After 5 months, I closed on a short sale

[Oni Koroshi]

I actually closed last month but I’ve been so busy remodeling the house I haven’t had a time to post this.

First, I need to thank David (sdrealtor) for all his hard work in making this deal go through. I knew the short sale process would take a while and I wasn’t in a rush to buy a home so waiting throughout the process wasn’t stressful at all.

I wanted the house but only at the right price considering all the work it needed. The original listing price was 600 but we closed closer to 500. This took some negotiating with both of the seller’s lenders but David was able to make it work. All in all, I’m very happy with the house. If anyone is considering going after a short sale property I can’t recommend David enough.

The home inspection found a lot of issues but most would be dealt with during the remodel since I was planning on gutting most of the house anyway. The biggest drawback was the amount of leftover junk and misc items the previous owner left at the home. The garage was full of boxes of useless crap and the backyard had two large garbage cans of hazardous waste (old paint, lacquer, etc). FYI, the Miarmar landfill will dispose of your hazardous waste for free if you’re a SD resident, you just need to make an appointment.

I’m remodeling the entire house as my own general contractor. If anyone has an questions about doing work on their own home as an owner/builder I’d be happy to answer questions. I did all the demo work myself but I’ve sub contracted out the HVAC, rough plumbing, and electrical work. Getting permits has been the most difficult job out of everything since I’ve taken down several walls, putting some up, and also building a 2nd story deck.

[bearishgurl]

Congratulations, Oni! Five months was the same length of time it took to close my friend’s short sale in 2010 (for nearly 60% off the 2004 price). Same story as yours …. ridiculous amounts of junk, tires and hazardous waste with nearly a dozen filthy tenants living in every room with no gas/elec who had to be evicted just 3 days before he closed. He hung in there during this frustrating escrow because it is on flat acreage close to town and available properties like that are far and few between. He’s still working on the place after work and wknds and only contracted out some plumbing and electrical work. He didn’t need to move walls b/c it is a large house with an open floor plan. It has been MUCH more work than he anticipated but is very rewarding and the utility companies have been recently cooperative in contracting to have the many trees trimmed out of their lines on the county easement and hanging over his property. He’ll finally be done this summer except for a large outbuilding he will build.

see: http://piggington.com/ot_shadow_inventory_research

Years of deferred maintenance and even abuse makes many of these short sales a dicey proposition unless you, as the buyer, have the expertise to thoroughly check out the property, top to bottom, in escrow with your inspector/engineer and you know EXACTLY what you are getting into as there can be many expensive “surprises” you may have not planned on fixing/paying for, due to “deadbeat-seller inattention.” They are NOT for the faint of heart or “all-thumbs” type of person.

I hope you will be able to occupy your new home soon, Oni Konoshi!

[XBoxBoy]

Wondering what insurance issues you have had with being your own general contractor? (If any) Did you have to get a policy to cover workers (subs) that you hire? Or are they responsible for their workers comp insurance?

Have you gotten the permits yourself? Did you have to hire an architect or just a draftsman to do the drawings. (Or maybe you did them yourself)

Congrats and thanks for sharing

XBoxBoy

[Oni Koroshi]

There shouldn’t be any insurance issues as long as you’re using licensed contractors for your subs. They should carry their own bond insurance and worker’s comp (which you should check out yourself, make sure they haven’t made any claims and they’re still in good standing).

If you start hiring unlicensed people to work on your house then you become their employer and are responsible for having worker’s comp insurance for them.

I got the permits myself as an owner/builder but only after getting rejected by the city with plans I had from the previous owner. I tried to revise the plans I had to meet all the local codes but it ended up being more work than I wanted to do so I just ended up hiring an architect. If you’re only remodeling and not moving walls, you can easily go to the permit office and submit a no plan/ over the counter permit and get it all that day, just make an appointment, the city gives high priority to appointments. You can do the mechanical (HVAC), electrical, and plumbing permits all under one combination permit to save money. The inspector will come out and inspect everything during a 2 hour block of time so you don’t have to pay for multiple inspections.

I only needed an architect because of the enclosed patio that I want to turn into a 2nd story balcony deck. I probably could have done the wall demo plans myself.

[sdrealtor]

Thanks for the kind words and it feels like abit of a sdr lovefest today – lol.

This was an interesting one for me and a good example of why experience matters. It was listed way too high but I liked that. It meant there wouldnt be much competition because most agent would look at a way overpriced short sale and walk away. Most buyer wouldnt look at it either. The house had long time owners who had done alot of lousy DIY projects over the year. But it was a nice big house, good floorplan, big lot, some views, no one behind etc. It screamed potential but only if bought at the right price. Fixed up it was worth over 600K and based upon what OK is doing could get up to mid 6’s by the time he’s done.

Looking at the loans there was a big 1st and a small 2nd. The owners were old timers who refied out way more than ever should have been given to them. The lenders had to know that getting anything out of them would be tougher than blood from a stone. The 2nd was going to get a token few thousand and the first was who we had to really deal with.

We offered low 500’s and I told the agent I had a well qualified buyer that was prepared to deal with the issues and who would hang in there because he had family around the corner. As a listing agent on a short sale, having a buyer with a strong reason to buy the specific property is a great thing to have as they are most likely to wait out the approval process. The lender did their appraisal and came back at 560K. I told the agent to them too much do another appraisal the house is a mess and no way worth that much. They came back at 550K and I told them the same thing again. I also told the agent to send pictures of the house and estimates for repair work. They came back at 530K and I said too much. You have a house that needs a major remodel and elderly sellers who have barely a penny to their name. You arent getting anything from them and if you take this back it will be tough to sell. It will require even bigger discounts because an investor will demand a built in margin. Or you can spend money making it liveable enough to sell but once you start where do you stop? This house needs to sell for what our original offer is or you can lose even more money. The negotiations to get them down about $50K from their original counter took about 6 weeks. Its not always possible to do what we did on a short sale but this one had the proper set up and the right parties involved. Every situation is unique.

To our benefit we had an agent on the other side who understood what I was doing, the quality of my buyer and that we would close if she could get us an approval. When she hit roadblocks I advised her how to get through them and used some of my contacts from doing so many short sale listings. Unlike most agents she was willing to listen and accept my help.

In the end we got it done for exactly what we wrote the original offer for. I beleive everyone won here including the lender that got every penny of what the house was worth in its current condition. If it went to foreclosure the losses would have been greater for the bank. Its the low comp in the area for a house like it and will likley stay that way for quite some time. In my mind, it had to be to make sense for someone to buy. Now it is good strong hands and will be brought back to life. I hope it provides OK a wonderful home for many years to come.

[sdduuuude]

Personally, I would not get a permit for anything that can’t be seen/monitored from the street or from Google satellite photos. But, that’s just me.

I would permit an electrical service upgrade, and the deck. Even though you are supposed to get a permit for moving walls and electrical, I’d just do it. The permits themselves aren’t bad part – but permits bring inspectors.

Who knows what the building inspector will see in your house and make you do, unrelated to the project at hand. Get the wrong building inspector and your life will be hell.

You can still hire good professionals even if you don’t have a permit

[Oni Koroshi]

I’ve never done a major remodel like this before so pulling the permits for the interior electrical and plumbing didn’t bother me. Yes, it’s more money but it’s nice to have an inspector come in and make sure things are done right.

I have a good overall understanding of how everything should be done correctly but there are minor things that the subs might try to do that I miss. Permits aren’t entirely evil and now that the house is gutted, I don’t see how the inspector could find much that I haven’t discovered already.

Also, since I was pulling a permit for the electrical panel upgrade, hvac, and deck the inspector would easily see all the other work I’ve done and tell me to get a permit or shut me down.

[UCGal]

Congratulations Oni.

FWIW – owner builder seems to be the way to go. We’ll never hire another GC again. (Unfortunately, because we had hillside development issues that triggered CAL-OSHA stuff – we were forced by the city to use a GC).

I wish you all the best in the remodel/restructure.

[sdrealtor]

I gotta check out the work in progress next time I’m in the area. Would love to see it.

Just curious about one thing. What percentage or how much off the contractor bids for the same work do you think you saved by being your own GC?

[Oni Koroshi]

I had already been considering being my own GC but decided to see the where other GC’s bids would come in at. After doing background checks and going over reviews of many of the large San Diego GC businesses, I had 4 companies come out to give me an estimate but only 1 actually came back with a detailed bid and another just gave a general estimate. I guess business is so good for these guys they don’t bother following through after they meet people.

If the big guys can’t even be bothered to follow through with a bid, I didn’t want to trust them with my house. Of the one bid I did get, for the rough plumbing alone, I’m saving just over $6k.

For the electrical which includes a 200 amp panel upgrade, several new dedicated circuits for major appliances, heated flooring, new GFCIs, rewiring the terrible existing wiring from the previous owner, etc. I’m saving over $10k.

I was very particular about my fixtures and appliances so I don’t think a GC would have saved me any money on that. Being able to shop around for tile and wood flooring, I’m sure I was able to actually save money buying it myself. Design and demo would have been several more thousand that I saved. Overall savings I would estimate around $35-40k, I’ve budgeted $90k doing it myself. The savings are not only from hiring my own subs directly but also doing a lot of the tasks myself such as flooring.

The major upside of being my own GC, I am able to get everything built exactly how I want. The GC’s I talked to wanted to build the showers with the hot mop method, something that seems to be pretty popular in California, but I wanted to build all my showers with Kerdi to ensure they will be water and moisture proof forever. Neither of them were familiar with this method which seemed strange.

This project is probably something I wouldn’t have done if this was my only residence since there is no way I could arrange all the work to be done as quickly as a pro would. If it was only a bathroom it wouldn’t be a problem but I don’t know if I could be without a working kitchen for that long if I was living in the house.

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