Buying Houses: Types of Bargains to Find

To make a good profit in real estate, you must buy right. Check out all property types available to find the best transaction for your specific situation. Consider fixers, distressed sales, repossessions, multiple listings, for sale by owners, and vacant properties just wasting away.

Distressed Properties

Recognize the difference between a fixer and a distressed property. Distressed properties may be fixers or just unwanted houses. Divorce, job loss or transfer, death, financial difficulty, and other problems often force a sale for less than market value. Just because an owner’s problem causes a distressed sale does not mean the house requires fixing.

REPOSSESSIONS

Although the repossession market seemed dried up last summer, houses are beginning to appear on foreclosed lists again. Lender Rob Kramarz with Nationwide Mortgage (www.seetloan.com) says that this may be the beginning of another real estate investor boom.

Look for great bargain properties for sale by HUD, VA, Freddie Mac, Fannie Mae, and Bank-REOs (acronym for real estate owned). Real estate agents try to discourage you from repos and switch you to multiple listed homes. Do not listen to negative remarks about how hard it is to find a good deal property. Find another agent. Even in the hot market at the time of this writing, when the average house sells in less than three weeks, we found two properties for at least forty thousand dollars under market value.

Paying a listing service to mail you lists of repossessed properties is a waste of money. Actually, by the time you get these lists, the houses are already sold. Many web sites listing foreclosures thrive on the web for no charge to you.

Take a flashlight with you to view a repossessed property. With no electrical service and boards covering windows, viewing dark rooms is tough. A good real estate agent will have her own flashlight, but you want to see what you want and not what she wants you to see.

HUD

In our area, new HUD listings post online late Thursday night or Friday morning. New “Daily’s,” homes previously sold which fell out of escrow, post Saturday morning. Properties not sold during the bid time stay listed as daily’s. Bids, due by the following Tuesday at midnight, must be submitted by a real estate agent who has completed HUD registration. Don't waste your time using a Realtor who is not familiar with selling HUD homes. Any mistake causes the bid to be rejected. Don't use an agent who says you must bid way over minimum bid. Find an agent specializing in HUD homes who wants to work with you on your terms. Many bargain HUD homes do sell for far more than the minimum bid. Hold out for the one property which doesn't get way overbid. (I bid about $40,000 under minimum on our second home owner-occupant mountain cabin.)

We submit many bids and win enough to make it pay us well. HUD only allows one repo purchase as an owner-occupant every two years from the date of closing.

Rely on your gut instinct and don't let your real estate agent unduly influence you. It is not a difficult process for your agent to make a computer bid. You need an agent willing to make a few bids to get a successful bid. This is like winning a lottery, with the odds in your favor.

Bids must have a lender’s loan commitment statement. Lenders unfamiliar with HUD requirements also waste your time. Any mistake causes you to lose the purchase. Not all lenders understand HUD’s bid, finance, and purchase process.

When placing a HUD bid, raise your offering bid to cover some of your closing costs. This means you get HUD to pay your closing costs and save out-of-pocket expenses. Also, the higher sales price impacts the market comparable sales in your favor for sale later. Your purchase price influences the values of the market area. Keeping prices higher for active sales during your renovation time protects your investment potential.

Don't get attached to one particular property. We placed a bid on a home I loved in Apple Valley and lost it by a few hundred dollars. The house came back on the list later, not at all uncommon for HUD repos. But, by this time, we had already purchased a better distressed property.

VA

Cleaner than HUD repos, homes owned by the Veterans Administration are also offered on a bidding system through real estate agents. The VA partially fixes up their repossessed homes. The VA sometimes offers vendee (seller) financing with few processing costs, low interest, and no prepayment penalty. You do not have to be a Veteran to buy these easy to qualify for homes.

As of this writing, the VA is changing the way these homes are offered for sale. This is another reason you need a real estate agent who stays on top of recently revised marketing procedures relating to government-owned properties.

Less known government agencies such as Fannie Mae, Freddie Mac, FDIC, SBA, the IRS, and GSA list repossessed properties on their individual web sites. These properties, rarer than HUD and VA, usually get cleaned and repaired before listing with real estate agencies with sale prices closer to market value.

REOs

Banks often offer their real estate owned—REO homes at bargain prices. Depending on the bank’s resale policy, conditions of the property, and available financing, REO opportunities vary widely. Several banks lend on their repos while other banks just want out. Great financing becomes possible through the banks who offer in-house terms. Ask for no points, minimal loan costs, and no prepayment penalties. Check with your local lending institutions and find out how they market their repossessions. Many of these bankers will give you their web page listing available property. Befriend real estate agents who specialize in listing bank-owned repossessions so they will notify you of a new listing immediately.

Multiple Listings

It is hard to find a bargain in multiple listings, but not impossible. Check out listings which have been on the market for awhile. Look for vacant houses, as these cost the seller money every month. Make an offer for much less than asking price with a quick escrow. Many anxious sellers jump on an offer if they think they will be out of their problem in only ten days. This is another reason you need a lender and an escrow officer who perform fast.

I follow the multiple listings in our area on the Multiple Listing Service. One of my agents emails me new listings daily. You need an agent who calls you the minute a new distressed property listing becomes available. Under-priced listings mostly get snapped up by the real estate agents and their investors before they hit the market.

Just like making many bids, make many offers. You never know when a seller’s problems reach a critical point causing abrupt action.

For Sale by Owners

Houses for sale by owner may not always be a great buy, but there is always at least one bargain out there. Many investors prefer buying directly from the owner. If you have ever tried to sell your home by yourself, you probably met some of these investors. Cruel, hard, and in some cases, fraudulent investors dream up all kinds of schemes to steal houses from distraught homeowners. Understand that the home seller most likely dealt with these callous investors before you and therefore may view you with suspicion. Earn their trust by working with them honestly and compassionately.

Seller’s Motivation

Let honesty and kindness guide your actions with sellers. Finding out the seller’s specific problem is the key to helping them and yourself. Uncover the seller’s particular need and find a solution. Because it is embarrassing for some sellers to let you in on their troubles, extra sympathy and relaxed timing helps you unearth their underlying motivation. Listen carefully, stop talking, and pay attention to details which lead to understanding the real reason they need to sell.

The seller may need a quick escrow, need to rent back the home for a while, or want immediate cash. You could give the seller a loan of cash with a note secured by the property. Ask an attorney about your state laws regarding this type of purchase advance. We offered a seller a $2,000 deposit outside of escrow, which went toward the down payment, to entice a money-hungry seller to commit to our low price.

Many sellers do not need all of their cash out. Owner financing is a great deal for you. Usually, you get a lower interest rate and you don't have to pay lender’s points or prepayment penalties. Also, these loans typically won't show on your credit report so you won't have these payments counted against you. If you have a good credit report, take a copy with you to show to the seller. This prevents more inquiries on your credit history and keeps your credit score from dropping.

Ready to Buy

Be prepared to make an offer immediately when you find a bargain. Make sure you are pre-approved with a great lender who can close quickly.

Distressed sellers and fixer houses offer you a great way to get into the real estate investing business.

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Custom Design Home - The Design Brief

Where do you start to design a custom design home? The Design Brief.

Do you know what you want? Do you know what you need? These are two very different questions with very different answers. No matter what your budget is, you will have to get clear on this. You will have to come up with a list! We in the design profession refer to it by the more fancy term of "Design Brief" and it can consist of a scratched out list on the back of an envelope to a 30 page document with magazine inserts, sample plans and paint swatches.

The more complete your Design Brief is, the easier it is to come up with suitable custom home design solutions. Some people like to keep their brief very open, leaving it to the designer to miraculously come up with the perfect design. Whilst those with finely honed psychic powers can achieve this task, it really is akin to trying to shoot a moving target in the dark. It is a process that leads to high expectations from a client - especially if the designer has been foolish enough to promise such a miracle - and usually ends in disappointment.

Having a good Design Brief does not mean that you have to come up with a plan as such, that is the designers job! But feel free to express your own creative talents if you want to start working up a preliminary plan. Thumbnail sketches are good! No-one expects you to be an architect. A plan doesn't have to be to scale, it is important to just get a concept of the sort of spaces you will need. A bubble diagram with labeled circles for rooms is a good starting point.

I describe the design process to my clients as being like doing a jigsaw - they provide the individual pieces and I put it all together for them to create the overall picture. Custom home design does not necessarily translate as "over the top" and expensive. I've designed many modest homes that have been a perfect blend of bringing the functions you need with some special features to make a home unique, individual and a reflection of the client's personality.

Your brief really needs to consist of some basics: Types of room, Room sizes, Vehicle accommodation, How you want spaces to interconnect, Overall house size, Budget, Outdoor areas, Other structures, pools etc., Special needs or hobbies to be catered for, Furniture sizes, .......the list can get as detailed as you like. Include your "wish list" items but realise that budget will dictate how much you can include in the final home design. Remember designers are usually very visual people, so the more pictures you have to communicate your ideas, the better.

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How Much Do Builders Make on a House?

After all is said and done, how much does your builder walk away with?

Do you wonder how a builder decides what to charge for a new home? You know that you pay for the lumber, carpet, fixtures and all the details, but how is the final price determined?

Buying a home requires a lot of money. The cost is based on many different factors, including the construction, land and the marketing and administrative costs for the builder. And of course, the net profit.

Does it sound any easier to understand?

Most builders will charge in a similar way. The construction of the house will account for approximately 50% of the base price of the home.

There are several costs within the construction factor. There are direct costs, which are the sticks and bricks. These are all of the materials that go into the home, from the lumber to concrete and windows to carpet.

The work is usually mostly provided by subcontractors hired by the builder.

Then there are construction labor costs. These are the costs associated with work performed by the builder's employees. These go along with the indirect costs, which are usually performed by the builder's employees. They include the correction work that is done to fix any mistakes by subcontractors.

You will also be charged the construction interest on the home. To finance the purchase of the lot and the cost of construction before you pay the builder, the builder takes out a bank loan. The cost of the loan, including all interest and fees, will be figured into the base price you pay.

The actual cost of the lot can be between 25% and 40% of the base price. With the cost of land constantly going up, especially near metro areas, the lot portion has increased over the years. Added to your land costs are any off-site improvements, such as water and sewer lines, street developments, curbing and paving and driveways and sidewalks.

Many builders offer a discount on the base price, often by paying for points at settlement, to encourage first-time buyers. A discounted home will often have construction costs that equal 50%, lot costs of 30%, a discount of 3% and a 17% gross profit.

Out of the gross profit, the builder deducts administrative costs, marketing costs and taxes.

If you choose options, you could add 10% to 30% to the base price.

Surprisingly, builders walk away with less profit than you would expect. Net profits on the sale of a home often ranges from 2% to 6%. In general, the larger the home, the higher the net.

You can easily find out the net profits for builders that are publicly traded companies. You simply have to read their annual reports.

When you are contemplating the building of a home, sometimes you should shop around a bit. Compare the costs for similar homes offered by different builders. Ask the builder how much of the cost is construction. They may or may not tell you. But it never hurts to ask. You can use this figure to estimate the rest of the costs.


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Building A Home: 6 Things Your Builder Will Not Tell You

Buying a newly constructed home should be an enjoyable experience. Sadly, for most consumers, it’s a nightmare that will stay with them the rest of their life. A common statement made by many new homebuyers is that they will never have another home built for them.

Here’s 6 things your builder will probably never tell you.

“We market that our company only uses the finest craftsmen to build our homes when in reality, we use the cheapest trades we can find, which means that many are not skilled and are day laborers.”

Custom and spec homebuilders bid out the work on your home to the lowest bidder. Kinda like the U.S. Government. There is few Custom builders left who do their own work and have their own crews.

“I have a binding contract that will prevent you from suing me should you have major defects in your home after you move in. And better yet, there is little you can do to get me to fix it!”

Read the fine print on your contract. Better yet, have a real estate attorney read it for you and explain to you what legal recourse you have should there be problems after you close. I bet you’ll come out of the attorney’s office amazed at how little rights you have if you sign the builders contract.

“If you’re really smart, you’ll hire your own third party, code certified, home inspector because the public inspectors and even my own inspectors aren’t here with your best interest at heart!”

Builders today search out third party inspectors to perform “Quality Assurance” inspections. Problem is, this is just more marketing hype than anything. In most states, these third party inspectors do not have to be licensed to perform “Construction Inspections”. My inspectors and I find a long list of items that these inspectors either miss or ignore on every new home we inspect. Not once have we found a home that the builders inspector found a majority of the defects.

City and county inspectors are generally about the same as the builders inspector or worse. Many of these inspectors are so piled up with work that they can only spend 15 to 20 minutes in a home. Besides, it is not the City or County’s inspectors job to look for workmanship issues, they are only there looking for health and safety issues and protecting the City and County’s interest. Just like the builders inspectors are there protecting the builders interest, not yours!

If you don't know a good code certified home inspector ask around or check out the American Society of Home Inspectors at ashi.org

“My sales people and I can tell you anything we want because we’re not regulated by the State”

In many states, you’ll find that the sales people for builders are not licensed with the real estate commission like Real Estate Agents are. This lets them tell you whatever they need to so you’ll buy a home from them. I’ve heard just about sales people promising homebuyers just about anything you can imagine they’d buy from their builder. Buyer beware and get them to put it in writing before you sign the contract!

“Your home is built over a landfill or swamp…maybe both.”

As prime land is filling up with new homes, real estate developers and builders are turning to sub prime land. Here in my market, we have subdivisions sitting on landfills, swamps and former rice patties. None are prime areas for building a home on.

"If you back out of the contract for any reason, we'll keep your earnest money an upgrade money"

Many people are surprised to find this is true. In Texas most builders will, check with the Attorney General in your state to see if this is legal. Again, the builder or sales people may tell you different, but most contracts have a clause that says you'll forfeit your earnest money or upgrade money if you back out of the home. Get it in writing what happens if you back out and the steps you must take to get your money back. Don't think it won't happen to you because I see it happen all the time.

As each state, county and city is different, you should check with a knowledgeable inspector in your area plus your real estate attorney before purchasing a newly constructed home. Also, GET EVERYTHING FROM THE BUILDER IN WRITING! If he promises you he’ll throw in a few extra outlets in the garage, get him to put it in the contract.

This article may be reprinted, copied and distributed as you see fit as long as it is not altered and the article remains intact, including the resource box below.


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Five Things to Help Sell Your Home Fast, and For More Money

Selling your home requires some thought and a clear plan of action. Here are five things to consider when you're getting ready to sell your home:

1) Know Your Buyers

Are most of the homes in your neighborhood being bought by first-time or move-up buyers? Depending on which group will be looking at your home, you'll want to do the things that will make your home appealing to those buyers.

First-time buyers are hoping to gain more control of their environment by making the move from renter to homeowner. Their psychological needs include such things as safety and security, comfort, and control of their living space.

Moving-up buyers want those things, too, of course, but they're generally looking for more room and increased prestige. Regardless of which group is buying homes in your area, you'll want to concentrate your improvement efforts toward attracting them.

2) Know Your Selling Season

The time of year you'll be marketing your home will dictate your decorating choices and color scheme. Use cool colors like blue, green, and grey when selling in spring and summer, and warm colors like yellow, red, maroon if you'll be marketing your home in the fall and winter. Envision your final product as either a cooling desert oasis or a warm haven, depending upon the selling season.

3) Clean up, Fix up

Get rid of all non-essential clutter in your home that will limit a buyer's imagination. You want them to be able to envision themselves in your home. Once you've packed all personal knickknacks, take a look at your house from a stranger's perspective. Then address whatever repairs will make your home appeal to a stranger by either doing the work yourself or having it done professionally.

4) Stage Your Home

The staging of your home can be the most fun part of the selling process. If any interior space feels too empty, add plants to bring nature indoors. Delicate green ferns, spiky grey foliage, and cut flowers will support the emotional atmosphere you're trying to create for potential buyers. You can also support the buyer's sense of smell by spraying a mixture of natural essential oils and water into the air.

5) Make Showing a Joy for Buyers

When you show your home to potential buyers, you want the experience to be as enjoyable as possible. For the sake of safety, it's wise to have someone with you when you’re showing your home, but always send any small children or annoying pets to a friend's house until potential buyers have gone.

Taking the time to work out a selling strategy, and then following these five simple, but important, steps can help sell your home faster, and for substantially more money.
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Using Color Psychology to Sell Your Home

When painting your home for resale, choosing the right colors can make a huge difference in your paycheck at closing. For instance, did you know that the exterior color of houses selling most quickly is a certain shade of yellow, but that choosing the wrong shade of yellow can kill a sale?

You'll find many brochures in paint stores, showing various combinations of exterior paint colors. But most people don't realize that most of those combinations actually include three colors, and not just two. Limiting your exterior paint scheme to just two colors also limits your income potential.

For a fast sale, think fun colors and go for a third, or even a fourth, exterior color. Think "Disneyland Main Street," where every shop is painted in glorious multi-colors. Adding more colors will also add definition to the various architectural details of your home. Use gloss or semi-gloss paint on wood trim.

The Psychology of Exterior Colors

When choosing exterior colors, take the sales price of your home into account. Certain colors, especially muted, complex shades, attract wealthy or highly-educated buyers, whereas buyers with less income or less education generally prefer simpler colors. A complex color contains tints of gray or brown, and usually requires more than one word to describe, such as "sage green," as opposed to "green."

On the other hand, simple colors are straightforward and pure. Generally, houses in the lower price range sell faster and for higher prices when painted in simple colors like yellow or tan, accented by white, blue, or green trim.

The Psychology of Interior Colors

Using colored, rather than bland, white walls will increase your profit potential. Lynette Jennings tested the perception of room size and color, and discovered that a room painted white appeared only appeared larger to a few people when compared to an identical room painted in color – and the perceived difference was only about six inches! Most people also look better when surrounded by color, and feel happier, and since buyers pick houses that make them feel happy, that knowledge can put dollars in your pocket at closing!

Entryways should bring the exterior colors into the house. Repeating shades of the exterior throughout your home will make the entire home seem to be in harmony. Living and family rooms painted in a slightly lighter shade of the exterior color will ensure that you've picked a color your buyers like, because if they didn't like your exterior colors, they wouldn't have bothered to look inside. If they loved the exterior colors, they'll love the interior, too.

When choosing interior colors, consider the use of each room. For instance, kitchen and dining areas that are painted in “food colors,” such as coffee browns, celery greens, and scrambled egg yellows, feel natural.

Since, deeper shades of color imply intimacy and serenity, I like to paint master bedrooms a medium shade of green or blue for warm selling seasons, and rouge red for cooler weather. Other bedrooms can be painted in creamy tones of green, blue, or a pale shell pink. (See the chapter on the Psychology of Color in my book "Joy to the Home: Secrets of Interior Design Psychology" for further information.)

Selling Season

Always consider your selling season (the time of year you'll be marketing your home) and climate when choosing colors. Estimate the amount of time you'll need to get your home ready for sale, and then add on extra days for unexpected delays. Use cool colors, such as blues, greens, and grays, to sell during spring and summer, and warm colors, such as yellows, reds, and maroons, when selling in the fall and winter.

Color Intensity

My husband and I usually use lighter colors when painting the exteriors of our investment dollhouses, because it makes them appear larger. On the other hand, our cabin in the woods looks richer when painted a darker color. When we decided to have it painted, I considered the usual cabin colors of dark brown and barn red, but fell in love with Olympic’s gorgeous "Gooseberry" plum color.

When getting ready to paint your house, look at the colors of neighboring houses and choose colors that harmonize, yet stand out from the crowd. Colors that clash badly with other houses will detract from the overall neighborhood.

At the beginning of the article, I told you that homes with yellow exteriors sell the quickest. But which shade of yellow sells best? First, the yellows to avoid: yellows with green undertones look sickly to most buyers, and yellows with orange undertones give buyers an impression of cheapness.

The best-selling yellow exterior color is actually a pale, sunny yellow, especially when complimented with one or more carefully-chosen accent colors. For instance, a semi-gloss white trim will give your home a clean and fresh look, and adding a third color, such as green, can make your home even more attractive to prospective buyers.

Colors affect human beings in many ways, and by using the principles of Color Psychology, you can make your home stand out from the competition, sell more quickly, and at a higher price.

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