Baltimore/Real Estate peeps! Do you think we should sell this townhouse?
January 26, 2014 7:11 PM   Subscribe

My mother bought a townhouse before the housing bubble. She lost her job two years ago and is having trouble paying the mortgage. What's the process for selling the house and what do we have to lose?

I don't want to give out the exact address, but it's a townhouse like this one and is fairly close by:

She purchased it for $350,000. In 2012 it the Baltimore govt assessed it at $280,000. It may have dropped even lower. It is a three-floor townhouse with two bedrooms and 2.5 bath.

She's refinanced twice and her monthly mortgage is about $1,900. If you include the community fees that's ~$2,000 per month. Tack on the $6,500+ annual property tax and it's a doozy. She doesn't really have anything in retirement, is having trouble finding a job (doesn't speak English all that well and her previous job of 15+ years was mostly data entry but because of all the years she put in had been earning $20+/hour there), and is dipping into her savings for this. She doesn't want to sell because she'd clearly be selling at a loss. I think it's a sunk cost and she should just cut her losses.

Currently my 30 year old cousin lives in the smaller bedroom and doesn't pay rent or utilities for stupid crazy family reasons. I told my mom he needs to pay his share or get out.

Ideally I wanted to put the house up for $1,850 a month for everything (minus utilities) but if my mom lets my cousin stay there (he'd probably only be able to cough up $500/month for rent and some change for utilities) is it realistic to get anyone (or couple) to take the master bedroom for $1,200 (I can't bring myself to put it up for $1,350)?

I've seen the rent prices in Baltimore and rent is not that expensive so I know these prices are kind of high. BUT this townhouse is relatively new and nice and in a super bikeable and walkable location (5 min to Inner Harbor and right next to the free shuttles) but I'm worried that no one will want to take it.

Which brings me to my questions:

1. If we do rent (my mom does not want to sell even though it's bleeding her dry) do you think it's realistic to try and rent out the master bedroom for $1,200? Or is that crazy and should we do everything in our power to move my cousin out and put the entire townhouse up for $1,850/month (I could cover the remainder of the mortgage/tax)? If any Baltimore natives are here please chime in.

2. Is it better to just cut our losses and try and sell it? I know we probably couldn't get more than $280k (maybe not even $260k). What's the best way to do this if we do?
posted by bluelight to Work & Money (19 answers total)
What is the balance owed on the mortgage? Is it underwater or does your mom have some equity?
posted by Seymour Zamboni at 7:17 PM on January 26, 2014

Why are you assuming you have to sell it for 260k? What the city appraises it for is not what the market value is. Appraisals are done differently by location but in my area it's around 75% of the full market value.

The best way to know is to have a realtor assess the house's value. They should give you "comps" of similar recent sales. This is free to have done.
posted by smalls at 7:20 PM on January 26, 2014 [1 favorite]

Has your mother looked into the HARP program?
posted by HuronBob at 7:24 PM on January 26, 2014


The remaining balance is $236,000.

I have no idea what it means to be underwater or to have equity. I know that she doesn't want to refinance again.
posted by bluelight at 7:30 PM on January 26, 2014

Underwater would mean that she still owes the bank more than the house is worth. Having equity would mean that what she owes the bank is less than what the house would sell for, so if she sold it, there would be money left over after paying off the mortgage.

If she owes $236,000 and you think you can sell it for $260k, then she has 24K in equity (though some of that would be eaten away by the costs associated with selling it) but if you could only sell it for, say, $200k (I totally made that number up, I'm not familiar with Baltimore real estate), then she would still owe the bank $36K, and that would be the amount she was 'underwater'.
posted by jacquilynne at 7:37 PM on January 26, 2014 [2 favorites]

very few prospective renters will want to share a townhouse with a mysterious layabout cousin; he's dead weight in the fuselage and you need to get him out of there. jacquilynne helpfully nailed "underwater" and "equity" in the time it took me to log in. to learn more about these and other basic concepts, you should talk to a good real estate agent; they're professional solvers of just your kind of problem.
posted by bruce at 7:43 PM on January 26, 2014 [3 favorites]

The example townhome you listed is selling for $334k. If that really is comparable, and she only owes $236k now, then she does not seem to be underwater. Your mom should be able to sell it for more than she owes. If, as you say, she can't afford the house, that's a better result than foreclosure.

I find it exceedingly unlikely that anyone would pay $1200 dollars to live with a stranger. (Especially considering that they'll want to know why that strange must live with them. They'll also eventually figure out that your cousin is paying less than 1/3 of the rent. That won't sit well.)
posted by oddman at 8:10 PM on January 26, 2014

No one is going to pay that money to live with other people in Baltimore. They will get their own smaller place. Get the cousin to pay and figure out how to pay the balance or put it on the market.
posted by ihadapony at 8:20 PM on January 26, 2014

There's two things you need to look at here.

First of all, what is the market rent rate for similar places? Location is important, but also just look at places that are comparable in size. Niceness and location are secondary as long as those places are in decent areas. If there's similar places renting for $1500 or even less, then you're fucked, just sell it.

Second, trying to rent it and keep your cousin there is weirdly cart before horse. You should only try and do that if you figure out the first point and just want to convince your mom that no one wants to rent it and she should just sell. As others said above, no one is going to carry the majority of your mortgage just to live with some weird stranger related to the landlord(that part is important, don't try and hide that, i would be PISSED if i found this out when i had my first conflict with that person. That they weren't just an existing roommate and there was a free room, but that they were a protected-class person with the landlord) who isn't paying an even share of the rent. Yes, paying more for the master bedroom and as two people is fair, but really they should be paying like $8-900 max, and he should be paying like $6-700, preferably more towards the higher end. If neither of these are market rent rates for roommates in your area, then yea, you can't rent the place. You'd be boning over your cousin who could rent their own place for cheaper(and likely thinks they can just strongarm your mom through your family and pay less or nothing still, and likely thinks that because they could) and offering a place that would never get rented.

There are absolutely places that will sell at market rate, but wont rent for what it's costing you to keep them. Definitely think on that one.

I'd be surprised if that was the case though. A lot of times the rent on a place is quite a bit more than the mortgage, or at least very similar. If you can sell it for more than you could rent it for payments wise then sell that shit NOW.
posted by emptythought at 8:42 PM on January 26, 2014

You should talk to a realtor to find out what the place would sell for and rent for. If it's really salable for $260k and your mom only owes $236k then she would get cash for selling.
posted by medusa at 9:09 PM on January 26, 2014 [1 favorite]

If your mother can't get it together to sling the parasitic cousin out, which is really the only sane solution here (and would happen in any case if she sold up) then her financial worries are less important to her than her family priorities, and until that changes you're going to be pushing shit uphill to change anything at all about these arrangements. She is, after all, an adult.

Is the cousin fully aware of just how much he's costing his aunt?
posted by flabdablet at 10:53 PM on January 26, 2014

If she rents the place out for $1850 total (assuming she is able to find a renter at that rate) and is paying $2500/mo for mortgage, taxes, and community fees, plus whatever ongoing maintenance needs to be done on the place--how on earth is that sustainable? She'd be losing $650/mo! I honestly don't even understand how that can seem like a feasible option.
posted by drlith at 3:25 AM on January 27, 2014

Yea, you're right. Im going to do all I can to make the cousin move out and I think mom is too. And I also just realized that the 1850 didn't includ prop tax or fees so I bumped up the price to $2100...and I was just going to suck up the remaining cost every month but those hundreds of dollars are a lot given my very modest income....
posted by bluelight at 4:19 AM on January 27, 2014

Is there a basement that can be turned into a third bedroom? It's in a solid location, right in Little Italy, walking distance to the entertainment in Fells Point or the "Harbor East" complex. Three post-grad/young professionals would be glad to rent a house like this for 800-850/month each. I definitely would if I had two friends, lived in Baltimore and found a deal like that on Craigslist.
posted by windbox at 4:39 AM on January 27, 2014

That's a nice neighborhood. Talk to an agent - I'm almost POSITIVE that place is worth a lot more than $260K.

If you use a real estate agent, budget for roughly 6% off the top for agent fees, (3% buyer and 3% seller commissions) plus whatever closing costs the buyer asks you to cough up - I've seen that run from $2K-8K depending on the deal.

Those are ALL negotiable (commissions are harder to mess with), but as you start getting hard numbers, it gives you a base line to work from.
posted by Thistledown at 5:47 AM on January 27, 2014

Talk to a real estate agent.

If the amount owed to the bank is $236,000, if you can sell for $258,000 or more, then your mom can walk away from this disaster. (You have to pay 6% commission on the sale price of the house to the real estate agents involved in the sale. There are also other costs associated with selling, but $258,000 is pretty close.)

Keeping the place is NOT an option, she can't afford it.

Do NOT support your mother in the madness of hanging onto this albatross.

People have no perspective when it comes to homes. They invest emotions into them when the questions are purely monetary. Can I afford this? No. Then I must sell.

Your mother doesn't have any extra money. What if something big needs to be replaced (the furnace, hot water heater, etc.) What if the townhouse HOA decides to assess for a new roof? She'll have to pony up $8,000 for that.

SHE CAN'T AFFORD IT! There is no other arguement, and there's no discussion. It really is that simple.

Make her understand, and don't throw your money down her rat hole if she won't.
posted by Ruthless Bunny at 6:45 AM on January 27, 2014

Also, a good appraisal (might cost $100) would include a rent prospectus, as that is another solid way to determine the value of a property.

You need real numbers to base these decisions on. Don't guess, and don't go off of the tax assessments.
posted by fontophilic at 6:52 AM on January 27, 2014

Does she have a job now? If she sold out, she would still need a place to live. That said, you said she was making $20 an hour - that's about $40K a year. Meanwhile the morgage is $2000 a month * 12 = $24000 a year or 60% of her income, way too much money, and frankly, way too much house for a single? person. Even if she got a new job, could she pay off the morgage before retirement?
If she doesn't have a job, she doesn't need to remain in the area. As people have mentioned, if the assessment is $280k, she could probably sell for a bit more. With that cash, she could buy a mobile home in a park about 20-40 miles from where she is and only have ~$300 a month lot rent - she could basically survive on savings without a job.
posted by 445supermag at 8:31 AM on January 27, 2014

She purchased it for $350,000. In 2012 it the Baltimore govt assessed it at $280,000. It may have dropped even lower. It is a three-floor townhouse with two bedrooms and 2.5 bath.

The $280,000 assessment is probably for taxes, my house is assessed for a fraction of what it's worth on the real estate market. Have a real estate assessment done.
posted by backwords at 10:49 AM on January 27, 2014

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