Should we buy this house?

December 21, 2010 7:16 PM

We want to move. We've decided to stay in Omaha. I found a house that is a REAL bargain. So I need you, dear mefites, to help me measure the pros and cons.

1. The house is a short sale that is listed at just over 200k, which is almost 70k below assessed value, and 100k below the average sale price of other houses in the neighborhood. At full price it is out of our price range, but this is right at the center/top of our range.
2. The house has absolutely every amenity that I want in a house.
3. It is in a desirable school district (we have preschoolers).

A. The house is slightly roached out by the previous owners and needs a lot of TLC, but nothing major that we can't handle on our own.
B. We'd have to sell our house, which is not quite ready for the market. We're afraid that we will not get what we paid out of it, since everyone is looking for bargains these days.

Aside from the nitty gritty of how short sales work, my only concern is this:
We had been considering downgrading to a cheaper house in order to alleviate debt. We only carry mortgage debt, but by downgrading we could get rid of the second, save money on our monthly payment and/or pay off a smaller/cheaper house sooner.

But day to day, I wouldn't be living in a house that I like, and my environment is very important to me. If we downgrade, I can guarantee that I won't like the house as much as the one I am in now. If we upgrade to the house mentioned above, our basic costs and debt load would stay pretty much as they are now. Now, we are doing fine. Not saving as much as we'd like, but I'm a stay at home mom and that sacrifice is worth it to raise our children the way we want.

So, what say you, mefites? Buy the bargain and keep the status quo as far as debt goes, while getting an awesome upgrade in housing? Stay put and hold tight (not in a school district we like)? Or downgrade within a school district we like to become debt-free sooner?

(And if anyone is interested in Omaha real estate, I'll gladly tell you about my current house which may soon be for sale! ;)

posted by wwartorff to home & garden (16 answers total)

Do you expect to make more in the coming years? If so, I'd go with the better house, it's what I just did. If either one of us loses a job we're screwed, but I love the house. Also important to consider, will you ever have the time to work on the house?
posted by Blake at 7:23 PM on December 21, 2010

If we upgrade to the house mentioned above, our basic costs and debt load would stay pretty much as they are now.

Is this assuming your current house sells? Sells for something not tragically below market value and/or what you paid for it? Sells in a timeframe that allows you to buy the new place? What happens to your debt and costs if you buy the new house but the current one doesn't sell, or takes a year to do so - can you carry the costs of both houses?
posted by rtha at 7:28 PM on December 21, 2010

One thing to keep in mind (and you may already know this) is that the short sale price is not necessarily the price for which the bank has agreed to settle the debt. Often, people will put their houses on the market for well under what it required to settle the debt, and then the agent/seller will take those deals to the bank in an effort to settle the outstanding debt. Now, this doesn't mean it can't work, as we bought our home as a short sale. It was a huge pain in the butt, as it dragged out for a number of months (somewhat typical for a short sale, but getting better these days); but it was worth it in the end, as we got a good deal. We made the offer based on the sale price before the bank even showed up to consider if it was agreeable to settle the outstanding mortgage.
posted by SpacemanStix at 7:32 PM on December 21, 2010

rtha: yes, this is assuming we're able to sell our house for close to what we paid for it, and within a time frame to be able to close on the newer house.

Right now I'm looking for advice on whether to put an offer in on the house (with contingencies, etc.) or not. I'm aware of all the ways it might fall through and what our limitations are financially.

Blake, we do expect to make more in the coming years. As stated, I am currently a stay at home mom, so if worse came to worse, I can get a decent paying job (in IT).
posted by wwartorff at 7:34 PM on December 21, 2010

Don't forget about taxes, which will probably be based on the assessed value rather than sale price.

Can you make an offer on the upgrade-house with a contingency to sell yours? I don't know if this is possible given that it's a short sale.

If your current house doesn't sell, can it be floated as a rental?
posted by padraigin at 7:34 PM on December 21, 2010

These two statements do not seem consistent to me:
"The house is slightly roached out by the previous owners and needs a lot of TLC, but nothing major that we can't handle on our own."
and
"my environment is very important to me."

If living in a house that you like the environment of is very important to you, but this new place would need a lot of renovating that would presumably be out of your budget to do fast, you are not going to enjoy living in the new house all that much for quite a long time.
posted by lollusc at 7:47 PM on December 21, 2010

Maybe I should mention that I'm an interior designer, and my husband and I have done home renovations in the past. The floor plan of this house is exactly what we need, and we're happy to paint, so it's not major stuff that we need to do. I know that those statements are dichotomous, but it's not as much about the current condition of the house as it is a feeling the house itself gives me. I've lived in "perfect" places that I couldn't stand.

And we have taken into account the tax situation, and the fact that a short sale may not accept contingencies.
posted by wwartorff at 7:58 PM on December 21, 2010

It sounds like your budget for the repairs and renovations might not be as robust as would be ideal. I would probably jump on the wonderful-amenities-and-schools place -- with the expectation that I would be living with some things being less than ideal for at least a few years. Is "roached out" just "needs paint," or are you looking at doors falling off closets and needing new flooring?

Asking as somebody who has sunk tens of thousands into her house and whose house still needs a lot of work, even though I thought it just wanted "TLC, but nothing major that we can't handle on our own" when I bought it. Stuff happens...I am somewhat crippled at the moment with some hip issues; I haven't seen my ladder or caulking gun for almost a year now. I can't do anything to fix it up, and since the previous owner left it "slightly roached out," I am drowning in minor (and not so minor) and increasingly urgent fixes because no maintenance was done for years and years.

If the needed repairs snowball, this could end up not being such a bargain. Aesthetic fixes you want to make may have to wait as the electric upgrade needs to be done NOW etc. Are you cool with these risks? (Yes, I had a home inspector. Nearly sued him, but that wouldn't really have solved very much.)

Could you live in a "roached out" house for a few years, spiff it up when you go back to work if you go?
posted by kmennie at 8:04 PM on December 21, 2010 [2 favorites]

Stay put and hold tight (not in a school district we like)? Or downgrade within a school district we like to become debt-free sooner?

Good to see you again, wwartorff. Can I ask: why are you so concerned about which school district you live in? Nebraska has open enrollment, so you can send your kids to any school that isn't full, no matter where you live.
posted by Sfving at 9:02 PM on December 21, 2010

Another cry from someone who has sunk a lot of money and time into a lovely, big old house that never seems to be quite "finished". Stick with the smaller place if it means you'll have more money and free time to enjoy life.
posted by bonobothegreat at 9:36 PM on December 21, 2010

Hello fellow Omaha person!

A house listed below assessed value is not necessarily a positive thing. You may have to go to the assessor's office to get the value reduced so you can pay more realistic taxes. My parents were looking for houses in Omaha this past summer and it was pretty common to find houses listed for 70-100k less than their assessed value. Realtors play this up as a positive in listings, but it's just a reflection of the market.

If you're in the learning community, you can have your kids attend any school within the learning community. We live near Boys Town and my daughter even has kids in her school from Waterloo and Valley. It's not even a magnet school. That said, convenience is worth something! My daughter went to a magnet school last year and it was an ordeal to get her there during snowy weather (and what a winter we had!)

The Omaha real estate market is relatively stable. There's going to be a massive Regency-style development on the old Ironwood golf course at 132nd and center. Midtown Crossing is doing well. Even the corridor between Omaha and Gretna is in high demand. So that's good!

In the end I think you just have to look at the house with a super-critical eye. Are the windows newer? Are they clad on the outside? If they're wood on the outside and it's an older house they will probably need to be replaced soon. Does it have Hardie Plank siding or that sawdust and wood siding that so many Omaha homes feature? Are the furnace and AC 15 years old or older? If so, they will need to be replaced soon, too. Take these costs into consideration. We spent $5000 on a furnace this year and $8000 on five windows. It adds up.
posted by Ostara at 10:10 PM on December 21, 2010

I recently moved to a nicer house. It's not even bigger - it's just more pleasant to live in, more private, with a lovely view, bigger windows, and more usable rooms. Like yours, it needs some TLC. Even though I work, so I'm not at home as much as you, I feel so much happier and more comfortable. This house feels like OUR HOUSE in a way that no other house ever has. Doing minor renovations feels like I'm making it even more "ours". Before the move I kept reminding myself "A house can't make you happier, only you can do that" but having moved I have discovered - the house has made me happier.

If I were you I'd work out a financial "game plan" for what happens if your partner loses their job, or your boiler explodes in the middle of winter. If you can see how that would pan out - maybe you could go back to work, maybe you have insurance - then I'd absolutely go ahead. If you struggle to see how you could cover such emergencies, then I'd downgrade. A house you don't like is better than ending up under a bridge.
posted by emilyw at 6:40 AM on December 22, 2010

My gut says a bargain is not always a bargain, you know? (I know zip about the Omaha market - this is general thoughts.) If it only needs some minor things like paint, you may not get it at 100K less than market.

Other facts that I would be interested in-

- what happens if you put your house on the market and don't get the new house? I feel like it could be hard to time it right even if you get the new one

- what's the cost to get your house in shape to be sold? have you talked to a realtor to get a general idea of what you could expect market wise?

- before I decided, I would want to go through the house and make a very conservative and realistic list of *all* of the things the house would need to (1) be really livable with preschoolers, (2) be a good environment day to day, and (3) take it up to market value - and along with that a good estimate of cost (add 10%, you'll need it), and a plan for how it gets done - e.g., do it myself, here's how I'd accomplish it with the preschoolers etc, or I'd have to hire someone and here's the timeline for that, or I'd have to hire someone and save the money to get the work done

- and that's not even considering what might happen between now and when you could get the house - how is it being maintained? In your area, are there concerns about people leaving their homes and not only not taking care of them but also causing additional damage?

- how would I pay for the repairs/upgrades - do I need to take out another loan or LOC, and what kind of payments would that be?

- how sure are you that your husband has job security, and how sure are you that you could find a (decent paying) job if you needed to? No one wants to think about worst case, but do it.

- what percentage of net income is taken up by all of the house related costs - taxes, insurance, first and second mortgages, etc - now, and what percentage will be taken up by upgrading (and include all of the costs there)

- will you stay in a relatively low cost of living area? meaning later, is there a chance you move to DC or Seattle or wherever and need savings to make that happen?

- if you have an emergency, what's your contingency plan to pay for it?

- are you and your husband on the same page here, and if not and you get on the same page is that going to cause issues for you guys later? Does he want to downgrade and you want to upgrade, and is that issue going to come up later?

I am concerned about not saving/paying debt being a more acceptable sacrifice than accepting a house that's not your perfect environment. I really, really get the idea of that feel of a house and the optimism that goes with it, but I feel like it's a tradeoff. To stay at home, you give up income, and now we are at bottom line priority - a house you love, or reducing debt and saving.

If it were me, I would go through the questions above, and then pull together that info along with all of my financial info and get the whole picture and then consider my goals for the future for me and my kids. What does the college picture look like? Are you considering that you might want them in private school at some point? Is there enough money in there to give them all of the experiences they would want to have? I think that looking at the finances is a worthwhile exercise periodically anyway.

Knowing none of that info, I'm probably speaking from the most conservative viewpoint - you may well have worked all of this out already and be okay with the numbers. These are just some of the things that go through my head when I think about that type of situation.
posted by mrs. taters at 7:12 AM on December 22, 2010 [1 favorite]

If you are concerned about debt load and saving, selling your house is not the way to go. It's much more expensive to sell than most people anticipate, even people who have been through the process before. If you don't have a full 20% down payment for the new house PLUS $10K - $15K for selling the old one (realtor fees, assessment fees, closing costs, miscellaneous expenses) then you're really looking at adding significantly to your debt load. With young kids, a robust savings account is probably a major consideration (surprise ER visit is a lot more fun when you're not paying off the debt for eight years).

Mostly, you haven't listed a compelling reason to leave your current home. Moving just because the other place is a bargain isn't compelling.
posted by stoneweaver at 10:23 AM on December 22, 2010

Have had a home on the market in Bellevue for the past three months and change because we bought a beauty of an older craftsman across the river. There's not a lot of movement in the market right now so if you do this, do it with the expectation that you're not getting rid of your other home any time soon. We're trying to sell at about halfway between the appraised value and the original purchase price 13 years ago and we threw in new carpet and appliances. So far I can count the number of people who have looked at the property without reaching for my toes.

We went in to this knowing we might be carrying two homes for upwards of a year+. Ask yourself if you're in that same position before jumping.
posted by Fezboy! at 12:19 PM on December 22, 2010

Hey wwartoff.

My family's ranged from a small house when I was a kid to a large house, which they've just downgraded from, to a couple of rooms and a kitchen.

They were both typical home depot renovators and gardeners and clearly they enjoyed that.

Yet, my sister and I preferred the years in the small-house when our parents had time to homeschool us.

Now they're spending far more time merely enjoying living. It's quite transumer of them, and a pleasant shift away from their former consumerism. Even more pleasant is being able to play games and go on outings with them more often.

So, all financial reasoning aside, your kids might prefer you stay in the smaller house with less risk and fewer trips to the hardware store. I'd ask them. :)
posted by Galen at 8:06 PM on December 31, 2010 [1 favorite]