All Forum Posts by: Robert Taylor

Thanks Uwe, unfortunately I'd guess that you're likely correct on that. like I said in my last post my experience being a broker and looking over hundreds or even thousands or REO sales, what they sold for vs asking, how long on mkt, price reductions, prior deals that fell through and on and on, I sure can't find any pattern to them at all! Maybe there might be more to learn when you're talking about a smaller, local bank that holds it paper and gets stuck with some REO's, they might be a LITTLE easier to predict.

Yet in the case of the big banks and Freddie and Fannie, who knows what's all involved. Especially with the asset managers involved as well, it passes through so many hands, who knows! I'm still holding out hope for anyone's advice otherwise, but hope is fading a bit! I'm still planning on giving my "cover letter with integrated pictures of just how awful your property is!" idea, based partially upon the 20 tips for dealing with Freddie article.

Uwe, the condo is on the east side of Milwaukee, 1/2 of a block off of Lake Drive, 1 block from Lake Michigan, just south of the Shorewood border, a very nice part of the east side. For those who don't know city of Milwaukee real estate, Milwaukee is a pretty big city area-wise for its population and there are nice, upscale areas of the city in several different areas, but the priciest residential homes are on the east side of the city near Lake Michigan, the closer you get to the lake, the pricier it gets! This place is a block from the lake, if you get much closer you start talking about $1M and up houses on the lake, which may not buy that much in LA or NYC, but its pretty pricey for this metro area!

I talked to the people next door yesterday and yes, they seem pretty decent. This is in a fairly upscale area, so this place kind of sticks out like a sore thumb, being pretty dingy and unkempt looking. Before I even asked about the condo association I asked about the roof (which is in need of repair soon, maybe a year left at best and should really be done before this winter) and he said he was all for it and that they'd tried talking to the former owner of my side about it but of course he/she had no interest, they couldn't even pay the mortgage, let alone pay for half of a new roof. I have a couple of roofers that do a great job for less than calling anyone out of the phone book or whatever, which he liked to hear too, so I also asked if we each kicked in a little more for some exterior freshening if he'd be up for that and he was game for that, too. I think he was happy to hear that someone that would want to make the place nice again might be moving in.

I wouldn't be shocked if you're right on about getting countered at some amount close to asking, I'd say that's what I'd be 80% sure would happen, that's why I'm hoping for someone to come through with any other ideas here. The one thing I'm still hoping for is what I'd call the "REO Roulette". I'm always looking at comps for my other flips and for when I take on the occasional buyer or listing and I always make a point to look at sold REO's . What they sold for vs. asking and if there were any markdowns as well, plus how long they sat on the market, too. I'll say the same thing I've seen others say here on BP, its sure hard to find much rhyme or reason to what they'll sell any particular REO for. I'll see them in the same close area, nearly the same dates where one goes for well under asking after only being on the market for 30 days, then there's another one 2 blocks away that sat for 130 days or whatever and sold for right around asking, no markdowns. Or sometimes I've heard other RE people locally talk about a certain house that had a deal fall through and that now the bank will "give it away" because they lost a deal and just want it gone, yet I'll see others that if you look in the mls history, they may have had even more than one deal fall thorugh and the bank still holds out, where on others its vice versa. That's why I call it the REO Roulette, I can certainly find no rhyme of reason whatsoever on any particular house as to what it will sell for, other than those that are obviously priced to sell quick from the start and you know they'll go quick, probably with multiple offers and for over asking.

As far as how "bad" I want this one, not bad at all! I actually have another one only a few blocks away I'm also interested in for the same purpose, to rehab and most likely live in, although I'd probably list it high and see if anyone takes it. One thing that's kind of hard to explain here is that this is an area of Milwaukee that's always hot, its upscale, I wouldn't call it "trendy" because its always been the "cool" area of the metro area to live, so this is the type of area that if you rehabbed a place and made it a really slick place for someone to live in, there's a good chance someone will come by and overpay a little for it. This isn't just another suburb with acre after acre of cookie-cutter subdivisions with cookie-cutter houses or McMansions or whatever where you can honestly pull up 20 true comps for any given house.

Thanks for the detailed response, I guess I should've been clearer on the property itself, maybe my fingers were just too tired from typing all of that! It already was split into two separate condos, about 10 years ago. The REO listing I'm looking at is to purchase one of the two units. That one unit was foreclosed on, the other unit is not for sale.

As far as the condo association goes, my point was that its just another negative that I'd like Freddie Mac to take into consideration when they look at my lowball offer. As I mentioned, its based on my experience in selling a similar condo unit I rehabbed last year, that "condo complex" had four units total and luckily for me they had a real honest to goodness condo association set up with a prez, VP, tres and secretary, bylaws written up by a lawyer AND (this was what the bank was especially interested in!) they had INSURANCE for the common areas, etc. Now when I look at this current REO, I see the total lack of a condo association as another big drawback for this property because if the buyer finances it or even uses it as partial security on a line of credit, their bank is going to want to see the condo association documents if they're anything like my bank and the lender for the buyer I sold it to.

I'm trying to get the point across to Freddie Mac that if they get an offer higher than my cash offer from someone that's financing the place, they're likely going to run into a brick wall when the buyer's lender asks for the condo documents!

I've been doing the rehab and flip biz long and often enough to be confident in my numbers on the rehab costs. I've done several rehabs where I took an entire old house down to the studs, rejiggered the floor plan, etc, so this project isn't anything I haven't taken on before. I'm a realtor as well, so I've run every possible comp on this (plus I've lived right in this area for most of the last 20 years, so I know it like the back of my hand!) and I'm confident of all of my numbers, I'm getting pretty good at calling the numbers!

My real question again is what's the best way to get my various points across to Freddie Mac that this place is a disaster inside that 99.99999% of buyers will run, not walk away from as soon as they get inside! (except of course, someone like me!) The lack of a condo association is another big downer in my mind for the reasons I just mentioned. What is my best way to get this across to them so my lowball offer doesn't look so bad after all?

I'm still leaning towards the cover letter with pictures of the interior mess integrated in to the letter. Any other ideas?

I'll apologize right away for the LOOOONNNNGGGG post here, sorry but I was trying to get all relevant info included! Hopefully its a quick read for you!

Its funny, I know some of the guys/gals posting here on BP have done all or nearly all of their flip deals starting with buying an REO and have done very well with them. For me, even though I've been buying/flipping homes for a while, I'm just now looking at buying my FIRST REO! I've bought most of my homes to flip through the local sheriff's sale, some directly from the owner (non-REO) and one REO that sat on the market too long so they had an auction. Actually, I have submitted a few offers in the past on REO's but never had one accepted and wasn't really trying that hard on those few, because I felt at that time I could certainly get better deals through the auction, where I felt quite comfortable as well from experience.

Anyway, I read through some of the other posts on here, including the "Top 20 Tips on Buying From Freddie Mac". This REO is owned by Freddie Mac. I'll try to sum up all of the relevant facts regarding the property and my potential offer:

-This place has been on the market for nearly 3 months in an area where things usually move pretty quickly.

-I'm looking at coming in quite a bit below the asking price ($149k), I'm nearly done with my comps and still have to work on my projected rehab budget a bit more, but as of now I'd say that I'd like to get it for under $125k for it to make sense and I'm considering coming in even lower, maybe $110k or so. I'm actually looking to move in when the rehab is done or nearly done and then list it for sale at a high price. If someone really wants it and I can make some great money, I'll certainly sell and move somewhere else, but I'd also love to live there too, its in exactly the spot I want to be and will be a really cool place when I'm done.

-Here's why I'm thinking I can get in for considerably lower than the asking-the place has had some major damage to it and is currently totally uninhabitable without a lot of work first. Apparently, at some point after the former owner left the place, some pipes must've frozen or otherwise burst and there was major water damage to the kitchen, which has been completely gutted down to the studs. The house (actually its a condo, a large older house split 10 years ago into 2 side by side condos) has hardwood floors throughout the first floor and they're warped and cupped as bad as I've seen, they can't be sanded (unless someone wants to sand them for about 6 months straight!) they need to be replaced in at least one room and since its continuous wood into the other room and hallway/entryway, all the wood on the first floor needs to go for appearance sake. Upstairs, I'm not yet sure if plumbing repairs are needed (if pipes did freeze, its likely) I'm coming back through with a plumber in the next few days to fully assess the plumbing damage.

-The house (condo) needs more than the "average TLC" that nearly all REO's seem to need, lots of wall patching and other odds and ends need to be taken care of in every room.

-As I mentioned, its actually a condo unit, someone took a 1920's 4,000 sq foot tudor and split it right down the middle into 2 condo units. In the area, this has been done a fair amount here and there but I know from experience that banks are sticklers about these kinds of "condo complexes" where its 2,3,4 units, they really want to see that there is a real, legal condo association set up just like you'd do for a 30 story highrise condo or a 100 unit condo complex. I talked to the neighbor to see if they had anything set up like that, with a president, VP, tres and secretary, rules, INSURANCE-etc, and he just had a blank look on his face! I'll take that as a NO! I know that last year when I rehabbed and sold a condo in a 4 unit complex, the bank we have our credit line through was all over us about getting them copies of the condo association bylaws, etc and most importantly-PROOF OF INSURANCE for the "common areas". Apparently, this 2 unit complex has no such association set up at all and the neighbor didn't seem the least bit concerned about it either!

-The roof will need replacement soon, some of the shingles are already curling up pretty good and while it could probably at the very most hold out for a year, it should really be replaced asap, certainly before another wonderful WI winter hits! I'd estimate it as a $10k job for a tear-off and reroof, its a big house but a real simple roof and I have some guys that do a great job for low rates on roofs. The neighbor said he'd be all for replacing the roof and that the former owner of my unit just didn't want to kick in a cent for any maintenance and certainly not half the cost of getting a new roof! The whole outside of the place looks dingy and unkempt-not falling apart, just dirty. It needs a real cleaning, it has ugly unkempt vines crawling up the sides, etc. Even the tiny patch of lawn it has could greatly benefit from an application of crabgrass/weed killer!

-The only real "plus" for this place is the location, its in an area that's always hot and sought after in our metro area, although its not in the best part of that hot area, if I ranked it 1 to 10, I'd give it an 8 for location.

-My offer would be a cash offer, NO contingencies at all, could close in 14 days or sooner if title work is done, have proof of funds, etc. Also, from the top 20 tips article, I'd follow the other rules like making my offer good for 14+ days and I'm buying it as an investor, even though it could very well end up being owner-occ, I want to keep the option open to sell it as I mentioned.

So, thanks for reading through all my typing, here's where I need some advice-how or what do you all suggest for me to do to try to get all of these shortcomings across to the seller (I'm assuming that offers are actually being accepted/rejected/countered by a 3rd party asset manager) to get the point across that NO ONE is likely to be buying this place anytime soon and they're best off taking a nice cut off the price and selling it to me?

I see in the top 20 tips list, he mentions including a cover letter, although some other commenters disagree with that-any opinions on that? I'd think that the cover letter would be a great place to state my case as to why this place is a basket case as it sits now and why they should be darn happy anyone would even make ANY offer!! Also, if I would go with a cover letter, how about a few pictures as well, integrated into the cover letter, showing things like the gutted kitchen and whatever other awful scenes I can find in there?

THANKS!!!

Thanks J Scott!-Well, I had someone come through and do their "mold testing" and well, I guess I passed but as you say its just comparing the interior reading to the exterior sample reading.

As far as disclosing it, I'm looking both your advice and Wayne's. The one problem I'm dealing with is that when it was listed as an REO less than a year ago, the listing broker declared it right in the main description that the house "Has mold issue in master bath"-his exact words, I just looked it up! So, any decent buyer's agent/broker doing their due diligence for a buyer interested in the house is going to see that sale last year (for a LOT less than we're asking now too, so I know darn well they're going to look it over carefully!!!) and mention it to their buyers. I think we all know the rational and often times, quite irrational fears people have about ANY sort of mold in houses. I think mentioning it in the description ("and the MOLD PROBLEM is fixed!"-FAIL!) or anywhere else it would jump out at people would be a major error, but I think that posting the seller's condition report along with my several paragraphs about the remediation and then the clean test results is my best option. I'm thinking of what I'd do if I were in the buyer's agent's shoes and saw the old mold issue, my next stop would be the documents to see what the condition rept says.

We'll see what happens, a house a 1/2 block down the street that's not quite as nice (at least based on my admittedly biased opinion!) as ours sold for $485k in 27 days, we're asking $479k and might drop it to $469k to move it. Luckily, we have a good amount of room on this one, but of course you don't want to give away profits, either!

Thanks guys-especially you Travis! If this forum had a "thank you" button like some forums do, I'd press it for your post! I feel like one of those moments where I say, "why didn't I think of that!", that makes total sense, have it inspected and write up a report I can show to prove that its mold free and that I'm not hiding anything, either. I've got someone coming out tomorrow to do just that.

FYI-I found out a few interesting things about mold inspection as well. Here in WI, unlike some states mold inspectors aren't licensed by the state, so really anyone that thinks they know mold can do testing. A few of the guys I talked to are licensed in other states, which adds a little credibility in my mind. I do want to both have proof that the mold is gone for the buyer's to see, but I also do want to know that the mold is really gone for my own peace of mind so I know I won't be getting a phone call or a letter from some "mold lawyer" in 6 or 12 months or whenever!

I have a house up for sale right now, its a nice house built in 2001, 3200 sq ft, a former builder's model so it was built with a lot of little "extras" you don't see on every newer house like tray ceilings, inset columns and arched entries going into living rm and dining rm, nicer than usual tile, etc. Anyway, the place was foreclosed on about a year ago, old owners owed WAAAAAYYYYY more than it was worth but of course they took all the light fixtures! The old owners must have been rough on their brand new home, the kitchen appliances were trashed, dishwasher broken, Thermador range caked in grease (which they left-gee thanks!) Whole kitchen was greasy, I've seen more than my share of greasy kitchens but this one took the cake! I had someone degreasing it 100% for 3 days! Now the place is totally spotless, painted inside and out, new carpet/refinished hardwood, new appliances, etc, etc. ready to sell! Here's a link to our youtube video of the place:

http://www.youtube.com/watch?v=7nT1s5BoBzI

Anyway, my issue for posting this is about a mold issue that the house had when we bought it. I'd classify it as a "medium sized" mold issue, it was bigger than a few spots on a wall but much less than a big mold infestation covering several rooms or a whole house, it was confined to the master bath and was green mold. (I'm no mold expert, but I've always heard that black mold is the bad stuff!) I do know a little about mold, in that you need some sort of source of moisture to get it started, which we figured out was coming from the crank-out windows in the bathroom, which even though they weren't that old, were wood windows that had warped enough to let small amounts of water in during heavy storms. They were on the corner of the house that seems to get the worst of the storms, too. Whenever the old owners abandoned the place, the house was all sealed up otherwise, so whatever water and moisture got in through the faulty windows was trapped inside and of course we got mold! The bathroom wasn't caked with mold, there were just a few spots here and there, but it was listed in the REO listing for the house that there was a mold issue in one room.

So, to remedy the problem, I took what I knew already about mold and did some more research. We eliminated the moisture source by replacing the faulty windows with new ones. We thoroughly cleaned all the mold with cleaner and bleach, got rid of everything and then primed everything with Kilz primer and repainted the bathroom, along with the rest of the house. I'm confident the mold issue is 100% GONE!

That gets me to where I am today. Since I'm also the listing realtor for the house, I checked with our WI Realtors Assoc legal hotline to see about what the rules for disclosure on this. The attorney who staffs the hotline said that as long as the mold was gone, legally I didn't have to disclose anything, but as I thought, it would be a good idea liability-wise to disclose it in the seller's condition report. Now, I don't know about other states, but in WI we don't have to give a seller's condition report until after an offer is accepted, but its pretty common for sellers to write one up when listing the house for sale and then posting it in the "documents" section of the mls listing for buyers to see. I now have the house listed for sale but haven't posted a condition report yet. I'm sure that any seriously interested buyer's realtor will look up the listing from last year and see the note about the mold, so I'd just assume that most or all serious buyers will know there was a mold issue.

I'm just wondering how you'd handle this? I'm just about ready to write up a sellers condition report, which will be 100% clean, except for the note I'd add about the mold, where I'd thoroughly explain what was all done.

My other question, has anyone ever run into a problem with a lender in a "former mold house"? My brother, who's my partner, is suddenly freaked out that as soon as a bank hears there was once a relatively small mold problem, they won't want to loan on the house. I think he's upset over nothing, but I honestly don't know! Thanks!

Thanks John, J Scott and Ramon! I've been doing my due diligence on this place and the price would still have to come down quite a bit from what they're asking to make it a worthwhile project. Its been on the market just over a month, so I'm thinking it would need to sit a while longer before they're ready to come down to what I'm thinking of. I'm not in any huge rush to buy this particular place, but I'm contacting the listing broker again to see if the bank would be interested in my lowball offer right now. Its in a hot area, so its hard to say where they're at. Depending on their response, I might be coming through there next week with some basement guys for estimates. Thanks again!

Thanks Kyle and Dawn, nice to hear from some fellow WI people!

Kyle, the job that you stopped off at sounds like they were doing the basic thing as what they called for at this house, except for the basement floor as you mentioned. This house is around that size, maybe a little larger but not that much, its a 2 story house so the basement isn't that big. It sounds like the numbers you're talking about would come somewhere near the range I was guessing.

Dawn, no they didn't give any prices with the inspection write up, which always makes me wonder why, because obviously if the guy came out and did his whole inspection, it wouldn't take that much more to write up an estimate. I've heard of the company you mentioned, I'm going to do a little looking and run some more comps at the same time and decide if its worth spending any more time on this one or if its a waste of time.

I'm in WI, where nearly every house has a basement. I've always kept away from anything needing any sort of major basement repairs, mainly because I know it can get VERY expensive VERY quickly.

I looked at a house today that's in a great area, above ground it needs basically the usual TLC work, new appliances, etc. the "usual flip candidate" house. The problem is in the basement, where one out of the four basement walls is badly bowed and needs IMMEDIATE repair, two other walls are moderately bowed and also need major repair in the very near future and the fourth wall is slightly bowed. Its an older 1920's house with the old brick basement and the badly bowed wall was already braced every 3 feet or so with the big metal vertical beams, which aren't helping at all. The listing realtor had a mason/basement guy come out and look at it and his report recommends shoring up the house and completely replacing the 3 bad walls with new block walls, tuckpointing and bracing the 4th wall, as well as replacing the entire basement floor, which is cracked in several spots and is apparently letting water seep in. He also would install drain tile and a crock and sump pump as well.

I know that the basement repair biz is often known for taking people for a ride and selling them on way more work than is really needed, but from looking at this place, I agree with his conclusions. I'd also consider replacing the 4th wall as well, it wouldn't be that much more work to do as long as they're already there and then you'd have basically a brand new basement, which would be a nice plus on an older home like this.

I'm wondering who here has had any experience with a basement in need of major repairs like this? How did your experience turn out? Anyone have any ballpark guesses as to what kind of $$$ I might be looking at here? If I stay interested in this one, I'd get a price from the guy that did the inspection, as well as contact several other companies/people qualified to do such work, I might have one old contact that might come in handy for this.

Or, is this just a can of worms to stay away from? Its been on the market for a while already and I'm guessing its not going anywhere soon because that basement is pretty scary! Just based on my own wild guesses as to what that basement work would cost (I'm guessing $40 to 50k but not sure at all) the place is somewhat overpriced right now, but assuming it keeps sitting and they know they have a real lemon on their hands, they'll let it go for a lot less.