Author Topic: First-Time Buyer, Pending Appraisal  (Read 937 times)

Hargrove

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First-Time Buyer, Pending Appraisal
« on: April 14, 2020, 11:30:27 AM »
Hello! I'm continuing to try to develop my sense of the real estate environment and how I should plan going forward... any help would be welcome! I am in contract on a new-construction condo in a great area, which had a booming economy and steadily rising values, at least until very recently.

- I can't take my current job with me, and now the prospects of a new job, once very rosy, are impossible to guess. I am not sure how stable my current job is, but it held so far.
- I was advised to take a second-home loan by a credit union, which I believe still satisfies our "owner-occupied" contract, instead of a primary residence home loan, which they suggested they wouldn't approve without a transferable job. I know that means a rate difference, but it appears to be between 0.1 and 0.2% from last estimate, and I'm not sweating that.
- The cost to walk away is very small.
- Is it foolish to think the appraisal, probably July or August, would be a good opportunity to renegotiate if the value doesn't hold? Does the seller often say "oh well, pay the difference?" I don't have an appraisal clause, but am I right in guessing the incentive to keep a buyer who can still get approved is very high?
- We have plenty of savings for 6-12 months of unemployment, and our down, and moving, and fees.

Thanks for looking.
« Last Edit: April 15, 2020, 09:09:48 PM by Hargrove »

Cb1234567

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Re: First-Time Buyer's Guess
« Reply #1 on: April 15, 2020, 07:28:53 AM »
No replies yet? We all must be watching the news ;-) I’m seeing a series of possible losses, which doesn’t jibe with the MMM philosophy, the little I know anyway...

How excited for and committed are you to this move? Is this a go or bust situation you’ve always wanted or just a well, it seemed nice and the new model condo was smashingly decorated, or ??

What are your “out” clauses or contingencies in your contract to purchase? And what are the deadlines?

It’s too soon to tell if the current market “pause” is going to snafu prices on homes (I kind of doubt it, personally, but we don’t know anything for sure), especially new home construction. How’s your builder’s situation? Delays? Financials?

If I understood correctly, your bank was finagling the loan as a second home since you won’t have a job yet in the new location. Can you save/do you have enough cash to float your bills for several months, or are you painting yourself into a corner where you have to sell an investment at a loss?

Last thing: Are you sure you are familiar enough with the new place to make a smart buy? New construction usually doesn’t resell for the same price right away, because someone can buy a truly New unit right next door. Just something to be aware of.


Hargrove

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Re: First-Time Buyer's Guess
« Reply #2 on: April 15, 2020, 10:37:31 AM »
Deadlines are a moving target... they have yet avoided a completion date. Probably late summer.

Pretty excited but nervous about the move. The calming bit for us was the obvious value moving to a lower CoL area with much better prospects in a much closer-knit & walkable community. Still, moving long distances is somewhat nerve-racking. The assurance of an easy job for anyone is, I think, out the window.

Out clause is surrendering a small deposit, not a concern. Builders are humming right along. Delays are kind of a constant, but it's hard to call them delays without written dates anyway.

Plenty of savings - that's not a problem. As for local familiarity, I... was familiar enough. We planned for a minimum 5-year primary stay, so no worries there, either. Value was in the "respectable to solid" range in January, though I wouldn't have called it a steal, and heads and shoulders over prices where we live. Now it's hard to speculate at all.

Cb1234567

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Re: First-Time Buyer's Guess
« Reply #3 on: April 15, 2020, 11:32:41 AM »
That sounds better than my first impression :).
An easy out in the contract will let you reevaluate if there’s a huge market shift (one that bothers you anyway). And  a nice amount of cash sitting in an account makes a lot of concerns one might have go away. Any other concerns (for us) probably would be alleviated by moving all our assets to a more affordable area. That’s a huge advantage, if you’re not dependent on a high income to merely survive. It’s  always nice to talk to someone back home who says , you paid what?!?

Funny about the lack of completion date! I want one of those projects - lol

So. We just made a long distance move, to a short-term rental, to then move to a VLCOL area about 2 hrs away. No jobs waiting for either move. We’re in the middle of moving/rehabbing the house in the vlcol town. I can’t say it’s been low stress, But somehow we’re coming out on the other side a-okay. Still married at least, 😂 It’s burned a lot of our extra savings, which were intended to support this adventure/leap off a cliff. Job-wise, we’re both overqualified for anything is our new town...to me that means low stress work...we need so much less $ to live. The Dollar General is hiring, I hear. What a difference!

I don’t know if we could’ve negotiated a lower price on the property we bought, though I kind of doubt it. Not sure if any of that is useful to you, mostly just wanted to say that we can relate.

Hargrove

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Re: First-Time Buyer's Guess
« Reply #4 on: April 15, 2020, 03:51:25 PM »
Oh, nice to hear from somebody else who did it!

When I first got this job, I splurged on every necessity I ever put off - updated healthcare, brand-used car, etc, and I was amazed how much money I blew through just doing that. A good friend suggested money "keeps spilling away from you like that, even as your finances improve," and that was the moment I came to a hard no. I saved almost as if I never got the job, and we looked into less expensive areas to live and the possibility of equity.

I don't care about retiring tomorrow, but I don't want to chase money. Most of what I would enjoy doing doesn't pay, so I wanted to not need the pay. We looked at much lower CoL areas, then, and found this with some friends who live in the area. Our mortgage would put us Barista FIRE in brand-new construction - I'm just trying to update my sense of that, as well as get some tips as someone new to RE. The only sure thing is that most jobs will be much harder to get now.
« Last Edit: April 15, 2020, 03:53:04 PM by Hargrove »

Cb1234567

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Re: First-Time Buyer's Guess
« Reply #5 on: April 15, 2020, 05:02:09 PM »
100% I hear you!   We had a similar conversation/awakening about seven years ago.  Started reading MMM, Frugalwoods, Millenial Revolution, FIRE movement and Bogleheads, Your Money or Your Life etc. Total game changers, those are my gurus :) oh, it started with Dave Ramsey about 11 years back...wow that seems like ages ago ...

To your point, If we updated/bought all the things we “needed”, wouldn’t be one iota any happier.   it would be a new MacBook, replace our sofa, go out to eat more, probably get my haircut more than twice a year, buy some new shoes, buy a tractor...a zero turn lawn mower, new gas grill, plus maybe a jet skis or atvs...the possible list is endless! I always tell him I could spend $10K, even $50K in about 5 minutes, and we wouldn’t even see it.

We both decided that we weren’t really getting any traction (outside of Philly), so we completely changed everything over the last 6 years or so. This is the end of the project plan lol - now: cash in our old house and move to el cheapo house. Too funny, DH thought I’d never like it, -too isolated, too small- and I had to explain that what I like is the extra $$$ in investments, a cheap cost of living, and not having to work for idiots...where I have to be trapped in meetings about nothing.

So far, it’s really the right thing for us. Not easy. And of course, Our families think we are varying degrees of nuts, except that now they’re starting to see it come together. Good luck in your own adventures...it sounds like you’re in good shape: you know how to save, Live belowmyour means and how to tell yourself no. Even if this home purchase isn’t “perfect”, you’ll float through it ok.

 My mom has the saying, “money goes “. Sounds like your friend gave you good advice.

dreadmoose

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Re: First-Time Buyer's Guess
« Reply #6 on: April 15, 2020, 05:32:57 PM »
As a counter-point why the immediate and sudden shift without a job prospect?

Personally I wouldn't be moving somewhere new without having interviewed and got a position (YMMV). Then rent for as long as I need to figure out the area before buying.

I bought a new construction condo 3 years ago (signed 6 years ago pre-MMM) and it has definitely stunted our financials more than renting would have.

Reserve funds are not established, build quality is unknown til you're in for a few years, and operating costs for the condo are not set (expect them to go up by half again or double as they're usually using rosy rates for condo utilities, repairs, reserve funds, and management). Brand new construction is not a solve to a problem, but a gateway to a litany of unexpected new ones. Your condo board will be making up their own bylaws for the first couple years and you'll either have to join to fight them or submit to their whims. Costs are hand waived away when it's communal money and you'll find people arguing to pre-fine pets, pay thousands a month for full-time security to shoo away homeless people causing no harm, or doing special assessments to cover random legal advice. You can't meet your neighbours or check sound-proofing outside of what they're marketing to you.

Usually I look at Mustachianism as delayed gratification to help sort needs from wants. Running rent vs buy calculations is minimal effort (if not done already), finding a job prior to moving seems like standard good advice, and unless you've found a screaming deal renting somewhere while you figure out the area seems like it could only help.

RE is a numbers game, not an emotional one. I'd be walking away unless you found something far below it's stable market price right now (and if the concept of walking away is upsetting it's probably leaning towards an emotional decision). RE seems to take longer to react to market fluctuations, but I would expect some coming up from how hard it is go to viewings and landlords taking a bath on rent relief right now. An actual great deal may be in the future.

If the building is not sold out already and is due to be done this soon it probably won't sell out. They'll scramble to make deals to not have to hold onto vacant units once it's built.

I had friends move into our exact same condo one floor up for 3/4 the price of our PITI. Saving that difference would put someone way ahead while living in literally the exact same place.


Freedomin5

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Re: First-Time Buyer's Guess
« Reply #7 on: April 15, 2020, 05:44:38 PM »
I agree with dreadmoose. I would normally not buy a condo in an area in which I have no job. If you're set on moving to this area, you could always start looking for a job in the area. I know with the current situation the prospects may not be great, but it doesn't hurt to get a feel for the job market and the opportunities that may be available, and you never know if something might come up. If you can get a job, then perhaps move there first and rent.

I've never known a preconstruction builder to renegotiate a contract based on the appraisal. If that was the case, they would also have the right to renegotiate the contract if the values go up and ask you to pay more for the condo. I have heard of builders just taking the condo off the market if people walk away from the contract, and waiting until values go back up to try again. But then, my city and yours may be very different.
 
« Last Edit: April 15, 2020, 05:51:05 PM by Freedomin5 »

Hargrove

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Re: First-Time Buyer's Guess
« Reply #8 on: April 15, 2020, 06:38:51 PM »
@dreadmoose Well, the builders have several projects in the area 5 years+ and a good reputation, as far as I know.

As for interviewing and getting a position, it's a bit more challenging to interview without an availability date and, also, from far away. As for "why the shift without a job prospect," I would imagine job prospects flipping on their heads are a good reason to be cautious moving anywhere, no?

I was not concerned about it when most jobs could cover the mortgage and the local economy was booming. Now, no economy is booming. The area weathered 2008 very well, which was "once in a lifetime" until now. I do expect condo fees to go up from quoted. I don't think HoAs are universally nightmarish, but I know some can be terrible. I did all the crunching, rent vs buy, mortgage + repair reserves (even with the new construction) + estimating double the HoA fees quoted. We toured a similar building but, you're right, this one may well be different when completed. As per your last point, that's the other major reason for caution - I don't care if a crystal ball could have saved me 10%, but I'd be a bit concerned if I overpaid 33%. Ow.

@Freedomin5 I'm not really confident I can get any accurate feel for the fall job market this year from back here in April. Interesting note on the appraisal! From looking it up, I found that renegotiation is one of the possibilities, I just don't know how common it is. Everybody has a right to renegotiate, though, unless the contract says otherwise - the other party can decline, of course, and I could be out my deposit, but I agreed to that. I hear of people finding things on inspection and trading concessions all the time - a realtor I talk to deals with it constantly, but I haven't asked him specifically about appraisal under value.

Edit: and thanks for the responses/well wishes!
« Last Edit: April 15, 2020, 07:17:07 PM by Hargrove »

Dicey

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Re: First-Time Buyer, Pending Appraisal
« Reply #9 on: May 09, 2020, 12:37:16 AM »
Let me think...
I have owned one condo, one townhouse, and seven houses. I would strongly encourage you NOT to buy a condo if you can possibly afford a single family home. I would further advise you to avoid anything with an HOA. If you really have a thing for common walls, I'd encourage you to buy a duplex or fourplex.

MayDay

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Re: First-Time Buyer, Pending Appraisal
« Reply #10 on: May 09, 2020, 06:04:59 AM »
Normally this seems like a reasonable risk to take.

Right now I'd think really hard about it because your job prospects may be truly terrible.

I'm risk averse so I wouldn't do it in this environment.

One option might be to send one spouse to live in an apartment and try to find a job for the next 3-4 months. If they can't, back out.