A couple of weeks ago I had occasion to take three different clients through the same house – an attractively-priced 1967 split-level home just north of Microsoft. So everybody knows that Microsoft will be hiring a lot more folks over the next few years, and a lot of those folks are thinking maybe they should pick up an investment rental in that area – with so much high-income job growth, there should continue to be great appreciation. Great logic. But don’t get carried away by the opportunity.
In this case, the home was priced at $375,000 – for a 1967 split-level home, 3 bedroom, 2.25 bath, 1,820 sf, 2-car garage. All the right specs. Price egregiously low. First, that low price led people to look at the house who were not anywhere near qualified for the price it would actually sell for. Second, that low price led investor bidders to fight over it in a bidding war that maybe should live in the annals of northwest real estate. So here’s what I have heard: the first winner got it for $475,000 – and then failed financing. Seller put it back on the market, same low price, same bidding war (if there were 10 to start with, there might be 9 still standing – hopefully fewer as they realized what it was really going to take to win it). Second winner got it for about $470,000.
Was it a great deal? I don’t think so. Was it a reasonable deal – maybe so. This place was structurally sound, but needed to be completely updated and refinished. It would be fair to say that a lot of the house was original (almost 40 years old) and worn out, including the garage doors – and on and on. The lower level would need to be stripped down to the studs and re-wired and re-sheetrocked. The baths needed to be redone. The kitchen space needed to be reconfigured (i.e. move walls) and then rebuilt. If the new owners are both thoughtful and handy at doing a lot of the work themselves, they will probably come out fine.
If you knew it was going to be $475,000 to start with, you might have looked for one in much better shape and saved yourself a lot of work. Don’t get carried away!
Hi Chuck,
Yep, the multiple offer situations continue. We received in a couple this week. If a home is in a sought after neighborhood and priced in line with the market….offers will come. Multiple offers on a fixer though could present a different set of issues.
Chuck, what do you think it would cost to improve the home you mention? For the Realtors that frequent this blog, is there a point where you advise your client (if buyer’s agent) to withdraw because of the risk of overpaying? Is it possible to overpay? At what point do you turn to your client and say this is not smart, lets move on? It sounds kind of like that was the situation, no?
Side note: we received in a first for us:
A FSBO via Craigslist sale that was a multiple offer transaction and no Realtor on the sale side. I didn’t think that was a highly targeted avenue for sales, but I guess I was wrong. I know Realtors and homeowners place their property/listings for sale on Craigslist, but I’m unaware of a way to track Craigslist success. Does anyone know of similar home sale successes on Craigslist?
–Tim
Hi Chuck,
Yep, the multiple offer situations continue. We received in a couple this week. If a home is in a sought after neighborhood and priced in line with the market….offers will come. Multiple offers on a fixer though could present a different set of issues.
Chuck, what do you think it would cost to improve the home you mention? For the Realtors that frequent this blog, is there a point where you advise your client (if buyer’s agent) to withdraw because of the risk of overpaying? Is it possible to overpay? At what point do you turn to your client and say this is not smart, lets move on? It sounds kind of like that was the situation, no?
Side note: we received in a first for us:
A FSBO via Craigslist sale that was a multiple offer transaction and no Realtor on the sale side. I didn’t think that was a highly targeted avenue for sales, but I guess I was wrong. I know Realtors and homeowners place their property/listings for sale on Craigslist, but I’m unaware of a way to track Craigslist success. Does anyone know of similar home sale successes on Craigslist?
–Tim
great article and true I do think your cost is a bit unrealistic though. Check out the inspection blog below…
Tim,
To answer your question “is there a point where you advise your client to withdraw because of the risk of overpaying”? I have to answer, yes there is a point where I advise the client to withdraw, but not merely “because of the risk of overypaying”.
In Chuck’s example we have a slightly different set of circumstances than in the one I faced with my buyer clients this weekend. In Chuck’s example, even after all of the needed improvements, the buyer is left with an all but obsolete (or is it) housing style…the split level home. Obsolete or not, it clearly has limitations regarding the upper limit of it’s potential value.
Overpaying is not necessarily “THE ” only danger point. Paying more than they can afford to pay, is one danger point. Paying more than the house, due to its particular style, is “worth” is another danger point. Paying a little more to get exactly what you want, where you want it, can be the smart move, rather than the danger point.
In my scenario of this weekend we withdrew, however something tells me we will get a second shot at this one at a more resonable price. We shall see. It’s not over until the buyer who “won” sucks up all of the “issues” after the inspection.
Paying 5% more than a home is “worth”, if the style of the home warrants the investment of the remodel and it is in the “perfect” location, can be a smart move. Paying 2% more without those considerations…can be too much.
Tim,
To answer your question “is there a point where you advise your client to withdraw because of the risk of overpaying”? I have to answer, yes there is a point where I advise the client to withdraw, but not merely “because of the risk of overypaying”.
In Chuck’s example we have a slightly different set of circumstances than in the one I faced with my buyer clients this weekend. In Chuck’s example, even after all of the needed improvements, the buyer is left with an all but obsolete (or is it) housing style…the split level home. Obsolete or not, it clearly has limitations regarding the upper limit of it’s potential value.
Overpaying is not necessarily “THE ” only danger point. Paying more than they can afford to pay, is one danger point. Paying more than the house, due to its particular style, is “worth” is another danger point. Paying a little more to get exactly what you want, where you want it, can be the smart move, rather than the danger point.
In my scenario of this weekend we withdrew, however something tells me we will get a second shot at this one at a more resonable price. We shall see. It’s not over until the buyer who “won” sucks up all of the “issues” after the inspection.
Paying 5% more than a home is “worth”, if the style of the home warrants the investment of the remodel and it is in the “perfect” location, can be a smart move. Paying 2% more without those considerations…can be too much.
I wonder if Dustin & Anna promoted their house on Rain City, if they could start a similar bidding war? 😉
Don’t think I haven’t thought of that… 🙂
Let us know when you have an mls # and the podcast up.
Joe, thanks for the inspection link – well written note. Tim, it is absolutely possible to overpay, and there are times when I (we- my wife Diane is my real estate partner) advise a client to walk away. Ardell’s comments are right on – as usual 🙂 Two recent cases from our files:
First, a townhome-style standalone home on N 90th, Greenwood area – priced at $420,000. My client initially liked it a lot, but I couldn’t find any comp that said it should be more than $380k, maybe $390k. The street was a bit noisy and the master bedroom was in front. My client really liked the house, but I cautioned him about the street noise and the comps. He finally backed away because of the noise issue. And the house finally sold 2 months later – for $390k. Good comps can help make good decisions.
Second, a gorgeous newer townhome on the hill above Woodinville. Priced at $380k. My clients saw it and liked it immediately; they have beeen looking for quite awhile, so had developed a good sense of their priorities and of reasonable pricing. This one had just popped on the market, he had been out of town, and we had a short time to make a decision. Multiple offers coming in. Comps were very uneven, but client felt and I agreed that $410 was max. I called the agent and asked if $410 would even be in the game – answer: No. We backed away. Three weeks later another even nicer and larger unit came on in the same complex – big end unit with view. Priced at $420k – right on the market. We knew it was well priced, made an immediate offer, and got it for just a little over asking price. 300 sf larger than the first one.
Two good cases where the comps told us to back away and wait for a more reasonable deal.
Joe, thanks for the inspection link – well written note. Tim, it is absolutely possible to overpay, and there are times when I (we- my wife Diane is my real estate partner) advise a client to walk away. Ardell’s comments are right on – as usual 🙂 Two recent cases from our files:
First, a townhome-style standalone home on N 90th, Greenwood area – priced at $420,000. My client initially liked it a lot, but I couldn’t find any comp that said it should be more than $380k, maybe $390k. The street was a bit noisy and the master bedroom was in front. My client really liked the house, but I cautioned him about the street noise and the comps. He finally backed away because of the noise issue. And the house finally sold 2 months later – for $390k. Good comps can help make good decisions.
Second, a gorgeous newer townhome on the hill above Woodinville. Priced at $380k. My clients saw it and liked it immediately; they have beeen looking for quite awhile, so had developed a good sense of their priorities and of reasonable pricing. This one had just popped on the market, he had been out of town, and we had a short time to make a decision. Multiple offers coming in. Comps were very uneven, but client felt and I agreed that $410 was max. I called the agent and asked if $410 would even be in the game – answer: No. We backed away. Three weeks later another even nicer and larger unit came on in the same complex – big end unit with view. Priced at $420k – right on the market. We knew it was well priced, made an immediate offer, and got it for just a little over asking price. 300 sf larger than the first one.
Two good cases where the comps told us to back away and wait for a more reasonable deal.
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