Are we crazy to consider buying this home?
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.
housepoor
in General Discussion 6 years ago
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mstamib
in General Discussion 6 years ago
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?
jen-kg | 6 years ago
The work they have done so far is extensive – I’m in the middle of a gut renovation now so I speak from personal experience – if you want this house they’ve just saved you a minimum of 3-9 months of work in addition to what they paid for that work. If I sold now I would definitely include my outlay in my asking price. Would I get it? No idea but I’m not sure why they wouldn’t want to.
cate | 6 years ago
Do you have renovation experience? Are you already working with an architect? Do you already have your GC and crew? Can you afford to live elsewhere while construction goes on? The actual construction could take a year or two — but good crews are booked at least six months out. One major thing to be aware of: You cannot make changes to the approved plans (except cosmetic finishes).
Lurker | 6 years ago
It’s crazy but also may be doable. If you have the sorts of cash that can buy a house in NY, and you don’t have a family depending on moving soon, and you and your spouse won’t get divorced over stress, then it may be a good shot. There aren’t a lot of houses that go up for sale relatively speaking and you can go years looking and never land one.
But of all possible situations for buying a home, this one is sort of the diciest. (Oh, and right now you can’t get a new gas line, so put that into your planning.)
Even already gutted and with plans in place you should count on it being a year out before you move in, if everything goes perfectly.
Personally I would not consider buying until I had a WELL-VETTED architect, GC, plumber, electrician give you bids to finish the job based on as-is conditions, in writing, so that you could be sure they would be on board.
If you are doing Alt-1 work, then budget for your taxes going through the roof. We did alt 2 and ours more than doubled.
Make sure what is happening with the CofO and whether it’s legal and/or will cause you a nightmare.
Is this home in a landmark district? That will make your costs go even higher and take longer.
As for the price. Take the long term view. If they’ve priced in their costs and aren’t budging, you might see whether the price after the reno is done helps justify it. If you are less worried about home value and more about having a long-term place to call home, then a bump of X percent may be water under the bridge long term.
dorkofwindsor | 6 years ago
“It would be a wonderful long-term home for us” –> Probably your answer.
As you described my only question would be why would the investor want to sell? Perhaps they included their full profit in their ask and that’s how it makes sense for them. Perhaps something else.
If the work completed is done well, you can get your team on board, and you like the plans, I would say you have some flexibility in the cost of your fixtures, which could be significant but also could be upgraded later if you run into financial constraints. I agree you will save yourself a lot of time (6 months minimum) and your Team needs to be on board with a firm quote.
Having said that, knowing you are having a hard time finding the right place, I would probabaly be inclined to pursue if I were in your position.
mstamib
in General Discussion 6 years ago
Thanks for these thoughts-my big concern was whether we would be suckers to pay what I think is a pretty high price and to stretch our budget to buy a gutted out shell, and it sounds Lurker and mms222 are suggesting that we aren’t totally crazy to consider it.
The next concern is the other stuff that Lurker and cate mention. This would have to go very smoothly and very close to a tight budget to work. It’s possible, but I know it’s dicey.
We have reno and building experience, but not in NYC. Have not settled on a GC or architect yet (although we already have plans, as mentioned), but are in touch with some solid prospects. We would not do a deal unless we were clear on the CoO and any violations were addressed. It’s not landmarked (but we might need a gas line–hope that gets sorted soon!) We aren’t excited about the stress or the cost of renting while paying a mortgage, but we can get by.
As far as post-approval amendments, cate, can you shed any light on your comment that you can’t do this? It is my understanding that PAAs are possible but cost money and could lead to delays. There is one issue with the kitchen layout that we would really want to change (and, if we were doing that, maybe a couple of other small changes that we could live without but would want to explore), so we would plan to discuss with an architect before moving forward with a sale.
cate | 6 years ago
That’s right — changes are possible but cost money and can lead to delays. Altering the kitchen layout — because it’s an alt-2 type alteration — should be less risky than, say, altering an exit, an addition, or the number of units (alt-1 alterations).
greenworks | 6 years ago
Maybe this is crazy talk but if the price is high, most investors will pass, and this project isn’t for your average homebuyer, so it may just sit. What about waiting a while to see if the seller come to their $$ senses and/or just needs to dump the property?
greenworks | 6 years ago
We looked FOREVER before buying and. can only say that sometimes things are or are not meant to be. I was heartbroken several times before we found our house and are now in the house we were meant to be in. As a counterpoint to my post above, sometimes things being this complicated are a sign that it’s not meant to be . . .
angelique.m.west | 6 years ago
If the price is too high then the price is too high, especially in this case where you have to lay out a lot more in the future. You’re saying it will be tight financially and you never want to be in that position for a renovation of this size and scope. It’s one thing if you were doing a kitchen and the budget went over. But there are so many things that can bust your budget in a gut reno and it doesn’t sound like you have the stomach for it. Pass. Something perfect will come along again.
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.
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.
cate | 6 years ago
How long has this place been on the market?
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.
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!
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.
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.
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!
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.