Help me buy a "dilapidated" house.
January 9, 2007 2:50 PM Subscribe
What do I need to know about making an offer on a house with obvious problems?
Standard advice: "Make your offer contingent on a satisfactory home inspection."
Great, but what do you do when there're clearly problems with the house? Given how long it's been on the market for, the visible problems, etc, we'd like to make a somewhat low offer. It seems sensible to note the visible problems to justify the low offer, but how do you then word the contingency?
Contingent on no problems we haven't already noticed seems risky -- if we mention that we're aware the windows need replacing (for example), it looks like that might cause problems if the inspection revealed rot that would make replacing them more expensive than expected; that'd still be a window problem.
We could have the inspection done and then make an offer, but it seems like that might not be ideal from a negotiation standpoint. I'm thinking -- please mention if I shouldn't be -- we have a good chance (based on what the estate agent has said, length of time on market, etc) of getting a low offer accepted. We're hoping to bargain down from the intial offer for all the repairs that are necessary. Perhaps a bit idealistic, but worth a shot. Hence the thinking that we should not, say, get the inspection done before making an offer.
I grant that the seller is presumably aware of some shortcomings, but she seems, er, less aware than she should be. While we could move in and live there well enough tomorrow, it's still a fixer-upper. Which is not even hinted at in the listing.
I'd just as soon avoid the cost of a buyers' agent, but if you think it would be particularly useful in this case -- tell me.
Standard advice: "Make your offer contingent on a satisfactory home inspection."
Great, but what do you do when there're clearly problems with the house? Given how long it's been on the market for, the visible problems, etc, we'd like to make a somewhat low offer. It seems sensible to note the visible problems to justify the low offer, but how do you then word the contingency?
Contingent on no problems we haven't already noticed seems risky -- if we mention that we're aware the windows need replacing (for example), it looks like that might cause problems if the inspection revealed rot that would make replacing them more expensive than expected; that'd still be a window problem.
We could have the inspection done and then make an offer, but it seems like that might not be ideal from a negotiation standpoint. I'm thinking -- please mention if I shouldn't be -- we have a good chance (based on what the estate agent has said, length of time on market, etc) of getting a low offer accepted. We're hoping to bargain down from the intial offer for all the repairs that are necessary. Perhaps a bit idealistic, but worth a shot. Hence the thinking that we should not, say, get the inspection done before making an offer.
I grant that the seller is presumably aware of some shortcomings, but she seems, er, less aware than she should be. While we could move in and live there well enough tomorrow, it's still a fixer-upper. Which is not even hinted at in the listing.
I'd just as soon avoid the cost of a buyers' agent, but if you think it would be particularly useful in this case -- tell me.
Enumerate all the flaws individually. If nothing else it'll give you a nice todo list if you do buy the house. I won't claim to have any big house buying experience, but negotiating down from the buyer's initial offer seems a bit unusual to say the least, unless you do discover more serious flaws.
posted by fvw at 2:59 PM on January 9, 2007
posted by fvw at 2:59 PM on January 9, 2007
Just make your lowball offer. The sellers and the seller's agent are aware of the flaws.
posted by fixedgear at 3:08 PM on January 9, 2007
posted by fixedgear at 3:08 PM on January 9, 2007
You don't need to justify a low offer. In my area, it is possible (and typical) to make an offer contingent upon inspection. The agent is working for the seller and may obsfucate the situation for you, including the seller's opinion.
A real estate friend once gave me this advice. Make an embarrassingly low offer and see where things go from there.
posted by b33j at 3:12 PM on January 9, 2007
A real estate friend once gave me this advice. Make an embarrassingly low offer and see where things go from there.
posted by b33j at 3:12 PM on January 9, 2007
Making your offer contigent on satisfactory home inspection means you can bail out at any time before the deadline you specify. When we bought our house, the offer stated that unless we notified the seller before a certain date and time that the home inspection was satisfactory then the deal was off.
posted by winston at 3:14 PM on January 9, 2007
posted by winston at 3:14 PM on January 9, 2007
There was a recent article about this in the LATimes (try here). Short version: make sure you are realistic about the problems and the cost of fixing them.
So, you don't ever need to "justify" an offer, other than to yourself and your spouse. And a low-ball offer can be more attractive if it is made unconditionally (bird in the hand, and all that), if you are sure of what the house's problems are. If you aren't experienced in assessing a house's problems, you need a really good inspector whom you really trust. Without that, and knowing a good contractor for quotes, you are just guessing in the dark about what is a reasonable price.
posted by Forktine at 3:23 PM on January 9, 2007
So, you don't ever need to "justify" an offer, other than to yourself and your spouse. And a low-ball offer can be more attractive if it is made unconditionally (bird in the hand, and all that), if you are sure of what the house's problems are. If you aren't experienced in assessing a house's problems, you need a really good inspector whom you really trust. Without that, and knowing a good contractor for quotes, you are just guessing in the dark about what is a reasonable price.
posted by Forktine at 3:23 PM on January 9, 2007
On rereading: Saffry is right. As a buyer, having one kind of agent vs another kind of agent won't cost you any more (except if one gives good advice and the other poor advice, or if there is an unusual situation of a flat-fee instead of commission).
And the normal order of events is: make offer based on your assessment of the condition, conditional on an inspection; then later renegotiate offer based on the results of the inspection.
posted by Forktine at 3:29 PM on January 9, 2007
And the normal order of events is: make offer based on your assessment of the condition, conditional on an inspection; then later renegotiate offer based on the results of the inspection.
posted by Forktine at 3:29 PM on January 9, 2007
In addition to you offer and earnest money, you could pay $100 or $150 or so for an option period of maybe 10 or 14 days. Within that period, you can cancel the contract for any reason. Get your inspection done within that period, then cancel the contract if you discover problems that you can't deal with or can;t use as a basis for satisfactory renegotiation with the seller.
FWIW, I did this just a couple weeks ago with a house we wanted to buy closer to Houston than where we are now. The inspection revealed a cracked foundation, mostly rotten siding, and other expensive issues that were not on the sellers' disclosures. I tried to negotiated a better deal, but they wouldn't come down far enough, so I cancelled the contract and got my earnest money back.
posted by Robert Angelo at 3:50 PM on January 9, 2007
FWIW, I did this just a couple weeks ago with a house we wanted to buy closer to Houston than where we are now. The inspection revealed a cracked foundation, mostly rotten siding, and other expensive issues that were not on the sellers' disclosures. I tried to negotiated a better deal, but they wouldn't come down far enough, so I cancelled the contract and got my earnest money back.
posted by Robert Angelo at 3:50 PM on January 9, 2007
It seems like you just need to decide if you really want the house or not. No matter what you offer, as long as you have a contingency period, you can get out of the sale. If the seller refuses to negotiate during the contingency phase, and its not worth it to you to buy it, you walk away.
It's certainly not unusual to attempt to reduce the purchase price after the initial offer.
One other note - While some people think it's a terrible idea on principle, if you go in without an agent and agree to have the seller's agent represent you, you might have some additional leverage on price. If the deal is close to going through, the agent may be willing to take less of commission - he'll still get more than if he represents only one side of the deal.
posted by mzurer at 3:52 PM on January 9, 2007
It's certainly not unusual to attempt to reduce the purchase price after the initial offer.
One other note - While some people think it's a terrible idea on principle, if you go in without an agent and agree to have the seller's agent represent you, you might have some additional leverage on price. If the deal is close to going through, the agent may be willing to take less of commission - he'll still get more than if he represents only one side of the deal.
posted by mzurer at 3:52 PM on January 9, 2007
My advice is based on CA real estate law, and could vary in utility depending on your actual location, I forgot to add.
posted by mzurer at 3:53 PM on January 9, 2007
posted by mzurer at 3:53 PM on January 9, 2007
Best answer: Also, you can request to see the seller's disclosure prior to making your offer. I don't know if they are obligated to give it you, but no reason not to ask for it. The couple who want to buy my house asked for a copy of my disclosure before making their offer, and I gave it to them.
Another thing to think about: Here in Texas, if you are selling your house and have a home inspection within the last 4 years, you are required to give the buyer a copy of the inspection, in addition to your seller's disclosure. In our case, we gave the inspection report to the people whose house we wanted to buy, and we reminded that that they were required by state law to give it to any other buyer if we canceled the deal and they tried to sell the house to someone else. Your profile indicates you are in Canada, and I have no idea what the law is like there, or if it is national, provincial, local, or whatever.
posted by Robert Angelo at 4:00 PM on January 9, 2007
Another thing to think about: Here in Texas, if you are selling your house and have a home inspection within the last 4 years, you are required to give the buyer a copy of the inspection, in addition to your seller's disclosure. In our case, we gave the inspection report to the people whose house we wanted to buy, and we reminded that that they were required by state law to give it to any other buyer if we canceled the deal and they tried to sell the house to someone else. Your profile indicates you are in Canada, and I have no idea what the law is like there, or if it is national, provincial, local, or whatever.
posted by Robert Angelo at 4:00 PM on January 9, 2007
The laws in Canada are provincial and vary widely depending on which province or territory you're in. US laws, rules, and guidelines do not apply and are often the complete opposite of what is really needed.
What province are you in?
posted by watsondog at 4:08 PM on January 9, 2007
What province are you in?
posted by watsondog at 4:08 PM on January 9, 2007
I should add: if you're getting a CMHC mortgage, and the vast majority of people do at first, your hands may be tied as to how much damage you can accept. The CMHC will require a home inspection and will not approve the mortgage if the home is not habitable, according to their specifications.
If you don't want a CMHC mortgage, you will likely need 25% of the sale price in cash (ie not a second mortgage) as a down payment. So that would be $100,000 in cash for an average house in Calgary.
posted by watsondog at 4:12 PM on January 9, 2007
If you don't want a CMHC mortgage, you will likely need 25% of the sale price in cash (ie not a second mortgage) as a down payment. So that would be $100,000 in cash for an average house in Calgary.
posted by watsondog at 4:12 PM on January 9, 2007
CHMC doesn't require an inspection, I never had one when I bought my house last year.
The inspectors can tell you a fairly limited number of things, and they can't say make holes in the walls to figure out if you have enough insulation or what the problem is with that wall that is covered in panelling but doesn't appear quite straight. I can see rotten floor joists as well as anyone, and you can find out what asbestos insulation looks like over the Internet. So I personally did not find that of much use - I knew the windows were old, I may need to buy some insulation, and the electrics were old. I didn't need to spend $300 to have an expert tell me that, and $300 will buy a lot of insulation. I never really had anything major turn up wrong either.
I found the furnace inspection to be good value. It is $40 and will tell you if you have a costly cracked heat exchanger.
If you are comfortable doing an inspection yourself, I'd say go for it. Be careful with your online research though, because there is a world of difference between houses in Canada and the USA.
posted by Deep Dish at 5:37 PM on January 9, 2007
The inspectors can tell you a fairly limited number of things, and they can't say make holes in the walls to figure out if you have enough insulation or what the problem is with that wall that is covered in panelling but doesn't appear quite straight. I can see rotten floor joists as well as anyone, and you can find out what asbestos insulation looks like over the Internet. So I personally did not find that of much use - I knew the windows were old, I may need to buy some insulation, and the electrics were old. I didn't need to spend $300 to have an expert tell me that, and $300 will buy a lot of insulation. I never really had anything major turn up wrong either.
I found the furnace inspection to be good value. It is $40 and will tell you if you have a costly cracked heat exchanger.
If you are comfortable doing an inspection yourself, I'd say go for it. Be careful with your online research though, because there is a world of difference between houses in Canada and the USA.
posted by Deep Dish at 5:37 PM on January 9, 2007
Best answer: saffry writes "A buyer's agent doesn't cost you anything. It is the seller who pays the commission"
Actaully the sellors agent will often eat the commision he'd otherwise be giving to the buyers agent so if your're only 3% apart not having a buyer's agent could be to your advantage.
watsondog writes "The CMHC will require a home inspection and will not approve the mortgage if the home is not habitable, according to their specifications."
I've never needed an inspection to qualify for a CMHC mortgage.
I'd put in your low ball offer, worse1 that happens is the sellor says no but they'll usually counter offer and you get a feel for how serious they are about selling. This is where a buyer's agent is useful IMO, it allows you to maintain the distance that allows for rational decision making.
[1]Well maybe the worst is the sellor straight up accepts your offer and you smack your forehead wth the exclamation "Doh!" because you could have offered even less.
posted by Mitheral at 6:08 PM on January 9, 2007
Actaully the sellors agent will often eat the commision he'd otherwise be giving to the buyers agent so if your're only 3% apart not having a buyer's agent could be to your advantage.
watsondog writes "The CMHC will require a home inspection and will not approve the mortgage if the home is not habitable, according to their specifications."
I've never needed an inspection to qualify for a CMHC mortgage.
I'd put in your low ball offer, worse1 that happens is the sellor says no but they'll usually counter offer and you get a feel for how serious they are about selling. This is where a buyer's agent is useful IMO, it allows you to maintain the distance that allows for rational decision making.
[1]Well maybe the worst is the sellor straight up accepts your offer and you smack your forehead wth the exclamation "Doh!" because you could have offered even less.
posted by Mitheral at 6:08 PM on January 9, 2007
Response by poster: 1. Ontario.
2. "Seller's disclosure" is not a term I'd heard before -- I am a rube in this area -- and a very useful one. Just the thing I needed to know.
3. Re. buyer's agent -- right now, we're 'ideal' home buyers. Pre-approved, no house to sell so flexible about possession, not already entangled with any agent, and I'm inclined to think the lack of a buyer's agent makes us more 'ideal.' Sure, the seller pays, but it's still part of the cost of the house...
4. Many, many thanks.
posted by kmennie at 6:32 PM on January 9, 2007
2. "Seller's disclosure" is not a term I'd heard before -- I am a rube in this area -- and a very useful one. Just the thing I needed to know.
3. Re. buyer's agent -- right now, we're 'ideal' home buyers. Pre-approved, no house to sell so flexible about possession, not already entangled with any agent, and I'm inclined to think the lack of a buyer's agent makes us more 'ideal.' Sure, the seller pays, but it's still part of the cost of the house...
4. Many, many thanks.
posted by kmennie at 6:32 PM on January 9, 2007
Seller's Disclosure: In the US, most states require the seller to fill out a form listing any known defects in the house. For example, mine included the need to rewire for a missing celing-fan/light-fixture on a back porch.
Do check if that type of form is also used in Ontario.
posted by Robert Angelo at 6:45 PM on January 9, 2007
Do check if that type of form is also used in Ontario.
posted by Robert Angelo at 6:45 PM on January 9, 2007
If you've never heard of disclosure, I would say you need an agent to help you get through this process.
posted by mzurer at 7:00 PM on January 9, 2007
posted by mzurer at 7:00 PM on January 9, 2007
The disclosure is a standard item in the sales agreements in BC and Alberta. In BC it's a several page form listing common hidden defects that the sellor initials to indicate whether they exist or not.
posted by Mitheral at 10:44 PM on January 9, 2007
posted by Mitheral at 10:44 PM on January 9, 2007
Best answer: I'm not certain how the concept of "seller's disclosure" stacks up in Canadian law, but if the seller is 'blissfully unaware' of things, it means she's not legally bound to tell you about them. Don't rely on it.
Inspect first, negotiate later. In Canada, call a local CAHPI inspector and ask for a few first-time home buyer horror stories. They're slow this time of year and will probably be happy to regale you. A few bills on an expert today is infinitesimal compared to what hidden structural damage could cost tomorrow, and it sounds like you need an ally with plenty of experience. (Not to mention nifty meters and gadgets!)
There's nothing wrong or uncommon about reducing your offer after the inspection, and that's why many agents will try to keep you from getting one. (Heaven forbid you understand what you're getting into!) The opposite could also be true, maybe the things that look severe to you are mostly cosmetic and easily fixed, and the big stuff is sound, and maybe the house is actually in fine shape for its age. In that case, stick by the lowball offer and try not to grin while signing the papers!
posted by Myself at 11:06 PM on January 9, 2007
Inspect first, negotiate later. In Canada, call a local CAHPI inspector and ask for a few first-time home buyer horror stories. They're slow this time of year and will probably be happy to regale you. A few bills on an expert today is infinitesimal compared to what hidden structural damage could cost tomorrow, and it sounds like you need an ally with plenty of experience. (Not to mention nifty meters and gadgets!)
There's nothing wrong or uncommon about reducing your offer after the inspection, and that's why many agents will try to keep you from getting one. (Heaven forbid you understand what you're getting into!) The opposite could also be true, maybe the things that look severe to you are mostly cosmetic and easily fixed, and the big stuff is sound, and maybe the house is actually in fine shape for its age. In that case, stick by the lowball offer and try not to grin while signing the papers!
posted by Myself at 11:06 PM on January 9, 2007
If the house has visible problems, make the contingency the dollar figure involved in repairs. Your inspector can give you ballpark figures: replacing the roof will be $x, replacing furnace will be $y. Write the contract so that if total repairs are estimated at more than $z, you can back out.
posted by Sweetie Darling at 3:41 AM on January 10, 2007
posted by Sweetie Darling at 3:41 AM on January 10, 2007
More, perhaps obvious, sorry: "$Z" is going to be unknown prior to the inspection, but is your comfort point; i.e. "I wouldn't want to put more than $20k into this house over the purchase price."
posted by Sweetie Darling at 3:42 AM on January 10, 2007
posted by Sweetie Darling at 3:42 AM on January 10, 2007
Dunno how home inspection works in Canada but in the states it's an unregulated industry. Anyone - I mean any schmuck with a ladder and a five dollar electrical tester from Home Depot - can call themselves a home inspector. Most are idiots. They focus on stupid stuff like 'this water heater is ten years old! OMG!' Yeah, I can read an inspection plate, too. Meanwhile they are overlooking huge defects and then handing you a report with a giant legal disclaimer.
posted by fixedgear at 3:53 AM on January 10, 2007
posted by fixedgear at 3:53 AM on January 10, 2007
About CMHC: My partner works for them and they indeed require a home inspection, but they do it themselves - ie. you don't order it and submit it to them. Most people don't even know it happens unless something comes up. And they only do it to a) new homes and b) homes that haven't been CMHC insured before.
The big killers are toxic molds, urea formaldehyde insulation, and unstable foundations.
posted by watsondog at 6:15 AM on January 10, 2007
The big killers are toxic molds, urea formaldehyde insulation, and unstable foundations.
posted by watsondog at 6:15 AM on January 10, 2007
Dunno how home inspection works in Canada but in the states it's an unregulated industry.
Here, the Texas Real Estate Commission has rules and standards, and the inspectors are licensed.
posted by Robert Angelo at 7:26 AM on January 10, 2007
Here, the Texas Real Estate Commission has rules and standards, and the inspectors are licensed.
posted by Robert Angelo at 7:26 AM on January 10, 2007
Response by poster: Just in case somebody stumbles on this with a similar question -- in Ontario, one wants the "Seller Property Information Statement."
(Or not.)
posted by kmennie at 11:24 AM on January 22, 2007
(Or not.)
posted by kmennie at 11:24 AM on January 22, 2007
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posted by saffry at 2:58 PM on January 9, 2007