House 1, Offer 1 Again - Made This Time

Well, after finding the VA forms on the internet, I realized that the offer period was still open on House 1, so I might as well make an offer! I just submitted an all cash offer for a bit less of the asking price. I also included the letter from my bank showing I had the funds available.

While searching for the VA forms, I also came across the instructors to the listing agent from the VA. One of the things they say they require is that the agent collects the earnest money from the buyer when the offer is accepted. I can't really believe this is done. I mean, the agent collects checks from everyone making an offer, than returns them to all those whose offers weren't accepted? Seems like a lot of busy work to me. I think what happens in reality is that the earnest money is collected when the offer is accepted or when / if the VA counters back with an offer.

Update: Just got a call from the listing agent and he told me there was "a lot of information missing." He claims the VA requires that I use an agent, so I have to fill out that section of the form. No big deal. I'll put down my agent's name. He also says the back of the form needs to be returned. (The back is page 2 of the electronic form.) This page is pure text with no spaces anywhere to sign. He says I need to initial paragraph 9c,which states the buyer will pay for title checks. I also need to fill out the sales commission section. This is typically 6%, but must be at least 3%. Since my agent charges me only 1%, this means my commission costs will be 2% less than the typical bid, which means more money to the VA, which could improve the chance of my offer being accepted.

VA Forms

Well, after that listing agent wouldn't give me the VA purchase offer form I need to bid on House 1, I decided to look for the forms on my own. Sure enough, they are on the web. You can find them at http://www.ocwen.com/residential/VA_Broker_forms.cfm. The one to use for making an offer is form 26-6705. These are PDF documents with fillable fields, meaning you can type stuff in and print it out so it looks nice and neat. There is also an addendum form. It's not clear if this has to be included with offers, but it wouldn't hurt.

House 2 Already Sold

Just got the call today that the property was sold.

House 2

I get an email from a company here in Arizona that buys foreclosures and resells them to investors. They had just purchased a single family home with 1,167 square feet, built in 1983. They are selling it for $106,000 and the FMV is $135,000. They included a picture of it in the email and it looked quite nice. I didn't get the email until last night, so it was too late to go look at the property. I did some basic research on the owner and found out the owner hadn't paid his mortgage since March, 2004. The property was to go to auction in August and that was cancelled because the guy filed for bankrupcy. The property ended up going to auction yesterday, Feb 2, 2005.

I did something that should probably never be done and definitely should never be done by new investors - I made an offer on the property without looking at it in person. I did this for a couple of reasons. First, I know one of the principals of this company - I used to work with him before he got into real estate and he was the one who got me my first rental house (also a foreclosure). I know he does his research and buys good properties. Second, this company operates on a first come, first served basis and their properties usually sell quickly. Most of their properties are sold about $20,000 below FMV and this one was $29,000 below FMV. They take bids initially via email with the first buyer getting the house. I read the email 1.5 hours after it was sent out. So given the high instant equity and the time between sending the email and my reading it, I decided to make an offer. (Which isn't really an "offer" in the typical REI sense. This company lists a sales prices and that's it - there's no negotiation.) Their office opens at 9 AM this morning, so I should hear if I got the property shortly after that.

This morning, before going to my day job, I took a drive to the property and checked it out. (It was vacant and on this company's master key, so I could get in.) It's always shocking to see the condition of a foreclosed house and this wasn't any different. There was random broken furniture left in the place. One side of the sliding glass door in the kitchen had been removed and a large china cabinet was moved in front of the opening to block it. It looked the like place had been vandalized because almost every light fixture in the place had been removed. The oven and refrigerator were still there, but the microwave over the oven was gone. The kitchen cabinets looked a bit beat up. The walls throughout the house looked like there was wallpaper on them and it had been peeled off. The doorways to the bedrooms had the doors removed and the doorframes taken off. The bathrooms, surprisingly, weren't too bad. The toilets need to be replaced, but the tubs looked good. Cabinets were ok in one, but so-so in the other. One room was a baby's room and there was still some animal wallpaper up. Of course, carpet throughout the place would have to be replaced. The garage looked like it was being used as an extra room in the house. There was no garage door opener and several sheets of drywall were leaning against a wall. Strangely, it looks like the door to the garage (for people, not cars) that leads to the outside was boarded up and fixtures for a washer and dryer were put in. Another doorway led into the house and that door was also removed. Weeds ruled the front and back yards, but there is a nice big tree in the front. Of course, all utilities were off and, since it was still early, it was dark and I was using a flashlight to check things out, so there might have been some things I missed. The neighborhood looks pretty nice.

There's a lot of work that needs to be done. At first glance, I was sure I made a mistake by making an offer. However, looking at things analytically and cataloging all that needs to be done, I think it's not too bad. I estimate about $10K - $15K to fix it up. After fixing and selling and paying commissions, I could make about $10,000 on the property. Assuming I was the first bidder, that is.

House 1, Offer 1 - Not Made

After speaking with the listing agent, I decided not to make an offer on this property. There are a couple of reasons for my decision:

1. This is basically an auction, with the highest bidder getting the property. My offer was going to be way below market value, so odds of me getting the property were low.
2. Since this was a VA home, the offer needed to be made on the VA forms and not a standard real estate offer form. The forms were available inside the property but since I was not using a Realtor to buy this property, I did not have access to the inside.
3. The listing agent did not want to act as my agent as well because that would require me to fill out a form that stated I knew he was acting as an agent for both buyer and seller. He didn't want to do this. (I guess filling out the form is not worth doubling his commission on the sale.) Because he wouldn't do this, I didn't have access to the inside of the house to get the forms. My Realtor lives about an hour away and I didn't see any point in making her drive out there just so I could submit an offer that had almost no chance of being accepted.

Before I made the decision not to pursue this, I did call my bank to get the letter the VA requires of cash buyers - a simple statement from the bank showing I had enough cash in the account to cover the offer. Within 5 minutes of making the call, I had a fax from the bank. I didn't realize they would do this and this is a useful thing to know for future offers. If I were dealing with a distressed owner of a property, that letter would be powerful evidence that I could close quickly.