Please don't chase that bad house

Despite cooling versus last summer’s frenzy, real estate is still rather whackadoodle (highly technical, I know). Supply is tight; prices are ridiculous and I don’t even know what’s going on in terms of financing. But, having purchased nine homes to-date, building one and renovating several of those, I do know a thing or two about houses.

Last summer, South Carolina instituted a new form/ fee that raises the stakes of a real estate contract. As I understand it, the new “termination fee” is separate from earnest money and you?will not?get it back if you fail to complete the purchase of a contracted house, no matter what. You have a reasonable period of time to conduct any inspections and other activities during the “due diligence” period. But, if you and the seller are unable to reach an agreement regarding things that are uncovered during that period, it will cost you. The amount varies and is somewhat negotiable, but we’ve experienced $500-1,000 per house so far (one that we “won” and purchased, and one that we didn’t “win” in bidding).

The house we very recently failed to win got bid way up – too high -- by first-time buyers who wanted to live there. (In contrast, we were seeking a rental.) I worry for whoever “won” because they may be well qualified to buy, but the house needs to qualify, too – and that house has some issues that may prevent it from doing so, putting the hopeful buyers in a bad position.

For the sake of your wallet and your financial health, I beg you:?Please don’t chase that bad house. Just because it’s priced on the low end for the area, doesn’t mean it’s a bargain. This one, for instance, was appropriately priced for the neighborhood, but didn’t have a lot of upward flexibility. Its positives: it’s fairly cute, brick, brand new roof, great potential for being a cozy first home. Its negatives: the electrical system is a disaster and needs to be completely re-done; the A/C is an under-sized dinosaur and needs to be replaced; the sunroom was closed in over an old deck and is not a proper room (this is likely to hit the appraisal by reducing “finished heated and cooled” square footage); the gas water heater isn’t vented properly and the exterior room in which it’s contained isn’t made of weather-appropriate materials. These things need to be addressed BEFORE updating the kitchen, opening a wall and/or turning that half bath into a whole one, and removing those ugly de-commissioned gas room heaters. What’s more, these things easily add 10% in costs to the original asking price, which was apparently well exceeded.

After sleeping on it, I was relieved to learn our slightly under-ask cash bid wasn’t looking so great compared to others, as the absolute required fixes add up to absolute full market value. Anything more puts it over the already-inflated value. That’s where the “winners” are today, facing a situation where the house isn’t likely to qualify, isn’t likely to appraise, and facing at least a four-digit bill to find out (inspections, appraisal, termination fee).

So please, I know you want a house, but please, please try to keep your head so you don’t decimate your wallet.