Unpleasant Surprises for Online Real Estate Buyers

prostoalex writes "Buying expensive items online from the people you've never met without any guarantees on the seller's part might seem a bit risky even for an experienced Internet shopper. The 'hotness' of the real estate investment market apparently influences some cash-heavy investors to look for opportunities online. When the entire transaction is done via a click of the mouse, and the deed for newly bought real estate arrives in the mail, some unsuspecting buyers might discover that a cozy house near the bus line in the middle of a busy street might imply a criminalized neighborhood and proximity to crack house. The New York Times investigates negative experiences of people buying investment real estate online."

Re:Darwin in action

[lost_it]

It's not being a leech to buy something that you think is undervalued by the seller. Quite the opposite. It has the effect of smoothing out pricing in a market and making it more liquid.

Whatever you need to tell yourself to make it easier to sleep at night... I'm about to move and was considering moving to a nearby larger city (where a lot of my friends moved a few years ago), until I saw the housing prices. The prices have doubled in the past three years. I know that housing prices go up in fits and spurts, but there is no way those houses are really worth what they're listing for. But people buy them anyway--and I can see you saying it now, "But if the houses are being purchased at that price, then they were worth that price, by definition." Which is where I point out that most people expect a house to appreciate in value, but those houses will probably drop in value or at least not increase for the next several years.

Here's what happened in this market: the housing price started to go up a little faster than average (because people started realizing that this was a nice place to live). Then the flippers said, "Hey, prices are going up. I can buy a house now, sit on it for a few months, and then sell it at an even higher price." People that had to move into the area (or people that had to move into a larger house), paid through the nose and hoped for the best. But there are only so many people like that (and everyone else is avoiding buying real estate in that area). In fact, recently I've seen new listings go up for considerably lower prices than before. So it looks like the bubble is starting to burst, and these flippers will get stuck with selling houses at a loss.

To summarize, all flippers do is temporarily raise housing prices to whatever the flippers think is the "true value" before the market corrects itself.

Re:Check it out first, dammit

[onepoint]

>>Same thing with the idiots who buy "historic" homes only to be shocked with municipal restrictions when they try to renovate the property.

Historic Renovation is something that I did once ( I like to restore Victorians ). I will NEVER do a historic home again.

I could take a Victorian, restore it fully without using anything new ( maybe slight plumbing issues, but everything original and old ) and finish without a problem within 48 days. ( I had the best crew and we always worked 6 days a week ).

the only historic I did ( 1898 home ) took me 13 months from start to finish, it was mostly waiting for inspectors and approvals. NIGHTMARE, I would tell everyone to stay out of that market unless they have the ability to deal with government and local bullsh*t. Like they know the color of a house back then when I have the original paint sample from some of the timber.... uuhhgg what a-holes.

Michael

Re:In other news: water is wet.

[Technician]

I just bought a house. (not online) One word of advice.. even if you see the property, hire a property inspector. A good one will tell you about all kinds of things like leaking plumbing in the crawl space, dry rot in the roof sheeting, and wireing splices not up to code. I bought my place knowing ahead of time one of the underground sprinklers was broken, the hot tub didn't work, a bad splice in the attic (twisted and taped), and the sub panel for the shop didn't meet code (3 wire service without a seprate ground in a sub panel is not permitted). It is true the house had a few things needing fixing, but the inspection report got $8,000 knocked off due to the extra expenses needed to bring it up to code in addition to the seller having an electrician update the panel.

Use the online yellow pages and find a home inspector. They will provide photos of everyting from the condition of the gutters to the torn screen window, to the rotting bottem panel on the garage door. It was worth every cent of the $750 I paid for the inspection.

Get a licensed home inspector.

Get a buyer's agent

[HangingChad]

I can sympathize with why people don't like dealing with agents. Many of them are just trying to sell you something, they don't return phone calls half the time and sometimes you're rightly suspicious they're not telling you the whole story. But working with the worst agent in the area is better than dealing directly with the seller online. There are a whole raft of safeguards you give up without agency representation.

But at least working with an agent in most states you have specific legal protections that are lacking in online transactions. It's a lot easier to take action in most states against a crooked agent than a crooked seller. Most times they're mandated to have E&O, the real estate agent's professional liability insurance. State oversight boards are notoriously brutal and inflexible. Real estate agents had such a bad reputation that many states laid the hammer down. As a spurned buyer your chances of getting justice from the state real estate commission or the courts are extremely high if your agent might reasonably have known about a potential problem.

The buyer's agent normally gets their cut from the seller. 90% of the time it doesn't cost you anything to have an agent if you're a buyer. In some areas buyer's agents charge up front fees, so ask first.

Truthfully, even if I had to pay them out of my pocket I'd still use a real estate agent for buying property, especially if it's out of town. If something is really wrong they've got a fiduciary duty to inform you about anything material to the value of the property. If they don't they're risking their license and an E&O claim against their broker. I've found the combination of internet research and a good local agent to be the best combination for my property purchases. Trust but verify what they're telling me.