Friday, January 10, 2014
The Watched Pot Finally Boils
I hate to write this, but I have promised myself and my readers to share both the good and the not so good. Back in August we put our house in Maryland on the market. Finally, almost 5 months later it looks like it is going to sell. I already believed that real estate was not my game. Now I am convinced beyond a shadow of a doubt I am not Donald Trump. For over 25 years, we lived in a 1,900 square foot, 3 bedroom, 2 ½ baths contemporary (for 1973) track home. Now it is 40 years old. Back in the spring, Zillow had our home at $370K. Of course this number is only an estimate based on square footage and neighborhood. By the time August rolled around our agent believed that she could reasonably expect to get $330K after the usual upgrades, paint and carpet. All together, starting over a year ago, I put about $11,000 into upgrades, landscaping, and needed repairs. The house was looking good. Unfortunately, it would have been difficult to choose a worse time to put it on the market. The Government shutdown was looming. People were afraid. Nobody seemed interested in buying. Then the shutdown hit. Our agent held open house after open house. Nobody came. The asking price declined to $300K. Finally, in December somebody signed a contract for $290K. His inspector found another $5,000 in repairs. For example, the 40 year old circuit breaker box had been recalled in a class action lawsuit. Seemed this box burned down too many houses. Even my electrician said that thing had to go. Cost? $2,100. Some of the requests seemed a little outlandish, like $600 to repair a few shingles and replace the flashing which was showing its age, but wasn’t causing any leaks. I’m an adult. I am not going to walk away from a $290K deal over $600. The young man who wanted to buy our house was just the kind of person who would buy a “starter” home such as our house. During the negotiations he got married. Then just before Christmas he lost his job. Naturally, the financing fell through. At this point we had a choice. We could leave the house on the market and hope for the best. We could winterize the house and wait for better days. We could rent the house. I did not want the worries of a rental property in another state. My wife was adamantly opposed to this idea. I was contemplating the winterize and wait strategy, but I didn’t want to let the house sit empty for more than six months, especially over the winter. By this time our agent had tried everything short of burying a statue of Saint Joseph upside down in the front yard. I have read this works in difficult situations. They even sell Saint Joseph house selling kits with appropriate prayers on the Internet. (Really) I had racked my brains for ways to sweeten the deal without giving my house away. These included, $4,500 towards closing costs, owner financing, and bumping the agents’ fee by 1% a piece. Our agent really did not want to keep that house on her plate, so we decided to plunge ahead at $290K even though there were 14 foreclosure auctions listed on Zillow for our little town. Almost immediately we received another offer from an investment syndicate consisting of four family members. One of these people is a contractor. They were interested in the offer of owner financing. This allowed them to avoid a 20% down payment required by conventional financing. I made the mistake of taking this offer personally. Fortunately, only my realtor heard my angry rant. After several offers and counter offers, we arrived at a $280K deal everyone could live with. Our real estate agent deserves the credit for making this happen. She gave up a sizable part of her commission, paid for some of the repairs, and threw in a home warranty. One more story at this point. Since the first buyer’s inspector found some cracks in the foundation he wanted the structural integrity of the home guaranteed by a P.E. (professional engineer). The buyer wanted ME to pay the $750 fee. This was something I wasn’t likely to do. If he wants the inspection let him pay for it! Our realtor ate $700 of this expense. Of course our home passed this inspection. It is a 40 year old house for heaven’s sake. You don’t expect a few settling cracks? While this family group plans on letting one of their daughters live in this house, it is obvious they plan to make a few more upgrades (at wholesale cost since one of them is a contractor) then flip the home as soon as the market turns. If they hold it for the full five years, I will receive over $54,000 in interest income. A 4.2% return on a secured investment is pretty decent in our current financial environment. While I certainly would have preferred a straight up sale, finding comparably safe investments that would return 4.2% in an overheated stock market and a zero interest bond market would have been difficult. If everything goes right I will still get $246K in principal at then end of the five year term of the loan. If they flip the house in the spring, I lose. I know that selling your asset at a time when the market is dominated by investors buying at “wholesale” prices is not a good idea, but that is what I just did (providing nothing goes wrong between now and Tuesday afternoon). It is time to take a deep breath and remind myself that just as debt is part of the Curse, the ability to lend is part of God’s Blessing. If you don’t believe me, check out Deuteronomy 28. I have been blessed. I am not as thankful as I should be, but I am working on it. The world is full of surprises. Now I am an author, a teacher, and a banker. Who would of thunk it?