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Determining what to offer - inspection
DH and I are renting and looking for a house we can move into when our lease is up this summer.
We found one that seems perfect for us, except that it's $10K over our budget. It's been extensively updated and looked completely redone at the showing. Then we got the inspection report from when it was previously under contract (we are told the previous potential buyer was not able to get finances in line in time). The inspection report details a few major issues, including dangerous wiring and cracked floor joists.
Most of the houses in this area are old (this one was built in the 1930s), so these issues are not especially surprising to us and we would plan to fix them or ask the seller (a property company, not an individual) to do so. However, I am wondering a few things:
1. When our agent suggested an offer price to us, she didn't back it up with comps, and we were so excited about the house that we didn't think to ask.Is this normal, or should we go back to her and ask that she pull some comps in the area to let us know that the price is fair? (We haven't signed the paperwork yet.) We trust her experience, but she suggested we offer only $7,000 less than the asking price, and in light of the inspection report, I'm wondering if we should go lower. On the other hand, we don't want to insult the sellers to the point they flat-out reject our offer without countering.
2. We would have our own inspection done if we were to go under contract. How much leeway/leverage do you have in terms of changing the offer or asking for repairs once you are under contract and your inspection is completed?
3. In general, do you think "flipped" houses are a bargain or something to be cautious about?
Re: Determining what to offer - inspection
1 - My agent never gives me comps. Maybe it's because I know every property that has sold in the last year or is on the market in our search radius, but I usually come up with the amount I want to pay and we work from there. Did the sellers fix anything from the first inspection report?
2 - Your leverage depends on what the inspection shows and how motivated the seller is. If the house has been on the market for awhile, you might have more since they want to get it off the books. If you haven't already, I would ask your agent what you can reasonably expect to have the seller fix following the inspection. I would also find out if the first buyers requested fixes and were refused or if they just decided to walk away from the deal. If they seller refused fixes the first time, I would be wary.
3 - I'm sure others will chime in on this, but I think they're good for a certain type of buyer. You definitely want a good inspection to make sure the work was done well AND you want to see the permits. Personally, I would rather move into a house that needed work and oversee it myself but there are plenty of people out there that don't want the hassle. By definition, they aren't a bargain because the seller bought it, fixed it up and is still selling at a profit which means that the improvements cost less than what you're paying.
I think flipped houses are something to be cautious about because people only want to do the minimal (cosmetic) amount of work for the cheapest price. The point is to make it look attractive to someone and make money.
I would absolutely ask your agent to pull comps for the neighborhood. You definitely should have asked her where she got her number. And while she can suggest a price, YOU determine what to offer and make all decisions. She is there to help and guide you through the process, but you make the final call. I am confused though - did you submit an offer already and now you want to change it or have you just been working with your realtor on an offer?
We haven't submitted an offer yet; we've just been working with our realtor on it.
We didn't ask for comps when we bought but our house was unique in that it is in a fantastic area (with few homes up for sale) and it needed A LOT of work. We knew we'd need to put $x in to make it liveable so we subtracted that from the list price and assumed they would counter. They accepted our price offer but said they wouldn't fix anything during inspection which was fine for us (we could still back out).
I say make sure you have an inspection and finance contingency in your offer and start where YOU feel comfortable. Who cares if you insult the sellers, if they want to work with you they will counter. If not, then you can always come back with a new offer. If it's already $10k over your budget and your realtor wants you to start your offer $3k over your budget, I wouldn't.
I would suggest your own inspection and ask that they fix these things with a licensed contractor. Floor joists and faulty electrical are huge issues. This makes me think they just did a cosmetic flip and didn't actually fix anything "wrong" with the house. They just covered it up to make it look pretty to sell. This would be a big red flag for me. I typically think that some people flip correctly by fixing problems as they come up... but a lot of people will overlook and just cover up the problems to sell. They really have no motivation to make things safe or correct. During our renos we found several things that were hidden behind the walls. Nothing major but we fixed them since we plan to live her forever... flippers don't have that motivation! Just be careful but it makes me nervous that you are already at the top of your budget. One you move in a lot of problems could come up once you start living there and seeing things.
Then you absolutely are able to change it, so go for it!