIS NEWLY REMODELED HOME... THIS 3 BEDROOM 2 BATH HOME BOASTS NEW PAINT AND CARPET THROUGHOUT.. NEW OAK KITCHEN CABINETS.. NEW COUNTERTOPS.. NEW RANGE/OVEN.. NEW DISHWASHER.. NEW GARBAGE DISPOSAL.. NEW SINKS.. NEW BATHROOM VANITIES.. GREAT FOR ENTERTAINING FRIENDS AND FAMILY.. THIS HOME IS READY TO MOVE INTO AND THE SELLER CAN CLOSE AS FAST AS YOU CAN...
One of the keywords was maple. That didn't apply to my property, but oak did, so I had my agent substitute that. Also, move-in-ready was a keyword and that was included in a slightly modified form. New, another keyword, was inserted all over the place :-)
So how did the psychology experiment go? Well, it's hard to tell because Phoenix is such a seller's market right now. I received a total of four offers in four days: two were at full price, one was more than list price, and one was under list price with the caveat they would go over list price by a certain amount. All in all, good bids! But it's hard to tell if the wording caused them or market conditions did. I do know I'll keep using these words in future listings, just in case!
The next step is providing all the paperwork the contract states I will provide to the buyer: the lead based paint disclosure, the SPDS (seller property disclosure statement), and a list of any insurance claims against the property.
I faxed over the lead based paint disclosure this morning.
I have requested and received a CLUE report from my insurance agent on the property. A CLUE report is a report provided by the Comprehensive Loss Underwriting Exchange and it lists all the insurance claims against a property in the last seven years. I knew from when I purchased this property that there was a claim filed for roof repair due to hail damage a couple years ago. This needs to be disclosed to the new buyer. This was also the only claim that showed up on the report.
The SPDS is 6 pages of questions about the condition and history of the property. For this property, there are only two issues that have to be disclosed. The first is the roof repair. I'm attaching a copy of the CLUE report to this document, as well as a letter from the previous owner's insurance stating what the repair was for and when it was fixed. (I asked for this when I purchased the house. I don't need to provide it, since the CLUE report shows the same thing, but I'm trying to "kill them with kindness" here.) The other thing I need to disclose is the aluminum wiring issue. Normally, this might give a buyer pause, but in this case, it allows me to show I have fully repaired the problem. I will be attaching the invoice for the copper pigtailing work that I had done by a licensed electrician. And, of course, I am writing the magic phrase on the SPDS as well.
The next step is to wait for the buyer to have an inspection performed and to get their list of items they want corrected. As with everything in real estate, the items on the list are negotiable. I'm hopeful things will go smoothly. The buyer is a real estate agent and I'm sure she understands she is buying a 30+ year old house, so it won't be in immaculate condition.
Oh, the one other thing is the yard clean up. I submitted a request for a quote via a website yesterday, but never heard anything back, so I had to make a phone call today. The company will be out at the house tomorrow at 10 AM to make an estimate and then the work can be performed usually within a week after that.
Yesterday afternoon, my agent received a rather strange offer: it was from a family-run real estate agency here in the Valley which is rather large and whose members are all Realtors. The offer was for $175,000 but the buyer's name was "name and/or nominee." Of course, anyone who has read anything about birddogging recognizes that phrase and what it means - that the person making the offer likely won't be the buyer and will be looking for someone else to buy it. The offer also wanted a 45 day escrow (30 is normal) and they wanted their earnest money to be refundable anytime during the first 2 weeks after contract acceptance. The cover letter to the fax stated that this agent had lots of investors willing to buy properties. It also stated they would beat any other offers by $500 up to a maximum price of $184,000.
I rejected this offer. Or rather, we were going to sit on it until Wednesday, 9 PM, which was when it expired. I felt this offer was obviously a mass-market type thing by an agent who puts out tons of offers in the hopes of getting one accepted and then finding a buyer for it. The way it was written, I wouldn't have been able to entertain any other offers for two weeks and, if the guy changed his mind or couldn't find a buyer, he could walk away for free, wasting two weeks of my time. We decided to sit on the offer for as long as possible before rejecting it because this would give us a competing offer if another offer came in. A little ammunition for a bidding war, if you will.
Late last night, my agent got another offer. This one was from the agent of the guy above who rejected my counter offer. She decided the property would be great for her father, so she put in an offer for $181,000 with a $2,000 earnest money deposit and a $7,000 down payment. The deposit is non-refundable after the inspection period. They are paying for the appraisal and home warranty. Her father is pre-approved from his bank. This offer was for $1,000 over list price and I can't find anything else wrong with it. I accepted it and escrow will be opened today!
He probably isn't the cheapest cabinet guy around. However, he is honest, fair, and incredibly dependable. He cares about getting the job done right. He works with several investors who flip properties, so he knows time is of the essence when replacing cabinets. He manages projects well. If you need cabinets, I can't recommend him highly enough. He is a franchisee of Kitchen Solvers and his contact info can be found here. His name is Keith Wolfram. Tell him Shaun sent you. (This is an unsolicited recommendation.)
The buyers did not want to agree to my counter offer to make the earnest money non-refundable after the inspection period, so that deal is gone. My agent says this, along with the use of an FHA loan (which is usually used by people with poor credit), indicated a weak buyer.
But we've got another offer on the table. This one is for $185,000, which is $5,000 more than the list price. However, the buyer wants a seller's contribution of 3%, which is $5,550. Now this buyer also did not want a home warranty and there is no $410 fee associated with an FHA loan like the last offer, so on the surface, it looks like there is only a $140 difference between the two offers. However, I would need to pay commission on the higher selling price. That's an extra $200 I'd have to pay, meaning this offer is now $340 less than the previous offer. Other details are a $1,500 earnest money deposit and a $5,500 down payment. The buyer has a FICO score of 805, which is great. Apparently he's got money, but it's in accounts he doesn't want to touch - IRAs, 401(k)s, etc. This is the reason for the seller contribution.
We're countering back with a seller's contribution of 2%, or $3,700. As before, we are asking the earnest money deposit be non-refundable after the inspection period.
It sounds like a great offer. The only strange thing is that it's an FHA loan. My agent said she hasn't seen one of those in 3 years. I counter offered with the condition that the earnest money is non-refundable once the 10 day inspection period has passed. They have until 5 PM today to respond.
Because this is being bought with an FHA loan, the buyers are owner-occupants, not investors. It also means there are likely going to be some additional hurdles to jump through and I would not be surprised if this sale did not go through. First, the FHA will not issue a loan if the seller has owned the property for 90 days or less. I pass that test, since I've had it for almost 6 months. However, if the seller has owned if for less than 12 months, they may require two appraisals to verify the purchase price. Full details of their requirements can be found here. My agent says sometimes they will want two appraisals, and sometimes they will accept one appraisal, but it will be reviewed by a second person. The other reason I think this sale may not go through is that, during my research on the seasoning issue, I came across the maximum amounts FHA will loan for Maricopa county: $172,632. The buyers will need a loan of $174,400. Oh, scratch this. I found another site that gives a bit more detail. That $172,632 amount is for non-metro areas of Maricopa county. For the Phoenix - Mesa - Scottsdale area, the max is $214,700. So it looks like we're ok there.
If they accept my counter-offer, then it looks like the place is sold and the only thing I have to worry about is the dual appraisals. If they do not accept my offer, I'm not too worried. My agent said she had a couple other agents express interest. She was trying to get them to submit their offers before the reply-by deadline of this FHA offer, but it didn't happen. So there could be other, non-FHA offers out there, waiting to come in.
This was more than I expected, but I'm not too concerned. Why? Well, for one thing, there was the $13,000 phone call. For another, well, you'll see in my next post!
Of course, this leads me to reassess my valuation skills. I had seen some higher priced homes show up on the comps list, including one that sold for $225,000. Some had pools. I figured a pool added $20,000 to the price. My agent said it only adds about $10,000. A two car garage adds a bit (my property just has a 2 car carport) too, but not a huge amount. I think, in my mind, I had assumed the higher priced homes were in immaculate condition or had some other features that I couldn't tell from looking at the comp list. I guess I need to change my thinking a bit.
I went to the property this morning and everything looks good! The cabinets are finished!! Finally!!! I spent about 45 minutes cleaning up the place. There was a bunch of sawdust from the cabinet install to vacuum up, plus all the boxes for the cabinet doors had to be thrown out. I installed the bathroom light cover and the sink hole plug. The old kitchen countertop was on the back patio. It's too big to fit in my car as is and I didn't want to spend the time taking it apart, so I moved it under the kitchen window, where it is out of sight from inside the house. With all the boxes and wood cuttings, the two trash cans are filled again. I have not done anything with the dead weeds in the yard and one bathroom is missing a shower curtain, but I'm not going to do anything about those unless the buyer requests it.
I did take pictures of the cabinets and I was all set to include them in this post when I realized I forgot to bring the camera's USB cable to work with me. So pictures will have to wait until this evening. Sorry!
I'm listing the house at $167,000. We'll see if we get any bites. Hopefully, my agent will have it listed and a Realtor lockbox on the place in time for the weekend.
11:05 AM Update: Just heard back from my agent. The signpost for the For Sale sign is being ordered today and the house will be in the MLS by this evening. FYI, as I mentioned way back when, I instructed her to use some special words and to avoid using others in the listing to try to get a higher price.
Now, I know that probably comes as a surprise to many people. After all, this is just a simple little cabinet job. I mean, how long can it take, right? And the guy told me he would be done yesterday...
Ah. Nothing like some sarcasm to start the day off right. I ventured out to the house this morning and discovered the remaining two cabinet doors were still not installed. I was pissed and proceeded to give my lungs and vocal cords quite the workout. I left, forgetting to install the new bathroom light cover.
So I get to work and figure I'll wait until around 8:30 or so to call Keith. At 7:00, I get a call from him. He said he was wondering if he could meet up with me at the house this morning. When I told him I was already there and gone, he was taken aback. Yesterday, when I told him I was going to swing by before work, he assumed I worked the standard 8 AM to 5 PM hours. Actually, I work 6 AM to 3 PM, so when I visit somewhere before work, it's really early. I told him the doors weren't installed. He said he knew that and he didn't get over there last night because he wasn't done with another job until 10 PM. He said he was going to pick up some coffee and get over to the house this morning and finish. He'll call me when it's done.
It looks like things will be done today. At least I hope they will. If so, I'll email my agent the property details to get it listed, but I will still need to go back there for some work. The stove was still not put back in place and, although the debris from the cabinet install was swept up, it was still in a pile in the living room. Not sure if Keith will clean this up or if I have to. And of course, I still need to install the bathroom light cover and the sink plug.
It wasn't a totally wasted trip out there for me, though. I vacuumed the house and threw out some boxes that were left from the installation of the bathroom sinks and faucets. (By the way, these cordless vacuums are fantastic! Lightweight, cordless, and they pick up fairly well. They won't do heavy cleaning, but they are great for doing a final touch up.) I also did a tiny bit of painting. The new cabinets that go over the stove are shorter than the old ones. Since the place was painted before the new cabinets were installed (yeah, I know.. stupid move), I had about a 6 inch wide strip of old paint visible. So I painted over that. There were also some cardboard boxes laid down ages ago by the appliance delivery people to protect the carpet . I finally hauled those out. I also took the full trash cans out to the curb for garbage collection, which happens today.
While there, I noticed that the light fixture in the master bathroom was missing the glass that covers the light bulbs and that one hardware mounting hole in the new kitchen sink was not covered. So on the way home I stopped by Home Depot and picked up the light cover (around $11) and a hole plug ($1). After I bought the plug, I starting thinking that maybe that hole was for the dishwasher overflow drain, so I might not need the plug. I need to check that out. I still need to get an air conditioner filter, but I didn't have my tape measure with me, so I don't know what size I need. I'm just going to get one of those cheap $1 filters. I know if I don't, the home inspector will note it.
The yard still has weeds in it. Most are dead and I think I'm just going to leave them. The guy I spoke with last week did indeed blow me off. I even called him back and left a message, but he never returned my call. I tried calling someone else and he told me that he only does weed pulling in the spring. Apparently, he's got so much work he can turn jobs down. If the house is listed and doesn't sell for a month or so, I may revisit this and pretty up the yard at that time, but I'm reaching the point where I just want this to be done, so I'm willing to forgo some stuff I would ordinarily do.
Depending on what Keith tells me when he calls me back today, I am planning on heading out there tomorrow morning before work and finishing up these last details and then getting it listed for sale. I suspect I won't hear from Keith until towards the end of the day because he spent the weekend in Las Vegas at a bachelor party :-)