Trying to buy home with unpermitted construction

[newbie7]

I believe it is called greed. The seller wants to sell, the buyer wants to buy. The Realtors want to make the deal go through. Mortgage brokers want the deal to go through. Who hires the appraiser? Who hires the home inspector?

The people with a money interest in a deal going through control the people in the chain of services like steering the buyer to a mortgage broker and suggesting a home inspector or not. The mortgage broker hires the appraiser. The appraiser could be the most favorite appraiser because he always makes the contract value and turns a blind eye to problems with the property. The home inspector may also overlook items because he gets a lot of business from this Realtor. Someone along the chain most likely misrepresented the characteristics of the property. Other players went along with the misrepresentation. In th end, the deal went through and the funding lender did not "see" anything wrong with the property or value. The funding lender sold off the loan to an investor so their interest in due diligence stopped at that point.

Think of it as a game of liar's poker; as long as you get the next guy to take the property, you win! Now it is up to the next guy to convince someone of the value of the home. Wait a minute! Someone defaulted and did not pay the mortgage. The lender (loan servicing agent) foreclosed and got the property back. Now the truth comes out. What does the lender do? The lender does not fix up the place or take care of the problems. They find a broker to sell the property "as-is". Buyer be ware. This is where you come in; some one who is naive and does not know how the game works. Wow! What great deal! Or so you were lead to believe.

There are probably many more problems with the property than what is being disclosed.

Let's assume that there is nothing else wrong with the property. I looked at it pretty carefully, and I think that's the case, but let's assume it is. It needs a lot of remodeling along with some demolition, but nothing like $150k (it's below market by at least that much based on original construction). Should these 5 unpermitted constructions really bash the price so much? Or is it due to the "as-is" from the bank? I think there must be lots and lots of nonpermitted constructions in San Diego... what sort of effect should that have on appraised value in general? If we assume that there is nothing else wrong with the property, does it make sense that the price would be so low?

(At this point, I'm just interested to understand... This property is not an option for us.)

 

[Tim The Enchanter]

Thanks Hal, but I don't think there's any point to that. It's clear that 5 construction violations are not possible to permit, and the bank knows that too. Besides, reportedly getting financing will be impossible or nearly so.

At this point, I guess we're hoping the bubble will collapse. Any opinions on that?

There's a thread about 100 miles long on that one.

 

[Randolph Kinney]

Let's assume that there is nothing else wrong with the property. I looked at it pretty carefully, and I think that's the case, but let's assume it is. It needs a lot of remodeling along with some demolition, but nothing like $150k (it's below market by at least that much based on original construction). Should these 5 unpermitted constructions really bash the price so much? Or is it due to the "as-is" from the bank? I think there must be lots and lots of nonpermitted constructions in San Diego... what sort of effect should that have on appraised value in general? If we assume that there is nothing else wrong with the property, does it make sense that the price would be so low?

(At this point, I'm just interested to understand... This property is not an option for us.)

newbie7,

I will say that you are tenacious. Are you qualified to render such an opinion, nothing else wrong other than additions / modifications done with out permits? From the confidential remarks section of the listing:

The Seller has never occupied the property and is exempt from supplying the buyer with a TDS. This home is being sold in its current as is condition.

The seller is a bank. It does not have to file a disclosure statement (what it knows to be wrong with the property). There is no warranty implied or otherwise stated as to the livability or merchantability of the property. Also on the MLS is a warning:

The Buyer is to complete thorough inspections before COE. The Buyer / Agent shall verify all information contained herein.

The factor than you are not considering on value is the typical use of a single family residential house. As it stands right now, there are serious perceived health and safety issues with the property and that is why a lender most likely will not loan on this property for a typical single family loan program. The property simply does not qualify. The new lender requires these deficiencies to be corrected before making a loan.

A typical buyer would purchase a property with the motivation that s/he could move in with out any trouble, with out playing contractor to do major repair / fix-up or correct major health and safety issues and a lender would lend on such a property so that financing would not be a problem.

You have stated that no lender will loan on this property, as-is, for a buyer that is going to be the occupant.

What is the value of such a property that no one can live in and no lender will loan on, as-is?

The property may indeed have its highest and best use as vacant land, not as improved. The listing is offering this property, as-is, at $209,000 with $6,000 of seller assistance with closing costs. If there are no environmental issues, to scape the house off the land and haul away will cost about $5,000. So the land value is going to be around $200,000 but no one is coming after it for its supposed land value. It could be that the market is declining and the economic incentive to take on the project is not large enough.

newbie7, there are tons of properties that have additions that were not done with permits. Some of these are like the one you are considering. Some were done professionally and could pass a code inspection. Don't make the mistaken assumption that all additions without permits are equal. Market acceptance plays a big role and what a competent inspector will pass.

I hope this helps you.

 

[Randolph Kinney]

Let's assume that there is nothing else wrong with the property. I looked at it pretty carefully, and I think that's the case, but let's assume it is. It needs a lot of remodeling along with some demolition, but nothing like $150k (it's below market by at least that much based on original construction). Should these 5 unpermitted constructions really bash the price so much? Or is it due to the "as-is" from the bank? I think there must be lots and lots of nonpermitted constructions in San Diego... what sort of effect should that have on appraised value in general? If we assume that there is nothing else wrong with the property, does it make sense that the price would be so low?

(At this point, I'm just interested to understand... This property is not an option for us.)

newbie7,

I have looked at the immediate surrounding homes in that neighborhood that are listed for sale as bank owned properties. It is an eye-opener. Here is what I found according to the MLS data:

724 Clamath St $239,900 1120sf 1963 built
647 LA PRESA AVE $246,900 1095sf 1983 built
9630 Saint George St $251,500 1296sf 1971 built
9661 Saint George St $259,900 1050sf 1979 built
9725 Saint George St $274,900 1064sf 1959 built

Now lets compare the property you are interested in as listed on the MLS:

855 Galopago St $209,000 876sf 1970 built

Your property is competing against those other bank owned properties, not the general market of homes.

Here is a property that sold 06/27/2007 on the same street that was not bank owned or a short sale, a regular market sale as stated on the MLS:

936 Galopago St $314,900 965sf 1974 built

The public record for this sale was $303,500 which may indicate seller contributed some amount toward the sale and the public record for the GLA is 861sf which is indicating there is an addition that is not part of the public record (also stated in the MLS).

newbie7, looking at the above data, what is wrong with your property? The market does accept additions with out permit but not yours. One thing wrong however, is the stigma that goes with a bank owned property and no warranty, no disclosure; a severe discount on the price to sell it. But your property is going way below past sales and what is listed. Why such a discount?

 

[WallyII]

Newbie, you seem to be fixated on the value of the home 2 yrs ago. Market conditions were much different then. Buyers were more willing to overlook negative influences, like your illegal additions. Now that the market has shifted, buyers are beginning to recognize these differences.
If someone asked you how much a gallon of gasoline is worth, would you tell them what you paid 2 yrs ago?

 

[newbie7]

Randolph,
Thanks for the info on comps. That is hopeful info.

Some background info may help explain. I was not much aware of the housing bubble thing. The reason I don't have a house now is because prices seemed too high to me in 1995; I reasoned that they were already far above the intrinsic value. Never in my wildest dreams would I have imagined the runup that started a few years later, and by 2005 I thought I was locked out completely. Then I happened to look at MLS online recently, which prompted my original question.

Please understand, I'm not bent on this house. I'm just trying to catch up and avoid making the same mistake again. I appreciate your help.

I don't see this house listed anymore. I wonder if someone bought it, or the bank just took it off the market.

:new_newbie: