Sunday, February 3, 2008

What’s going on out there?

In 2005 I saw a SFH listing in Cameron Park in the low 500's. Modest house, nice view lot, swimming pool. Someone else bought it in 2005 for more than the listing price ($540k to be exact).

I had an interest in the house because I liked the location, so when the notice of default showed up on the foreclosures last year, I started monitoring it. The bank finally took the property back in December 2007, and listed it for under $400k. Still having an interest in the property, but not wanting to appear anxious before I submitted an offer based on my guess as to where I thought the “bottom” might be in a year or two, I waited until the property had been on the market for over a month. When I saw an article in the Wall Street Journal about the lending bank’s earnings declining 98%, I thought maybe it would be a good time to make an offer on the house with a quick close date. So I called my friendly real estate agent (she has been my agent for 18 years and we have become friends). I asked her to do some preliminary research. Specifically, review the listing history, call the prior and current listing agents and ask about disclosures and problems with the house, as well as availability.

Here is what she reported to me later that day: An initial offer was accepted and the property went pending. But FHA wouldn’t insure it, so the buyer cancelled. There were two new offers pending, and a third on the way, according to the listing agent.

Most interesting to me: There was pending litigation between the 2005 buyer and prior seller over roof leaks and mold.

So my wonderful agent knows me, and she knew I would run, not walk, from a house with mold litigation and stigma, so she wasn’t surprised when I thanked her for her time and offered to buy her lunch while we waited for the next house to come along.

And it got me to thinking. With such a massive inventory of homes out there, who would buy a house with mold problems, unless the price was significantly discounted? Who would get into a bidding war over such a house? It's not that great of a house or location. And even then, could they ever get homeowner’s insurance for the house? (The insurance companies maintain and share a database of properties with prior mold claims.)


snoop dog said...

Can of worms?Mold is very hard to get rid of.The roof leak probably cause all the moisture to enter the house and caused all the mold.This house should sell at a significant discount to other comps in the area.If you are not that handy hire a home inspector to investigate the severity of the damage.Caveat emptor!!!!!!!!

Paul said...

Snoop Dog- I agree 100%. And based on the holes that had been cut in the walls apparently by an inspector, I am guessing there was mold in the walls perhaps caused by defective installation of T-111 siding when the home was built.

Even if someone spends a bunch of money to solve the mold problem, I think they still have an obligation to disclose to the next purchaser, that there was a mold problem. As I recall the California common law rule, the seller is required to disclose all facts that might materially effect the value. Of course, lots of sellers don't.

my-inner-voice said...

I share the idea that now is great time to buy on Sacramento market. I live in Whitney Ranch, Rocklin, in a Shea Homes. The home next to mine is on sale and buyer with a good cash down may snap it at about 25% less of what the whole street paid.

Buying in a low market is a question of risk. Is the price low enough? Did it reach the bottom? No one knows the moment when the price is minimum. So this is the decision to buy.

The question of mold is secondary. It is about buying a home that has serious hidden costs. I would not buy that home, no matter if we are in a growing, stable or down market

It is simple a question of buying something, somewhere in Sacramento area, that has great upside potential. The mold story is not relevant, imho.

Cmyst said...

This is a problem with a lot of rentals, too.

Cmyst said...

There are a lot of factors to consider when deciding to buy, but being assured of the absolute bottom of the market isn't one of them because when we reach the bottom we will stay there for a long time.

I don't intend to wait for the absolute bottom. I have less than 20 years to retirement, and I want to own and be working on my home during the majority of that time. But because I don't have 30 or 40 years to work, I need to make sure that I don't lose tens of thousands of dollars that I need to invest for my retirement. And a house is NOT a good retirement plan.
I don't think it's going to be a good time to buy for about another year, at least. Maybe as much as 3 more years.

Paul said...

Cmyst and My-Inner-Voice: You are a day or so ahead of me on "when" to buy.

But so many people think of their house as their "retirement" money, what additional pressure does that place on both society and the government (meaning "those of us who actually pay the taxes") as these folks retire and find they have no retirement? Are these the same people who responded to the Business Week poll by saying that the value of their home went up in 2007. (BW: 37% of respondents in the west said home prices went up in 2007.)

Jacob said...

Everyone's home always goes up in value, until they are forced to mark to market by actually selling it...

snoop dog said...

You must disclose all information related to the the home that you know of.So if you had termites, but got rid of them, you are still required to disclose that there were once termites in the house.If there are records for treatment of anything you better disclose it.Once you have a paper trail you had better cover your @ss and disclose or get ready to be hammered by an attorney.

Husmanen said...

Cymst you are correct. I put a bid in on a house in Cameron Park a couple years ago and our inspection identified the big four letter word - MOLD. To move forward on the deal we wanted the mold to be tested. The sellers refused and we pulled out.

The house sold a month later, a couple handy men were use to do some basic clean up and it went promptly out as a rental. I am sure the current renter have no idea how bad it was, in all the air ducts, between floors, under the house ... bad, bad, bad.

PeonInChief said...

Mold is a serious issue, particularly in newer homes. Apparently, toxic mold really loves modern wallboard and will move right in and have a feast. Lots of people aren't bothered by it, but I wouldn't go near a place that had mold if I had small children. They're no more susceptible to it than adults, but if they are, their reactions are much more severe.