Are we crazy to consider buying this home?
I need a gut check and would love to hear from this group. This is a bit long-thanks in advance for reading.
We have been in the market for a home for some time. We are looking at a place that is off the market, but we learned about it through our network. It was purchased a couple of years ago, gutted for renovation, and then the work was stopped. The sale would include approved plans, to which we would want to make small changes only. The size, layout, and location of the home are perfect for us. Multiple contractors and a structural engineer have walked through and are of the view that it is structurally sound and the work that was done was not detrimental or done improperly. We are comfortable with the possibility of a gut renovation, as a general matter, and have been looking at other places that need one as well. Assume financing is not an issue and the home would be delivered free and clear of DOB violations.
The issue is price. The seller is not discounting for the fact that the home is gutted and uninhabitable and, unfortunately, is not flexible with respect to the asking price, which, in our view, is high. (Basically, it’s take it or leave it.) It is more than what the seller paid and probably would cover all the seller’s costs (closing, gutting, architect, DOB, realtor’s commission). It leaves us some money in our budget for renovation, but not as much as we think would be ideal – it would be tight. While we don’t think the asking price is out of range for a livable home of this size that needs a gut renovation in this neighborhood, we do not have any comps for a gutted house, and we don’t know how to account for the fact that, in this case, the fact that the house is gutted already and the plans have been drafted and approved would save us some some time, money, and, possible, DOB hassles.
At the end of the day, we think the price is too high and we would have to be very careful in terms of the cost of the renovation – and we know that even a carefully planned renovation that is not as budget-sensitive as this can quickly escalate in costs – but we would be getting a new home, and the home’s value when the work is finished would be equal to or greater than what we put in. It would be a wonderful long-term home for us, and we are very familiar with the market and haven’t seen anything else that would serve all of our needs, in terms of size, location, etc. for a better price.
Are we nuts to consider this?
mstamib
in General Discussion 6 years ago
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28 replies
housepoor | 6 years ago
If it is not on the market, then the seller may not have any idea of market value based on actual comps…and commonly will price it based on their cost + money invested + brokerage. If they list it and watch it sit for a while, the price may start to come down to where the house + the cost of work starts to make more sense vs the asking price. If you have not done so already, snoop around as to why they decided to stop work. Does ACRIS show a mortgage and for how much? Are their any DOB violations? Just because they say it will be delivered violation-free, if there are a raft of violations, it will become complicated. Also, I recall a similar situation where the rights to use the plans remained the property of the architect and you want to make sure you aren’t caught in the middle on that. Finally, if you need financing, check with a mortgage broker about whether they will lend against a house that is not (yet) inhabitable.
jimhillra | 6 years ago
RJP – good luck! keep us posted
mstamib
in General Discussion 6 years ago
vanderlyn and jlm, we would definitely be in touch with the prior architect before closing, and i would be crossing my fingers that we like him/her and want to work with them, because it would certainly be easier. we are just in the offer stage at this point, but i think if we reach a deal and are working on a contract, we would try and get the architect’s info and reach out at that point.
nednedx
in General Discussion 6 years ago
IMHO, you have more leverage than the seller. Stay firm on your offer and sees how it plays out…doubt that there would be a lot of demand for this property from your description
Guest User | 6 years ago
jimhillra is 100% correct about contacting the architect NOW. You can present a simple fact pattern: you are in the process of buying the house and are considering retaining the original architect. Ask about the previous owners’ plans in detail – what kind of heating/cooling systems were they planning to use? What was their budget? How was the previous contractor from the architect’s point of view?
I have used an architect from a previous owner before and often this is a win-win for all – the original architect should know plenty about the existing conditions before the renovation started, and he should already have the CAD files and necessary documentation to pick up the work where it was left off from an architectural perspective.
jimhillra | 6 years ago
RJP – Not knowing the extent of the work, I can’t really comment on whether or not the floor plans will be sufficient. I would hope to have interior elevations of all kitchens & bathrooms, as well as any other area that’s more than a simple wall. I would also want exterior elevations if you’re doing any work to the exterior. What about electrical/lighting plans? Sometimes those aren’t filed with the DOB, so they may not be there.
As for contacting the previous architect, why wait until closing? You may want to call her/him and discuss the project for 10 minutes to find out a little of the history. S/He may be able to share some useful insight.
Obviously, whatever costs you get will be for the work on those plans. If you’re planning on making changes, those should at least be written down for a contractor to price.
panda10 | 6 years ago
You really need to have a strong sense of faith. I planned my entire reno and it’s been a year long project but I am good with unpredictability and changes on the fly. I don’t know you but it sounds like the project ticks all the right boxes and it makes financial sense and you can swing the payments. If that’s all true it seems like you’re seeking that last bit of confidence from internet randoms which is a mistake. I say do your hw and the gut check is a question you ask yourself. Good luck.
mstamib
in General Discussion 6 years ago
Thanks, jlmhllra. We have a set of drawings (detailed floorplans for each floor), but I don’t know what else there might be, i.e. specs or additional drawings. (And I don’t actually know what drawings and specs an architect would typically prepare for a project like this, other than floorplans.)
I would expect to get access to the architect that drafted the plans, as well as whatever other documents may exist, once in contract. So, since we have drawings, we may be able to get more than a ballpark before going into contract, but it sounds like we should expect to further refine this between a contract and closing, when we would get more into the weeds on materials and finish choices.
jimhillra | 6 years ago
rjp, I can speak to your question of when to get the actual estimate. It has been our experience that any estimate from a contractor, no matter how honest, well-intentioned, etc., without a good set of drawings and specifications, is only good as a ballpark. It’s very hard to be completely inclusive of all aspects of a project without having worked out all of the details of the designs. It’s not the individual pieces of work that become the issue, but the ways in which one thing affects another, and these are often not apparent until the work is fully conceived.
As for an architect’s estimate of the work, we tell our clients that we can estimate the cost of the work within maybe 20% – 25%, but on a big project, that could be a very large differential. An architect can give you an accurate estimate of her/his own work within a few days or a week of meeting you and seeing the existing conditions, but that’s not the same as a construction budget. We, and I’m sure other architects, have no problem providing this before a client has closed on the property.
It’s prett y common practice to try to get as much design and documentation done as possible before closing. Sometimes, we’re even ready to file as soon as the closing happens, if we’re involved early enough. Likewise for contractors. If a contractor is interested, s/he can provide an estimate as soon as s/he has accurate drawings from which to bid. Closing has nothing to do with this part of the process.
mstamib
in General Discussion 6 years ago
That’s our plan–construction loan. Sounds like you are happy with TD, which is nice to hear. We are looking at them and one other lender.
jazzwalk | 6 years ago
if you don’t have the money, but may have a few extra dollars month to month, you should look into a construction loan. We got one through TD Bank and the rate is no higher than a typical jumbo. It’s a really good product.
mstamib
in General Discussion 6 years ago
Thanks, all. Correct, the house isn’t on the market right now. The message I’m getting from most of these responses is (as panda10 advises) not to worry about the price per se, but rather the all-in. Assuming we stay at or close to budget, I’m confident that the all-in will be well within the market, and the house may even be worth more than we put in. (But we want to live in it long term anyway.)
As far as the other concerns, I have a healthy fear of the challenges and stress of a big renovation, and we are taking it seriously and would try to budget and plan everything in advance as much as possible. We are currently talking to contractors and have walked through the home with a couple of them, but have not chosen anyone yet, and I am not sure what we will do with respect to an architect.
Regarding getting estimates/bids, which many people have advised we do asap, the contractors we have spoken to have given us their preliminary sense of what price range the job would be in, but we don’t have anything formal yet. Do people have input on when in the process w e can do that and how to get there? Obviously, the sooner the better, but should we expect to be able to get that information before we have a contract with the seller or during the period between contract and closing? Is it typical for an architect or contractor to provide a formal, detailed bid or estimate before the buyer has closed (or even gone into contract)? What sort of information or access to the property would they need in order to do that?
Thanks!
panda10 | 6 years ago
Forget worrying if the price of the property is too high. That’s just one data point in your entire equation. Look at your total outlay (include the overage as suggested above) and include debt service for the projected timeline (some people do not- but if I can’t live in a place while I’m renovating- then debt service is a cost that needs to be separately budgeted for). If the TOTAL cost is inline with the type of house you want and the rest of the market, does it matter what an individual component costs? The House is just one input. Rough in construction for the reno. Finishes. Furishings. Etc. Good luck. If you’re committed to this plan then go. If you’re risk adverse, the market may soften soon so maybe wait 6-8 months.
slopefarm | 6 years ago
Do you have an architect and GC in place that are prepared to take over the existing plans and scope of work? And do you have estimates (or, better yet, bids) from them? (Do not rely on the inspector for estimates.)
You need to be able to tolerate at least the 25-35% overrun jhcovert mentioned above, if not a bit more.
Guest User | 6 years ago
This is a fascinating thread and really highlights the inanity of the Brooklyn housing market! I can only speak to our experience in gut renovating, but as others have pointed out, there are so many ways to go over budget – ways you will most likely never have thought of – so be prepared for that. Expect the potential to go 25-35% over. Hope for the best; plan for the worst.
Also, in reading the thread, what Vanderlyn and JimHillra said seem to be some of the most informed takes on the situation and from differing points of view.
Personally I would stay away – renovating a home is such an arduous task under the best circumstances. This situation seems as though you would be walking into a mine field in clown shoes. The right home is worth waiting for – don’t force it.
Good luck with whatever you decide to do!
jen-kg | 6 years ago
Going back to OP –
1. it looks like the house isn’t actually listed so it sounds like it may be hard for the buyer or the seller to assess if it’s below, at, or above market value. I say that because you can guess what people may offer but until someone lists it they really wouldn’t know. And it feels like the market is really odd right now. So you’re kind of lacking information that you would have normally.
2. I don’t think you mentioned this but were you going for a gut reno in the first place? Was that ever on the table in the beginning or did you kind of end up here?
…I have a house with DOB approved plans if you want to make an offer 😉
kidding, kidding…kind of…haha, but just know it can be a long road so be realistic about what you’re ready to deal with. So far, no one has called a divorce lawyer.
cate | 6 years ago
How long has this place been on the market?
jimhillra | 6 years ago
Considering where you are in the process, a PAA may not be such a big delay. It may actually be a good starting point. The fact that you have an approved application means that you’re saving a considerable amount of time relative to where you’d be if you had not yet filed at all. The PAA process is much easier than the initial review, so the DOB end of it is usually pretty quick. If you were starting a renovation from scratch, your architect would need to survey the home, prepare existing condition drawings from which to prepare schematic design drawings, and s/he would need to create and file demolition drawings to go with the construction drawings. You’re saving all of this.
That said, how old is the job? If it’s been inactive for over a year, it will likely need to be reinstated. Again, this isn’t too bad, but it’s one more hoop to jump through before you can proceed.
If it’s still considered active, then a contractor can pull a permit right away and start working on the items that don’t need to change.
After the application has been reinstated, if you’re not using the same architect, then the new one will need to supersede the old. Once again, that’s not too bad, but it’s more forms to be processed by the DOB, meaning more filing costs and delays.
The good news is that during this process, you can be working with your new architect, so s/he is ready to file the PAA as soon as the original filing has been reinstated and/or superseded.
Keep in mind that in any major renovation, there’s a very good chance you, or anyone else taking over this job, will need to file a PAA somewhere along the line, either for changes that occur during construction or at the end when dealing with the signoff process.
So as for the DOB/filing part of this deal, I would say not to let that influence your decision to buy or not. You may actually be saving time and money here, in that you do not have to pay for the demolition work (saving you tens of thousands of dollars), and you already have an approved application which could save you months of waiting (which could also be thousands of dollars saved).
If you look at it this way, you may see that there are a lot of savings you’re getting here. It may be worth considering the higher cost.
Guest User | 6 years ago
I do a lot of renovations like this in Brooklyn and when brokers try to sell me gutted buildings, I tell them the same thing – my renovation budget doesn’t move based on someone else’s previous work or someone else’s approved plans. Neither gutting a building nor getting a set of plans approved takes very much time or money (particularly Alt-2 renovations, where plans don’t have formal DOB review). What’s more, a building can only be gutted once – which is to say, all of the original elements of a building you might want to keep are gone – and any approved plans you receive will be different than what you want, and an architect will charge you for those change orders (and take time to re-draw plans, supersede the application, etc.)
Finally, there is actually a lot of risk involved in assuming someone else’s project. I just took a project through a DOB audit where the sellers had done so much work – much of it off plan and illegal – that they almost lost the right to maintain the vested rights of the building as a 4-family on a deficient lot. I was ultimately successful in the appeal, and we had a strong contract that allowed me to get through this on someone else’s dime, but you might not be so lucky, and in my experience, third parties – even architects – are not able to catch these sort of things until it’s too late (say, the DOB audits your job).
So while it may be true that you’ll save a month on the gut job, you won’t save much money on architecture and you’ll be exposed to whatever shenanigans the previous contractor may have been up to.