A BUYER’S DUE DILIGENCE – An REO for $700K in Lafayette? Wow!

(Cynthia Long, reporting from Lafayette, CA. January 12, 2009) It’s 2009, and the opportunity to buy homes in neighborhoods that were once out of your reach is upon us. I am working with a buyer who has always wanted to live in Lafayette, California, an East Bay suburb, and for him, THE TIME IS NOW. His full-time job is secure; he has a second job that has grown from hobby to serious income; and his current mortgage is almost completely paid off. And, importantly, there are single-family homes in Lafayette priced around $700,000, which he and his mortgage broker have identified as his sweet spot.

Last week, he and I visited 9 properties – 4 were in Lafayette and 5 were in the Saranap area of Walnut Creek. He wanted to see value and pricing in neighborhoods that are geographically similar but in different cities and school systems. Within two hours we narrowed the field to two houses, both in Lafayette, both bank-owned properties (REO), and both 3-bedroom/2bath, between 2000-2400 sqft. Other than these similarities, these were two completely different houses in two completely different types of neighborhoods. One was a remodel on Moraga Road that had a sense of being pieced together with available resources over time; the other was a dated 3-BR home nestled in the hillsides behind Acalanes High School. My buyer had hit that bottleneck of two viable choices in the right school district and needed the clarity that comes with asking (and answering) real estate questions.

So, we applied the following.

1. Neighborhood and lifestyle. How close are you to neighbors? Do you want a “drop-in” lifestyle with ties to neighborhood events and lots of interaction or do you value some seclusion?
2. Roads. Do you have any concerns about noise or children or pets being near a busy road? How easy is it to get in and out of your property or the artery roads that lead into town? Do you have traffic obstacles like schools on your most common commutes?
3. Flat lot. Sloped lots, even with retaining walls, can carry histories of drainage issues. This is particularly of concern in an REO property where there will be no disclosures from the seller about property history. Obviously, once in contract, the buyer would do soil stability inspections, but we were looking for ways to eliminate a property before going into contract.
4. Cost. My client and I met with a contractor at the properties to get some off-the-top feasibility and cost estimates on expanding two of the bedrooms and updating two bathrooms on Moraga Road. We also looked at building an interior stairway from the garage to the main living area on the second property.
5. Value. Many of the homes that are “deals” in 2009 have gone through partial remodels, have unusual floorplans, or are just plain old and worn. Buyer beware of overlooking or dismissing flaws. As fellow Empire Realty agent Cindy Aiken said this morning while discussing this decision, “Equating funky with charming may generate a smaller buyer pool when your client becomes the seller.” Cindy has a very PC way of phrasing the obvious.
6. Future Buyer Pool. One of the ways I’m able to help my clients analyze this is to research how the property fared in the past, particularly in the booming markets of 2003 to 2005ish. The answers to these questions will put the property’s long-term value into better perspective.
a. What were the transactions like when this property was sold in the past?
b. Were there local, reputable Realtors on both sides of the transaction?
c. How long was it on the market?
d. Did it sell at, above, or below asking?

These questions are developed to narrow choices and mitigate risk, especially when looking at the property as in investment. Once these factors were weighed in, we were left with the big one: Where did he really want to live? I asked my client to visualize driving by and seeing someone else living in the home. Which property gave him the bigger sense of loss as he saw it belonging to someone else? He realized he had a much stronger emotional response to one of the homes. Because we had identified the property’s value flaws, he was able to weigh the risk/reward and make a decision. Now just to complete escrow, and he will live in the Lafayette home he’s been dreaming of!

If you are ready to take advantage of the amazing opportunities in today’s marketplace, call me. We will go on the grand tour, eliminate the properties that don’t work, and get you into your dreamhome in 2009.

Cynthia Long 925-413-0044 clong@empirera.com