Friday, April 4, 2008

Agonizing over a Short Sale

Well the bank came back with a price that is not too far from ours (25k more….but a drop of around 75k from asking). Its still a pretty reasonable price, but with all the maintenance needed on the home, it would end up being around 25% above our monthly rental expense.

With the banks approval their agent immediately dropped the price on the MLS (unfortunately we paved the way for him…sigh). So I suspect the home will now generate some more serious traffic. One thing in our favor, it’s a very odd house, so I don’t think we would be competing with investors on it.

So the question is, do we wait, in hopes that no offers come in and the bank changes their mind or forecloses? Or do we jump on it despite the higher price and the fact that the second lien holder has not agreed?

I keep going back and forth. In some ways I am okay if someone else grabs it, because it then sets a great comp for the area. Local market stress indicators keep me hopeful that we are in store for more price drops. On the other hand, homes don’t come up in this neighborhood as often.

Here are some additional pros and cons of our situation as I see it.


  • Location. Walking distance to the elementary school, and a small park
  • Large enough lot to comfortably hold our old fishing boat and even older inoperable ‘68 Dodge Charger.
  • Established neighborhood
  • Nice looking swimming pool (but not sure how much we will use it)
  • I’m really ready to settle down. Another couple that moved into the area a month before we did who rented up the street from us, just bought an REO. I am very jealous.


  • Road noise. Bordered on both sides by major EDH roads (perhaps more as DOT will be doing some major road work on either side of the house in the next 5 years….luckily the home is not located in an asbestos region)
  • House layout (really odd, and with lots of oak cabinetry which I am not fond of). No room for my office if the kids refuse to continue sleeping in the same room. The layout will likely cause problems when it comes time to sell.
  • Lot needs major landscaping, and has not been cared for.
  • Swimming pool (needs looking after)
  • Home needs major updating (at least 7 types of flooring on the bottom floor alone)
  • With a recession in full bloom, I am anxious about purchasing a home near the top of our price range.


Patient Renter said...

I have no idea what you should do so I won't offer any advice :) One thing did jump out at me though:

No room for my office if the kids refuse to continue sleeping in the same room.

As your kids get older, they're definately going to want their own room at some point. This is a given. Just something to keep in mind.

Good luck with whatever you decide to do.

Sippn said...

The 2nd lien holder didn't agree? You have nothing, except the agent will keep beating on them.

When the selling agent gets the 2nd to agree, then they have a counter offer.

Keep looking so you have alternate choices, this is the perfect market to have choices... this is dating, not an engagement!

sacramentia said...

I agree with patient renter - that is the only thing that jumped out at me. Good luck and keep blogging if you do buy it! I wouldn't make the decision over 25k - you could find that money in a variety of places at your income level.

Deflationary Jane said...

Dammit, I'm agreeeing with Sippin again >; (

The second was going to be a total pain no matter what. And you will need an office when your kids are older too so the layout is really difficult now _and_ at reseale if you think about it.

I'd walk and see what this lower listing price shakes out of the bushes.

Paul said...

I say "bless 'em" for providing you with a great comp and just be patient for the next one to come along. "There will always be great deals out there!"

Buying Time said...

Thanks all....your trusted advise means a lot to me.

My first instinct was to walk. But when the agent listed it on the MLS....I wasn't sure if I was willing to let it go over 25k.

If it were our true dream home, I would still pursue it. But, as noted, there are some significant issues. Which is why I am waffling so much.

AgentBubble said...

If it were our true dream home, I would still pursue it.

That's a key statement. I only recommend going up in price under that condition, and that condition alone. Just like with the house we have the offer in on, we only offered full price because 1) there were already 3 offers on it, and 2) it had every feature we were looking for and lacked none. It really is our dream house.

Good luck with your decision. I know it's a tough one!

Ed said...

Average Buyer,

I'll going to second these opinions. The other thing I'd suggest is that you probably have already answered your own question with the details you've laid out in your pro/con list.

It's not the perfect place for you.

It sounds to me like your gut instinct is correct - keep looking.


Husmanen said...

I agree with those above as well. Go with your gut here and your knowledge of the market in micro and macro form.

The feeling of almost being there is difficult and your response it totally normal, I love the pro/con. I do the same thing and bounce it off my criteria when a house falls through. It doesn't help my immediate emotional state but it does gradually bring me back to where I need to be to make such a major decision.

Good luck.

Jacob said...

I think the bank did you a favor. I would wait. If it sells, fine, you will find something else, tehre are plenty of homes out there.

If after a month the home is still sitting (at the new price) come back with an offer $25k below your last offer.

Since it isn't everything you want I would just wait. The market isn't going to shoot back up tomorrow.

anon1137 said...

This is what jumped out at me:

"Bordered on both sides by major EDH roads (perhaps more as DOT will be doing some major road work on either side of the house in the next 5 years."

You can change almost everything about a house except its location. You can add more bedrooms (w/lot size restrictions in some areas). You can even tear the house down and build a new house. But those roads will always be there. And traffic will get worse - it always does.

We used to live on a corner lot (never do that again), so I'm very sensitve to location issues.

The other location features sound great, e.g., close to school and a park.

alba said...

submit another offer, $25K lower than your orignal. How could any house be as valuable as it was 2-3 months ago? Being realistic, the bank is looking at what appears to be a reasonable loss on the loan. Circumstances with the banks change every day; with downside and risk becoming more real and ominous.

If the house receives a quick bid or two, after the new change in the mls, it wasn't meant to be. In this market, there should be plenty of opportunity to catch homeowners and banks in compromising moods.

Think of Bear Stearns on Sunday night, March 16th. They saw no alternative but to sell for $2. On Tuesday, it looked like a bad deal, and eventually were able to have the terms readjusted up to $10.

Demand both. The right house at the best possible terms.

alba said...

In 1999, we compromised on having 2 of our kids share a room. It was a disaster. One got up with the sun, and the other was a total grump if you woke him up too early. I eventually shared my office with one of the boys; a total rip-off for him.

G Spot1 said...

I think everyone's advice is good. What jumped out at me is that you are thinking already about resale. I think it is tough to buy in this market if you are thinking you are going to sell in the near future, unless you are getting a steal. I think you need a 10 year time frame minimum to protect your equity.

We walked away from several counters over about $25k because we got uncomfortable with paying more, especially because we figured we would eventually want to sell.

Our patience was rewarded - we are in escrow on a place that is about the closest thing we've seen in our price range to a dream home. It was listed last summer when we were looking, but it was not in our price range. It was much easier to make a good offer knowing that we could see ourselves being in this place a very long time. I came to realize that we dug in on price on the earlier because we figured we would want to sell at some point. Once we found a home we really like and planned to live in for the long haul, it was much easier to forget about the short and long term market risk and focus on the fact that we were getting a great house.

anon1137 said...

One more thing to keep in mind is how much of your own cash you are risking.

Assuming that the value of the house does not decrease before you feel inclined to sell it (a major assumption, as we all know), the amount you're risking is the transaction cost for the sale, about 5-6% if you use a traditional RE agent, or about $20-24K for a $400K house.

That's the amount you'll be out if you resell it for the same price you paid. And that's no small change.

Good luck!

Buying Time said...

Its really helpful to have folks to turn to who aren't emotionally involved in the purchase. The inconvenient details that we seem to justify away, are not as easily overlooked by folks who are just looking at the facts.

And congrats G Spot1 you are the third Sac bubble blogger to do this lately. Best of luck, and I am very very jealous!!!

PeonInChief said...

Look at your "pro" list and think about how many other houses have all of your "pro"s and fewer "con"s. But you already decided when you said it wasn't your dream home. Pass.

Cmyst said...

I was pondering that, too -- although "dream home" has a kind of slippery meaning, when you remark that a house has an odd layout that makes it less desirable, it makes one wonder what you are seeing in the house that leads you to bid on it.

Buying Time said...

The biggest pro in my mind, is that its the only house we have a chance at affording in my favorite neighborhood in EDH.

So its most likely a now or never chance at that neighborhood.

To sum up, its not my dream house, but it my dream neighborhood.

Jacob said...

Could you turn it into your dream home? Is the lot big enough to add on?

It might be worth it if you can afford to change it and add on the things you want.

sacramentia said...

"Once we found a home we really like and planned to live in for the long haul, it was much easier to forget about the short and long term market risk and focus on the fact that we were getting a great house."

Very well said, although hard to understand until you walk through a house you can afford that meets this criteria. Congratulations!

Cmyst said...

Well, I do believe there is some merit to the advice to buy in the best neighborhood, even if it means a house that needs some help.
I would buy a fixer in EDH, as long as it's basically sound, but I wouldn't buy this place: MLS 80024752, for all the cherry wood cabinets and Ionian columns in the world.

Curious said...

"Bordered on both sides by major EDH roads (perhaps more as DOT will be doing some major road work on either side of the house in the next 5 years."

Run away, just run.

You have children, you do not want them growing up next to busy roads.

The roads will get busier the longer you live there.

I bought a house on the outside of a subdivision and celebrated the fact that I had fewer neighbors and a sound wall to protect me from a sleepy two lane road with little traffic.

20 years later, I can't even keep my yard in a nice condition because of all the exhaust and brake dust coming off that formerly sleepy (and still only two lanes) road. I would have to hose it down daily and scrub my patio and patio furniture daily to even begin to keep up with all the crap coming out of the air from that teeny tiny little road.

I can't even imagine what people living along Watt Avenue go through.

You do not want to live in close proximity to any busy streets.

norcaljeff said...

Keep waiting. More subprime resets in July, rates continue to fall, and banks will unload their REOs on MLS as the weather stays nice. Inventory will rise and competition will set in. Be patient! At the very least stick with your initial offer, or as others have suggested, go lower since prices fall each month.