Home “Buyer’s” Beware Part III

It’s A Racket!

If you remember the housing bubble, then you should remember when it burst.  Well get ready for the Housing Bubble Burst Part II

The Property

This is not for the property investor/flipper.  It is intended for the first time home buyer.  The buyer that is intending to make a commitment, an investment and intends to live in their home for the rest of their lives. 

This is an investment for a life time, covering up to 30 years.   You want to take your time, this is a commitment second only to marriage.   You want to look, get the feel of and imagine the potential.    You want a good location, well built and strategically appointed rooms, bathrooms and windows.    Don’t allow your agent to down play the flaws.  Here are just a few things to look for.   broken or cracked windows, lose hinges on doors and cabinets,  lumps in carpet, uneven floors (bring a basketball or soccer ball),  counter tops out of level,  check above the corners of windows, if the house has settled to much there will be a crease on either or both sides.  The entry doors will also reveal this defect. 

Check the driveway, if it is cracked, it’s only going to get worse.   check for discoloration in the ceiling, this will sometimes reveal a leaky roof.   Use a circuit tester to test the wiring. If it has a three prong outlet it should be grounded.   Insure that the wiring is done correctly on each outlet in every room.   Be vigilant on renovations.  Most garages will have gas furnaces and water heaters.    If a garage has been made into a bedroom or family room, insure that any gas lines has been totally removed.   some renovators will only cap off the gas lines which could result in future problem leaks.  If a home has been switch from gas to electric, insure that the gas has been capped outside at the meter. 

Flipped houses

These houses are bought at auction for as little as $10,000 and sold a few months later for upwards of $200,000 with little more than carpet,  paint, appliances and maybe some carpentry work.    These houses are listed with the highlighted attribute “New Carpet, cabinets, appliances, paint inside and out.”   As with anything, you are going to have the can-do’s  and also the can’t even if they tried.    Be careful with these properties.  They are  more of a cover up than a fix up.     Mildew is sometime covered up with paint only to be revealed in a few months.   squeaking floors are repaired by drilling in screws to quiet the squeak.   Most of the time it will make the floor even.  wear soft bottom shoes to get the feel of the floor.  

foreclosed home

For what ever reason the home owner no longer was able or wanted to continue living or paying for the house.   In many cases they were over extended from the beginning by over paying for the home.    You want to be able to make the payments, maintain and make improvements over time.  If all you can do is make the payments, the property would soon result into blight.   Usually sold as-is.

Short Sale

This home has more owed on it than it is worth.   This type of sale will require a third party approval and sometimes more.  Often times it will also have a second or even a third mortgage.  It will usually take longer to close on a   sale of this nature.  It is not worth the hassle.  Usually sold as-is and not worth the asking price and will have to be approved by all parties involved and it only takes one disapproval to squash the deal.   This hassle is not worth it….Run!!!

The bait Homes

These homes are put on the market solely to stimulate the market and flush out any potential buyers.  These homes are usually under priced and in immaculate well kept condition.   The old saying “If it seems to good to be true” should be well observed.    I don’t think that there is a law anywhere that say “If you put your home on the market, you must sell it”.   Open houses are mostly stages that are put together to gather info on potential buyers.    It’s not to far fetched to imagine a home owner receiving  compensation to stage such an event.   Whether it is really for sale or not, these bait homes are out there, be mindful of them and just walk away.     Because, if you manage to  get an offer in, it will be countered with a stipulation that even a 1st year law student would advise against.

These homes are sometimes advertised as “Bank Approved”.  You should know that if you are getting a conventional loan, your bank will have to approve it. As every bank has their own approval standards.   Your bank  will not give any credibility to the approval of another bank.

Flopping

In ‘flopping,’ a home is purchased by insiders at a steep discount, then immediately sold for a big profit.

After the Deal is closed.

While looking at you perspective home, you imagined the improvements you will be making.  Well, not so fast.  While you creativity may get the best of you, there are those who are chomping at the bit to take advantage of you.   The covert actions of those will no be apparent until it is to late.

While choosing the home you want  the payments and taxes you are able to afford, you will need a lot of wiggle room.   Those predators don’t really care if you are a in a home or homeless.   They just want your money, and by hook or crook, they intend to get it.

There is a thing called market value.  This is the value that real estate companies will put on a house.   There is  True value of the house, the value that it would take to replace the house.    THEN….there is the taxable value of the house.   This is the value that the county auditor will arbitrarily place on your house/land.   This value is the amount that the county will use in the (X tax rate) equation to calculate your yearly taxes.   Not only do the tax rate increase but also the taxable value can increase.  The taxable value can be lower  (not likely) or can be substantially higher than the actual market value of the house.   There is a case where a house was listed at 169,500 and sold for 154,000 and within 3 years, a popular online real estate listing had that same home for over $250,000.  During that same time, the county auditor had increase the taxable value $50,000 higher than it was at closing.   This was without any improvements made to the property other that mowing the yard and trimming the trees.    Needless to say that the hopeful would-be owners would not be able to afford to pay taxes on a taxable value of 250,000.  This tactic is used to keep homes in rotation.  Especially in areas where home building is low and cities and towns are blocked in and can’t expand.   When this happens,  Houses are torn down and condos are put up to increase the tax base at the same time abolishing affordable housing.

When your home value goes up, your insurance goes up, your taxes goes up and your payments goes up.   So that budget you were working on before you bought the home, just went out the window.

This is a system designed for you (the working class) to fail.  It’s a RACKET!…..

To Be Continued……….But you should be getting the point by now.