Oops!

June 2007

Oops!

Broken record. Original image at http://www.journerdism.com/wp-content/uploads/2007/07/broken-record.jpg

Sometimes it happens
To my mind, one of the joys of language is the way that words have different meanings. Thus, as I'm given to asking, what exactly does someone mean when they say they're looking for a house? Is it a house, a house, or a house? Or maybe they mean a "house"?
It's much the same when we speak of breaking a record. Has a racing driver gone faster or a mountain climber reached higher than ever before? Or are we talking about how we used to wind up the gramophone (Do you remember them?) and sometimes, intentionally or accidentally, dropped a record that ended up in pieces at our feet?
In other words, records can be broken and they can be broken!
There's also a similar situation when we deal with several well established rules about buying a house (regardless of what that phrase may mean). Or, to make my point, rules, just like records, can be broken -- and on occasions they ought to be. However, the "breaking" word now has yet another meaning. You don't surpass the past or let something fall on the floor, although you do perhaps throw a rule out of the window. In any case, the meaning here lies in the idea of ignoring what gathered experience tells everyone to do.
Over the years, I've certainly become familiar with the rules and invariably recommend following them. However, there are exceptions, and it seems useful to run through a few of them this month. If nothing else, it will show that real estate is never an exact science. There's an art to it and it involves knowing when and when not to do what the rule books say.

Don't pay more than a place is worth
Well, sometimes you don't have much choice.
You may be pushed into a bidding war.
Or the seller is unbelievably obstinate and is quite prepared to wait until someone agrees to pay his/her inflated price -- which, sad to say, may eventually happen.
Or, of course, you've found nothing comparable in terms of house style, floor layout, bells and whistles, location, and, just maybe, the chance of an appreciating value down the road. In effect, all that's wrong is the price. Everything else is altogether what you're looking for.
In this situation, you might just as well put your offer in -- or accept the signback. After all, if you've no thought of reselling the place for a good number of years (if at all) -- and given the generally ongoing rise in market prices -- you're unlikely to, as it were, end up in the poor house.
In turn, the flexibility in mortgage rates these days may allow you to absorb the difference in purchase cost and/or you can delay other planned uses of your money.
The rule then becomes modified. By all means don't pay more than you should EXCEPT when you're aware of it and can decide to live with it.

Don't buy the best/worst house on the block
The accepted reasoning is twofold.
On the one hand, you'll probably never get your money back if you try to resell something that's the most expensive in the area, especially when the price could be paid for something that's just as appealing in a better neighbourhood.
On the other hand, a property that falls far short of its neighbours is likely to be a put off to anyone who looks at it if/when you wish to resell it. You may in fact have to settle for less than you paid in order to get out from under it because most potential buyers will think it's too cheap, nasty, and horrible to be bothered with.
However, there are "white elephants" out there that may well be worth the money.
It's all a case of your ego -- or lack of it -- and a number of relevant thoughts:

a) You've seen nothing else that's as appealing.
b) The neighbourhood is improving and your Best of the Bunch may become just One of the Crowd as other newcomers buy and improve what else is on the street, including going all the way to tearing things down and replacing them
c) You have the money -- and smarts -- to go through your own tear down and replace exercise.
d) You can presently afford no more than this kind of (low end) place but reckon you can make it attractive enough to sell to another buyer when you're ready to move on to something that's more to your liking/taste.

All told, you can safely buy something that's too good if the neighbours don't bother you or even if you're interested in Being ahead of the Jones. You can also choose to let your (financially sensible) head overrule your (I want nothing but the best) heart and simply bide your time until your circumstances improve.
So, again the rule prevails EXCEPT that you can sometimes come up with a supporting rationale for breaking it.

Don't buy "one of a kind"
Well, as with an overpriced property, you may not have any option.
The odds are that you're one of the few people looking at it and this condition will apply whenever you want/need to resell it. However, if the "wow factor" is what arouses your interest, the odds are no worse that it will transfer itself to someone else. Your only requirement is to exercise patience when the time comes, not to mention engaging a listing agent who'll persevere with you in getting the place shown and sold (probably per a wizzbang Virtual Tour).
Meantime, if beauty lies with the beholder and both apply to you, your concern can be confined to the single/simple question of affordability. In other words, it isn't a matter of paying the price. Rather, it's a case of whether your money could begin to buy something that would give you as much contentment and satisfaction. Pride of ownership has its special meaning here as yet another example of the vigour of our language.
In any case, you don't (or -- unless you're talking investment -- invariably shouldn't) buy a place with the idea of reselling it as soon as possible. The underlying purpose is to acquire a place you'd like to live in, and there's no real need to follow the crowd and buy something ordinary if you'd be excited by being an envied possessor of what no one else has thought of obtaining.
So rule three? Ignore it if there's a good enough reason to do so.

Don't let yourself in for any surprises
In most cases, any offer you make should allow you to check on anything that could -- but preferably isn't going to -- go wrong.
This implies such conditions as arranging for a Home Inspection, getting approval for a mortgage, and verification of an existing use or intended change in use. In turn, access to -- and approval of -- business records, lease agreements, and information of a similar nature is invariably a prerequisite before a commercial or multi-family purchase is made firm.
The overall term is called due diligence, but -- as you may by now be expecting -- there are three occcasions in which it can be set aside in part or in its entirety:

a) When you mean to tear the place down and replace it with something else, it doesn't matter what you're getting. The only reservation you can prudently make is to check that there are no outstanding liens / work orders / whatever in existence; but this factor can usually be safely left for your lawyer to verify -- provided, of course, that you know (or have ensured) that there'll be no difficulty in getting a building permit or its like.
b) When you've seen enough (and maybe previously bought enough) to be comfortable with your judgement about the present condition and what, if anything, needs to be done in the way of improvements, everything becomes gainsaid. To a large degree, this applies when you're buying a new home, although it's as well to go through the builder's Purchase and Sale agreement with a healthy degree of scepticism -- or at least to let your lawyer vet it for you. There's a similar situation when you're buying a condo and have an opportunity -- as the law requires -- to have the Status Certificate and related documents checked out. In effect, you can call on your own (sufficiently qualified) knowledge or a (relevantly) professional opinion to decide that nothing unexpected is going to turn up.
c) When you're involved in buying an existing business, the key factor isn't what the present owners have been doing or should have been able to do. What's more pertinent is what you yourself are going to do and how easily you'll manage to do it. The commercial sector is replete with tales of successful turnarounds and giant leaps forward, not to memtion entirely new ventures that no one else has tried. With due respect, it isn't your bank manager's willingness to lend you the money that's important. It's your inner confidence that your business plan has roots in both reality and your personal experience and ability. If this outweighs the need for a detailed check on what's there, so be it. You may come out further ahead by ignoring the negatives that are someone else's fault rather than your own.

So, to coin a phrase ...
I suppose my message this time comes down to another example of how the language allows us to play with it.
In fact, although there are occasions when you're well advised to do as I say, sometimes it's going to make more sense to do as I say!
Indeed, it's what helps me to never become bored in these real estate endeavours of mine.

So, in closing, perhaps I can extend my usual best wishes -- and suggest that some weeks you can get away without cutting the lawn.