As more and more distressed properties appear in the market, the location and the condition of the property must be carefully assessed before making an offer to purchase.
Many buyers assume the obvious when considering incurable defects. Houses on busy streets, adjacent to landfills, close to airports, or in high crimes area have inherent flaws associated with location that cannot be remedied by the homeowner.
But some incurable defects are less obvious and yet are just as worthy of consideration. These pertain directly to the condition and inhabitability of the property.
And while many of these issues may be purely cosmetic in nature, that does not mean that the fix is easy or inexpensive. Even something as simple as replacing carpet and flooring could fall into the category of an incurable defect if the cost is significant enough.
By definition, an incurable defect is any one that is so expensive to repair that the cost can not be recovered in the market value of the property. If you purchase a house at $5000 below market value that needs a $10,000 roof, the defect is incurable.
The key is to know the true cost of repairs either before making an offer to purchase, or during the inspection period. Never assume that because the list price seems very low that the house is a good buy. A careful inspection accompanied by a cost to repair analysis is an essential element of due diligence.
Avoid the stress with distressed properties by doing your homework and getting good professional assistance.
And know for certain that a “bargain” is really a good deal!
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Richard, you are so right about this. Don't leap at something until you know all the facts or you could be in a very bad situation for sure.
Great post!
Good advice. I think some rookie investors got burned in the market run up when they did not recognize the cost of rehab.
Andrea...
We sell a lot of distresses properties here so it's really important to get a good handle on the situation! THX
Gary...
And thus we have eventually get ANOTHER foreclosure. Thanks so much.
Richard.....real estate is also a long term investment unless it's a buy and flip deal....people need to, as they did in the past, buy what they can afford, and live there for a long period of time.....the money they need to invest for repairs will be returned to them.
At least with the rehab incurables, you can try to negotiate. You can't negotiate a landfill away!
This is why brokers and inspectors are so essential. Going FSBO and having Uncle Charlie walking through because he installed floors isn't the same kind of expertise on your side.
Richard, I just sat through an FHA, VA and RD financing class, many of the defects we take for granted can even prevent some very attractive financing options. Buyers seeking these financing options need to know what lenders will accept as property issues.
Good morning Richard,
You are so right. I see some buyers only wanting to concentrate on foreclosures or short sales (we don't have many except in some undesirable areas) and it is all about the deal! What they don't realize is many of these deals are not money well spent or a good investment.
Very good points Richard. Buyer's really need to know what they are getting into.
Richard - very clearly stated, even I can understand it. It is essential, in today's REO & short sale enviroments that the buyer fully understands this.
Richard,
I like the way you phrase that - take the stress out of distressed properties. Good, informative post. :)
Steve
Richard - I try to list incurable defects in my Agent Visual Inspection (California). Flight path overhead, railroad tracks where service is scheduled to start again in 2012 ... things that aren't known to folks who are out of the area or don't pay attention to local news. Another reason to use an agent who is familiar with the area. Good post.
Most buyers looking for a 'screaming deal' will often overlook the obvious Richard. Very informational and helpful post.
Mold is one of those defects around here. Sometimes what it will cost to get the home livable makes the purchase price unreasonable.
Great advice Richard. This is reason number one that I always have my buyers get estimates on any obvious defects prior to making an offer.
Richard: This is a topic we just covered in our Broker Appraisal module. Things like damaged/defective foundations, roofs, load bearing walls, etc are all thought to be incurable. They are very costly to fix.
This is a very hard thing to get through some buyers heads. Most don't believe it will cost as much as i tell them.
The market is sooooo saturated with distressed properties.... can't wait for conditions to turn around.
On another subject... I notice the planes in a few of your photos lately, you been hangin' out by the airport lately?
Hope all is terrific!
April in Brookfield, WI
A thorough home inspection by a competent home inspector is a must. For a few more bucks you can get a cost analysis to repair so you truly know what your getting.
Good advice Richard.
Richard,
This is some really sound advice for all of the buyers out there.
It's so important to know what you are getting yourself into my friend, otherwise you can really bite off more than you can chew.
Richard,
Remember back during the overheated markets of 04 and 05 when home inspections were left out of contracts to make the offer stronger. Those were not the good old days.
Rich
Richard ~ this is a great reason why people should buy property through a Realtor. We can help point them in the right direction for estimates and where the property's value will be once the repairs are completed.