Buyers, beware: Bargain home could bring big repair bills
BY GRETA GUEST • FREE PRESS BUSINESS WRITER • October 12, 2008
Kelly Phillips was in the market for a house this spring and she figured a foreclosed home would make the best buy.
Phillips, 29, a second-grade teacher, and her husband, Scott, were expecting their first child and wanted to be close to her parents in Macomb Township. They found what they thought was the perfect house right in the same subdivision.
The price was right at $135,000 and the bank accepted the couple's offer. But in the weeks between the offer and closing, an unchecked leak in the basement spread toxic black mold throughout the entire lower floor.
Because of the damage, the Phillipses were able to get out of the deal.
"The houses were in such disarray. We went through some houses that looked like people left in the middle of the night," Kelly Phillips said. "One house had kids' toys. Another had ketchup and mustard sprayed all over the walls."
After looking at nearly 40 foreclosed homes in Macomb County, she decided she didn't want a deal that bad. The Phillipses ended up buying a house for $155,000 in Clinton Township from a couple that had moved out of state for work.
"With me being pregnant, I couldn't emotionally take it anymore. The banks just weren't taking care of them," she said.
While searching for a great deal on a foreclosed home sounds like a good idea to many potential home buyers, the reality might surprise them.
The typical foreclosed home now on the market in metro Detroit is going to have some blemishes, said Deborah Ronayne, a Realtor with Keller Williams Realty in Novi.
"These houses sit, sit, sit, and no one takes care of them," she said.
Tricia Raymond, a foreclosure expert with Keller Williams Realty in Troy, said that banks had been listing foreclosures at an as-repaired price, but are now using the as-is price, a big difference.
As-repaired is usually a higher, more optimistic price, assuming the bank will make the fixes. As-is is usually lower because the buyer has to make the repairs.
"This year, many banks began pricing the homes at or below the as-is value, especially the more expensive ones," Raymond said. "I think it was because they were getting tired of having expensive houses get flooded or have a lot of damage by being vacant too long and then ending up as a moldy house that they took a bath on after paying a year or two of taxes."
Raymond said that now some foreclosed homes are seeing multiple offers and the banks are recovering more value.
Some of the more common problems Ronayne has seen in foreclosed homes include busted-up kitchens, holes punched in drywall, mold and water damage.
She said utilities are generally turned off unless there is a showing to a prospective homeowner. All it takes is a big rain to cause water damage in a basement when the power's been cut to the sump pump.
Ronayne took the Free Press on a tour last week of five homes that banks repossessed. The homes ranged from a $41,067 tear-down in Farmington Hills to an $850,000 unfinished home in an upscale Northville Township subdivision.
They all had one thing in common: They needed lots of work.
• House 1: A Farmington Hills three-bedroom, two-bath home in a nice neighborhood. The 1,596-square-foot house is a steal at $124,900 -- that is, if the buyer is willing to fix busted cabinets in the basement, replace the buckling wood parquet floor in the kitchen and remove black mold in the basement.
Someone even stuck a plug-in air freshener in the basement. "Like it's going to help," Ronayne said.
"It didn't have to be like this," Ronayne said. "This wasn't a bad place, but most people don't want to tackle what is in that basement."
• House 2: A 1,525-square-foot home near Middlebelt and 13 Mile Road in Farmington Hills priced at $41,067.
It sits on a large corner lot.
Some of the windows are boarded up, but peering inside the grimy kitchen window shows that the walls are missing and the kitchen has been stripped of its cabinetry and appliances. It has water damage.
"This just looks like a teardown," Ronayne said.
• House 3: A 2,792-square-foot home near 12 Mile and Haggerty in Farmington Hills priced at $224,900. It's part of a well-maintained, quiet neighborhood. It has four bedrooms, two baths and a large deck.
On the downside, the wood deck is deteriorating. A broken window near the front door is letting moisture in and mold is beginning to form. It has water damage in the basement, holes punched in the drywall and beat-up walls in bedrooms.
"This is just a good example of why these houses aren't moving," Ronayne said.
• House 4: A four-bedroom, two-bath home priced at $239,900. It sits on 5 acres with a horse barn and paddock in Brighton Township. The 2,000-square-foot home includes a finished walk-out basement.
The kitchen appliances are gone and there is some mold in the basement and water damage to the living room ceiling.
• House 5: A 4,800-square-foot home in the Stonewater subdivision in Northville Township priced at $850,000. It has four bedrooms and three bathrooms.
This one, however, was not finished before the builder ran out of money. It needs flooring, woodwork, doors, fixtures, lighting and landscaping. The average home in this subdivision sells in the $1.2-million range.
Ronayne notes that Stonewater was one of the first areas in metro Detroit to get hit with foreclosures. Two years ago, 31 houses, or 12% of all homes in the subdivision, were in foreclosure. She estimates that the house needs at least $100,000 to $150,000 to finish.
"It's just not going to move at that price. They don't understand -- they just need to cut their losses," she said.
Gary Marowske, president of Flame Heating, Cooling and Electrical in Warren, said some problems he finds on inspections are things the typical investor in foreclosed property may overlook.
One of the biggest problems is simple neglect. When people are behind on the mortgage, they probably are not maintaining the appliances. Because furnaces and air-conditioning systems are expensive, Marowske advises that the heating system be checked for carbon monoxide leaks.
"Get the right inspections, do your homework and make sure you know what you are buying because usually you get what you pay for," he said.
BY GRETA GUEST • FREE PRESS BUSINESS WRITER • October 12, 2008
Kelly Phillips was in the market for a house this spring and she figured a foreclosed home would make the best buy.
Phillips, 29, a second-grade teacher, and her husband, Scott, were expecting their first child and wanted to be close to her parents in Macomb Township. They found what they thought was the perfect house right in the same subdivision.
The price was right at $135,000 and the bank accepted the couple's offer. But in the weeks between the offer and closing, an unchecked leak in the basement spread toxic black mold throughout the entire lower floor.
Because of the damage, the Phillipses were able to get out of the deal.
"The houses were in such disarray. We went through some houses that looked like people left in the middle of the night," Kelly Phillips said. "One house had kids' toys. Another had ketchup and mustard sprayed all over the walls."
After looking at nearly 40 foreclosed homes in Macomb County, she decided she didn't want a deal that bad. The Phillipses ended up buying a house for $155,000 in Clinton Township from a couple that had moved out of state for work.
"With me being pregnant, I couldn't emotionally take it anymore. The banks just weren't taking care of them," she said.
While searching for a great deal on a foreclosed home sounds like a good idea to many potential home buyers, the reality might surprise them.
The typical foreclosed home now on the market in metro Detroit is going to have some blemishes, said Deborah Ronayne, a Realtor with Keller Williams Realty in Novi.
"These houses sit, sit, sit, and no one takes care of them," she said.
Tricia Raymond, a foreclosure expert with Keller Williams Realty in Troy, said that banks had been listing foreclosures at an as-repaired price, but are now using the as-is price, a big difference.
As-repaired is usually a higher, more optimistic price, assuming the bank will make the fixes. As-is is usually lower because the buyer has to make the repairs.
"This year, many banks began pricing the homes at or below the as-is value, especially the more expensive ones," Raymond said. "I think it was because they were getting tired of having expensive houses get flooded or have a lot of damage by being vacant too long and then ending up as a moldy house that they took a bath on after paying a year or two of taxes."
Raymond said that now some foreclosed homes are seeing multiple offers and the banks are recovering more value.
Some of the more common problems Ronayne has seen in foreclosed homes include busted-up kitchens, holes punched in drywall, mold and water damage.
She said utilities are generally turned off unless there is a showing to a prospective homeowner. All it takes is a big rain to cause water damage in a basement when the power's been cut to the sump pump.
Ronayne took the Free Press on a tour last week of five homes that banks repossessed. The homes ranged from a $41,067 tear-down in Farmington Hills to an $850,000 unfinished home in an upscale Northville Township subdivision.
They all had one thing in common: They needed lots of work.
• House 1: A Farmington Hills three-bedroom, two-bath home in a nice neighborhood. The 1,596-square-foot house is a steal at $124,900 -- that is, if the buyer is willing to fix busted cabinets in the basement, replace the buckling wood parquet floor in the kitchen and remove black mold in the basement.
Someone even stuck a plug-in air freshener in the basement. "Like it's going to help," Ronayne said.
"It didn't have to be like this," Ronayne said. "This wasn't a bad place, but most people don't want to tackle what is in that basement."
• House 2: A 1,525-square-foot home near Middlebelt and 13 Mile Road in Farmington Hills priced at $41,067.
It sits on a large corner lot.
Some of the windows are boarded up, but peering inside the grimy kitchen window shows that the walls are missing and the kitchen has been stripped of its cabinetry and appliances. It has water damage.
"This just looks like a teardown," Ronayne said.
• House 3: A 2,792-square-foot home near 12 Mile and Haggerty in Farmington Hills priced at $224,900. It's part of a well-maintained, quiet neighborhood. It has four bedrooms, two baths and a large deck.
On the downside, the wood deck is deteriorating. A broken window near the front door is letting moisture in and mold is beginning to form. It has water damage in the basement, holes punched in the drywall and beat-up walls in bedrooms.
"This is just a good example of why these houses aren't moving," Ronayne said.
• House 4: A four-bedroom, two-bath home priced at $239,900. It sits on 5 acres with a horse barn and paddock in Brighton Township. The 2,000-square-foot home includes a finished walk-out basement.
The kitchen appliances are gone and there is some mold in the basement and water damage to the living room ceiling.
• House 5: A 4,800-square-foot home in the Stonewater subdivision in Northville Township priced at $850,000. It has four bedrooms and three bathrooms.
This one, however, was not finished before the builder ran out of money. It needs flooring, woodwork, doors, fixtures, lighting and landscaping. The average home in this subdivision sells in the $1.2-million range.
Ronayne notes that Stonewater was one of the first areas in metro Detroit to get hit with foreclosures. Two years ago, 31 houses, or 12% of all homes in the subdivision, were in foreclosure. She estimates that the house needs at least $100,000 to $150,000 to finish.
"It's just not going to move at that price. They don't understand -- they just need to cut their losses," she said.
Gary Marowske, president of Flame Heating, Cooling and Electrical in Warren, said some problems he finds on inspections are things the typical investor in foreclosed property may overlook.
One of the biggest problems is simple neglect. When people are behind on the mortgage, they probably are not maintaining the appliances. Because furnaces and air-conditioning systems are expensive, Marowske advises that the heating system be checked for carbon monoxide leaks.
"Get the right inspections, do your homework and make sure you know what you are buying because usually you get what you pay for," he said.
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