Wanting to buy our rental home, need advice (real estate market, condo)

[blisterpeanuts]

Thanks to MikePRU, Dm84 and other experienced folks for their advice and comments.

In case anyone's curious, we placed an offer for a little over $600K on our tiny rental house. A builder offering a cash deal got the house. We don't yet know how much they offered but we had heard that the builders bids were around $550K.

We had our pre-approval from a locally respected bank, great credit and income, large downpayment, waived inspection and other contingencies (only contingency is the mortgage which we were unable to waive obviously). We appealed to the conscience of the owners -- we have a little girl in the school system, we've been great tenants for four years, fixed stuff ourselves and pretty much never bothered them.

However, as many people have pointed out: it's very hard to beat a builder paying cash. Plus, we believe the seller's broker was playing little manipulative games. Owners were totally hands-off, so he was chatting with us, feeling us out, being our "friend". Then we hired a buyer's broker who explained that his incentive is to sell the house to a builder because he was likely to double-dip: after the house is knocked down, rebuilt, and flipped, he'll get to sell a $1.5 million property. My cynical guess is that as soon as he received our offer, he tipped off one of his builder buddies to up their bid.

That's how it goes. We had a nice pleasant four years in a wonderful location, but we were merely guests in this house, and now we must move on and, we hope, purchase a decent place and become masters of our fate.

The one thing that sucks is that the owners just coldly sent us a 30 day eviction notice which for a family of three, after being reliable tenants for four years, feels a little harsh.

[Dm84]

If you are in a lease they can't evict you. If you are month to month then yes, they only have to give you 30 days notice.

Sorry the house didn't work out.

[timberline742]

That sucks. Sorry.

[MikePRU]

Originally Posted by blisterpeanuts

In case anyone's curious, we placed an offer for a little over $600K on our tiny rental house. A builder offering a cash deal got the house. We don't yet know how much they offered but we had heard that the builders bids were around $550K.

We had our pre-approval from a locally respected bank, great credit and income, large downpayment, waived inspection and other contingencies (only contingency is the mortgage which we were unable to waive obviously). We appealed to the conscience of the owners -- we have a little girl in the school system, we've been great tenants for four years, fixed stuff ourselves and pretty much never bothered them.

However, as many people have pointed out: it's very hard to beat a builder paying cash. Plus, we believe the seller's broker was playing little manipulative games. Owners were totally hands-off, so he was chatting with us, feeling us out, being our "friend". Then we hired a buyer's broker who explained that his incentive is to sell the house to a builder because he was likely to double-dip: after the house is knocked down, rebuilt, and flipped, he'll get to sell a $1.5 million property.

Sorry to hear you didn't get the house. It's almost impossible to compete with an offer from a builder. Even if they are for less money, the terms often make the offer more a "sure thing." It sounded to me that your landlord was only offering it for sale to you. I didn't realize he was opening it up to more people. I guess they didn't have a soft spot in their heart for you despite you being a good tenant.

Originally Posted by blisterpeanuts

My cynical guess is that as soon as he received our offer, he tipped off one of his builder buddies to up their bid.

While I'm sure the agent was doing everything they could to find a builder to buy this house (I would have done the same), I doubt that they would have disclosed the terms of your offer to another buyer. Odds are it was just a more attractive offer. Likely, you would have had to offer a lot of money to get this house because your offer had a contingency on it. Unfortunately, the more you offer the more scary a mortgage contingency becomes because who knows if it will appraise for that much? So, it's kind of a no win situation.

Originally Posted by blisterpeanuts

That's how it goes. We had a nice pleasant four years in a wonderful location, but we were merely guests in this house, and now we must move on and, we hope, purchase a decent place and become masters of our fate.

The one thing that sucks is that the owners just coldly sent us a 30 day eviction notice which for a family of three, after being reliable tenants for four years, feels a little harsh.

If you're a month-to-month tenant then they only have to give you 30 days notice. I'm sure it seemed cold, but in the end this is just business. Another reason why being a homeowner can be better than renting. You become the master of your own destiny.

[sawyer2]

Sorry it didn't work out but at least you gave it a shot and as you said had 4 good years there.

[Sotsgreen]

There are seller realtors will try to have the houses sell to a builder because then they get to sell the tear down, and that is a much larger commission.

In that town, they have a new Floor Area Ratio, and that means only a house of a certain size can be built on smaller lots. If a builder can only build a house of a certain size, then that limits their potential price on a new house. A realtor selling the original house and that wants to sell a new house would try to make sure that the builder can get the house for a low enough price so that the new house can be built. While some families outbid some builders, if a realtor wants to sell the new teardown, they need to make sure the builder gets it. Even though the realtor would get a slightly smaller commission on the original house because it would sell for less, they would make up for it with the new house.

The family that's selling the house wants to get as high a price as possible, but realtors who want to sell the house that gets built by the builder wants the builder to be able to get it for a low enough price for the construction of the new house.

[blisterpeanuts]

Originally Posted by Sotsgreen

There are seller realtors will try to have the houses sell to a builder because then they get to sell the tear down, and that is a much larger commission.

In that town, they have a new Floor Area Ratio, and that means only a house of a certain size can be built on smaller lots. If a builder can only build a house of a certain size, then that limits their potential price on a new house. A realtor selling the original house and that wants to sell a new house would try to make sure that the builder can get the house for a low enough price so that the new house can be built. While some families outbid some builders, if a realtor wants to sell the new teardown, they need to make sure the builder gets it. Even though the realtor would get a slightly smaller commission on the original house because it would sell for less, they would make up for it with the new house.

The family that's selling the house wants to get as high a price as possible, but realtors who want to sell the house that gets built by the builder wants the builder to be able to get it for a low enough price for the construction of the new house.

It's as though the sellers broker was not acting in the best interests of the seller.

[MikePRU]

Originally Posted by Sotsgreen

There are seller realtors will try to have the houses sell to a builder because then they get to sell the tear down, and that is a much larger commission.

In that town, they have a new Floor Area Ratio, and that means only a house of a certain size can be built on smaller lots. If a builder can only build a house of a certain size, then that limits their potential price on a new house. A realtor selling the original house and that wants to sell a new house would try to make sure that the builder can get the house for a low enough price so that the new house can be built. While some families outbid some builders, if a realtor wants to sell the new teardown, they need to make sure the builder gets it. Even though the realtor would get a slightly smaller commission on the original house because it would sell for less, they would make up for it with the new house.

The family that's selling the house wants to get as high a price as possible, but realtors who want to sell the house that gets built by the builder wants the builder to be able to get it for a low enough price for the construction of the new house.

It's the homeowner's decision who to sell their house to. They are 100% responsible for what happens.

I would love to know how you think the nefarious real estate agent convinces the homeowner to sell to the builder instead of an end user when it is not in the homeowner's best interest to do so?

If a house is being sold to a builder it's because the builder made the best offer.

[Ninotchka P]

The fact that the seller hired an agent before negotiating with you says something.

Why would a seller pay a commission unless they thought they could do better on the open market? Your offer wasn't high enough, it's that simple. $600k for a SFH in Lexington is very low, even if the house is small, old, and in need of work, and especially if it's on a build able lot.

Seller was almost certainly afraid they would leave too much money on the table by selling to you, and they were almost certainly correct. Tenants who want to buy the homes they're living in are notorious for not offering enough.

[jayrandom]

Originally Posted by MikePRU

It's the homeowner's decision who to sell their house to. They are 100% responsible for what happens.

I would love to know how you think the nefarious real estate agent convinces the homeowner to sell to the builder instead of an end user when it is not in the homeowner's best interest to do so?

If a house is being sold to a builder it's because the builder made the best offer.

Would you like to know how? You say "I don't think this is a good offer and likely won't go through". Most people sell what, maybe 3 homes in their entire life? It's not a stretch to say that people might not consider their opinion superior to an agent who sells many homes per year. They don't know what's really in their best interest and so they rely on their agent's judgement.

You're right, though. The decision is ultimately that of the homeowner. Not everyone is as diligent as they should be. It's worth remembering that the agents motivation and the sellers motivations aren't always aligned and treating the transaction in that way. That isn't to say that a great agent isn't completely trustworthy, just that most people interact with agents so infrequently that they can't be sure their current agent is a great agent.