Get The True Value From Real Estate
HOW TO KNOW THE VALUE OF A HOME
A home's value comes from different sources. The condition of the property, the desirability of the property and the motivation of the owner of the property. We will start with the condition.
HOME INSPECTION
By doing your own property inspections you can save a lot of money, plus you will know the condition of the property you are purchasing. Most states don't have a license requirement for home inspectors. Anybody can claim to be an inspector, so if you do hire one make sure they have a good reputation with references.
THE THINGS TO LOOK FOR
(1) WIRING: Look for broken light switches, outlet covers, and exposed wires. Look in the attic to see how brittle the wires are as this can give you an age of the system. If the property still has a fuse box, count on having to replace it and a large portion of the old wiring. Make certain that the system has high enough amperage to cover the needs of the property. Turn on every electrical appliance on the property to make sure the system is working right. If a light is blown put a good bulb in and let it stay on a few minuets to see if it blows again or a fuse or breaker goes off.
(2) PLUMBING: Check each outlet for pressure and color of the water. If the property has public water, low pressure may be due to old collapsing pipes (or it could be the utility fault, so check with them to see if this is a problem elsewhere). If the water has a red or brown color its probably rusty pipes which can be expensive to replace. If the property has a well the problems could come from no or poor filter systems. These systems are not very costly to replace. Check for water damage around every pipe you can get to. Under the property or in the basement are especially good places to look.
(3) HEATING SYSTEM: Find out how old the heating unit is. Also request all the records of maintenance on the systems. Look for signs of leakage in the fuel supply system and ventilation pipes. If an exhaust pipe fills soft, chances are you will have to replace it. If the joints in the fuel line are discolored very bad it could be a bad seal that could give you trouble down the road. Most home heating systems that are taken care of will last up to 50 years! Ask the seller for a copy of their fuel bills and see what the average fuel use is. If it is high for your area there could be maintenance problems with the system.
(4) HOT WATER: Make sure the system is large enough to support the property. Check for signs of rust and leaks. If any of these are a problem you will have to replace the system.
(5) STRUCTURAL DEFECTS: The first place I look when I approach a property is the roofline. If it is not straight you need to find out why. A sagging roof can come from many sources all the way to the foundation. Check the foundation for cracks and slippage spots (where on brick or block is not perfectly aligned with the ones next to it). Check the floors for levelness, as this is an indication of a sinking foundation. Look in the basement or under the property for extra support beams not original to the property. Rigging older houses to keep them level is a common practice, and may or may not be a bad problem.
Examine the walls for rotting. You can do this by removing an outlet cover and poking the wall braces with an ink pin. Be sure to look at any wood that makes contact with the foundation. Look for insect holes as you go. Ask the seller for any records showing insect control. Look for splitting or broken rafters in the ceiling and under the floor. This is another way of knowing whether insects were a problem in the past. Check the roof from in the attic to see if it has ever leaked or is rotten. If there is a chimney you will see it in the attic (a lot of homes have covered up old chimneys) and make sure its not cracking or falling apart.
Look around the doors and windows to see how big, if any, the space is between the seal and the wall. Check to see if the windows open properly as this can show uneven settling of the property. Look at the land around the property to see where the water flows. If it flows up against the building, it will have to be diverted to stop future structural problems before the old ones are repaired.
(6) INSULATION: Look in the attic at the thickness of the insulation. If it is not thick enough for your area it will have to be replaced. Lightly tap the exterior walls and listen for hollow sounds. This can mean no or poor insulation. While you have an outlet cover off, try to see the insulation in that wall.
(7) ROOFING & GUTTERS: Look at the condition of the roofing material. If you can see the tarpaper under the gravels on shingles its time for a new roof. Wood shingles shouldn't be dry to the point of being brittle, and look for rust spots on metal roofs. Again ask for any records on the roof maintenance.
Check the gutters for holes, rust, or any other defects that could stop the flow of water (remember, water is the number one cause for structural damage). Make sure that the leaders are connected at their terminals and go to a dry well into the ground.
(8) BASEMENTS: Look for signs of leakage, like discolored floor or wall spots. Look to see if any of the walls is pushed out or cracked.
(9) WALLS: Look for fresh paint that is covering up cracks or rotten wood, on the exterior. If the paint is peeling in spots you will probably have to paint the whole building.
On interior walls look for cover-ups like wallpaper or pictures. Feel the walls to see if there are any weak spots. Look in the corners and where the walls meet the ceiling for gaps, which could be hard to repair.
(10) BATHROOM: Check to make sure that the shower works and everything drains well. Look for water damage around the bath tub and toilet areas. If you see a lot of mold or mildew stains, check closer for rotten wood.
(11) SEPTIC SYSTEM: Question any system over 5 years old. Check the access tubes to see if they are broke. Ask for records that show any maintenance that's been done on the system. There should at least be a record of pumping out once every 2 to 3 years. (I do my every year) If the grass is growing a lot faster on top of the septic, it could mean it's not flowing properly.
When you look at the list above you may feel like that's a lot of work to check all these things and you are not sure you'll know what you are looking at when you see it. Don't be afraid. You will only do a thorough inspection on property your ready to purchase, and you'll use what you find to settle on the final price. If you have doubts, which we all do at first, then when you fill out the checklist included with this package, write yourself notes describing what you see that makes you have doubts. Then take your notes to a contractor, or other appropriate service, and let them give you ideas on how bad the situation is. You could also ask them to look at the property and give you a free estimate on any repairs that are needed. Let them know you will have the work done sometime after your purchase is finalized. The Other Factors
How big is it- In most cases bigger is better. About 1200 square feet is the smallest a 3-bedroom house should be.
How many bedrooms- More is better. 4 bedrooms or more are the best to have.
Does it have a basement or usable attic- These areas could be made into extra bedrooms if they are finished.
Does it have a garage-Two car garages or bigger is the best, but any garage is a plus.
How big is the yard- A yard is a plus. If it has one find out details such as a fence, trees, how big it is, and if there is a garden space.
Is there any other rooms or storage spaces- All extras are a plus.
What condition is the property in- If an owner tells you that the property is in good condition chances are its better than they think. Most people in general don't see the good in their property because of the little flaws that are noticeable to them. (If you look at a worn spot in the carpet long enough the whole floor seems bad!)
When was the building built- Generally the newer it is the better but some older buildings can be great bargains.
What material is the building made of- Wood is the least expensive to make look good but brick or concrete is more durable.
Is there any special features- Any extras can make the property more attractive, which is more valuable. Swimming pool, BBQ pits, arctic entryways, satellite disk, etc.
What are they including in the sale- Everything you don't have to buy before you start using the property is a plus. Refrigerator, stove, any furniture, etc.
The next section of questions deals with the motivation of the sellers as well as the desirability of the area.
7.How long have you lived at this address- From a motivation outlook less time is better. Fewer memories are easier to walk away from.
8.Do you like living there- If they respond "Yes" then ask Why- It's a convenient place close to shopping and other needed places. This is a good rental answer! Or maybe they respond with something like this- It's quiet, very private, or it has a beautiful view, etc. Not as good as the first answer but still good as long as its not too far away from everything.
If they respond with a "NO" then find out why- Its to far to drive to anything or its to noisy from all the airplanes, trains, cars, etc or is there a bad smell from the landfill, factory, etc. These are negative answers but not killers. Under prime rental peaks this place would still rent well.
Why are you selling- Our children are all grown and we don't need this much space anymore or I got another job away from here or we bought a bigger house, etc. Any legitimate reason is good. Vague answers like "I'm tired of this neighborhood" or "We just need a change", etc are the ones you should watch for. These sellers can be very receptive to any legitimate offer you make but you have got to make sure you check out every detail closely! There could be problems they are trying to hide.
When you ask the last three questions be on the lookout for motivation answers. When a seller has got to move for any reason by a specific date they will become flexible as that date gets closer. If you make a legitimate offer on their property they could accept it as their "have to" move date gets near!
Some people think that doing deals like this is taking advantage of the seller at a low point in their life. It's not. You're helping to solve a problem by taking their building over for them. Most people can not make two mortgage payments at once, or pay rent and a mortgage payment at the same time. Most people can not or will not manage a rental property from a great distance. That's where people like us step in and solve the problem by giving them a good price with acceptable terms for their real estate.
The next questions help decide the property's rent value
10. Are there many rental properties in the neighborhood- If the seller knows this answer a good ratio is less than 50% of the neighborhood is rental property.
11.What condition is the neighborhood in- A neighborhood that is clean and neat will bring a better rent.
12. How much does a house rent for in your neighborhood- If the seller can answer this it will give you an idea of how much rent you can get. Of course there can be + and - to that amount, based on the property condition and so on.
This section of questions will find out if the owner is open to creative ways of financing.
13. After I look at your property and if I decide I want to purchase it would you be willing to help with the financing- Don't be surprised if the seller tells you no. Most of the time this answer is automatic because they don't understand the question. If they do say yes your one step ahead in the game!
14. Would you consider a lease with option to buy at a later date- A motivated seller will consider this route.
15. Will you help with the closing costs- Most sellers will say yes to helping with closing costs.
The next questions are the hardest ones to ask and most of the time to get a good answer on. If you feel uncomfortable, or if the conversation doesn't seam to friendly save these till a later time, such as after you visit the property.
16. Is there a mortgage on the property- If the seller feels secure with you they will answer all of these questions with specific amounts.
17. How much time is left on the mortgage- Anything past 50% are in your favor, but this question is primarily to decide on which technique to use for financing.
18.Is their more than one mortgage- The fewer mortgages the better. Three or more can be trouble unless the third is very small.
19. How much is the monthly payment- This will give you an idea of the cash flow possibilities.
20. How much is the property tax yearly- More to base the cash flow on. When added to the mortgage it should still be under the market rent rate.
21. What is the average utility costs- Another rental based question. An area or property with high utility costs can keep rent lower than the market rate. Do some checking around to find out what an average amount should be.
22. Has the property been appraised- If it has try to find out for what amount.
23. Would you consider a lower price for an all cash purchase- If they agree to a lower cash price this shows they are flexible. Also find out how low they will go.
By asking these questions in the order they are listed, you will build a good conversation with the seller, which builds a feeling of trust and security. If you start the conversation by asking if they will help finance the property you could scare them away before you find out any of the other facts that can help you determine whether this is a good prospect.
Just because a seller tells you they will not do any type of owner financing doesn't mean you should not put an offer in for the property. Many times sellers in numerous situations change their mind when they see the right offer in writing.
If the property is listed by a real estate agency and the only contact you can get in touch with is the real estate agent then try to find out as much as you can from and about the agent. If the agent is familiar with creative financing then they may be able to help work out a deal. If they are not familiar with creative ways then let your agent set up the viewing and meeting with the seller of the property.
If the agency has an exclusive contract for the sale then of course you will have to deal with them. So try to arrange a meeting with the seller of the property without the agent being present. This can be difficult and may require you to visit the property with the agent first. You need to have all the information about the seller before you can make an offer and the only way to get most of this information is by talking to the seller personally.
If getting the information you need becomes too difficult because of the agent then move on to some other property. I've wasted time before dealing with agents that have no clue as to what creative finance is about. I've seen excellent deals fall apart because of the agent not understanding what's going on even though the seller was ready to accept the deal!
You can find a home inspection check-list form by clicking here.