Hi friends! This is the 4th post documenting the process of buying our ranch. We spent the first week getting our broker and realtor lined up, and the second week touring houses. By the end of the 3rd week, we were under contract with our ranch.
Week four (5.12-5.20) – Inspection and re-negotiation
We have our offer accepted on Wednesday and immediately scheduled our inspection on Friday. We wanted to know the condition of the ranch before our offer objection date, which was the following Thursday (on week four). The objection date was the last chance for us to walk away, while the seller was locked in the contract from the time he accepted the offer.
Due to the age of the house, we ordered a general inspection, a radon test, a separate sewer inspection, and a separate roof inspection. The last two services are provided by professionals who can also fix the potential problems.
By Tuesday on week four, all the reports were in and we had a pretty good grasp on the condition of the ranch. Besides a couple minor “health and safety” issues, including a broken attic ladder and high radon concentration (normal for Colorado), things needed upgrade are all due to the age of the house. In another words, replacing/repairing all these should be our responsibility down the line anyway. It will cost about $20K, so when the ranch is all upgraded, it will be $335K ($315K purchase price + $20K upgrade).
Does it worth it? Now it is time to for the “comps”. “Comps” means “comparison”, which is something realtors and appraisers do in order to figure out how much a house is really worth. It is based on all the houses similar to this ranch that were recently sold in the same neighborhood. It will tell you if you are overpaying after upgrades, and how much equity you can get out of if you decide to go with it. It turned out that most of the updated ranches in our neighborhood worth well above $350K, which means we are not overpaying by purchasing it at $315K and make $20K upgrade.
However, if similar houses in the neighborhood were sold for $320K after upgrades, we will be overpaying this house for $15K after the upgrade. Then even we would like to proceed, the bank will likely not to give a loan to us more than the house’s real value (remember, it is the bank buying this house, not us).
Knowing that, we stayed in the contract. We did try to negotiate more though – it is a lot of work after all. One way to get some money off is to ask the seller to fix things. For example, the roof of this ranch was damaged due to a recent hail storm, and if the seller family can use their insurance to change the roof, it will save us $5000 easily. The house insurance usually comes with a couple thousand deductibles, and even we pay the seller’s $2000 deductible, we would still get a $7000 new roof, which will save us $5000. Unfortunately, the seller does not have a home insurance (!), so this option is off.
Another way is to get the seller to lower the price even more, or ask them to cover the closing cost. The latter is more valuable because it leaves cash in our hands, and it is what the seller agreed on.
After re-negotiation, we refreshed the contract on Thursday. Now we are getting this house for technically $310K. The next step is to get our loan officially proved.
(To be continued…)
This is the 5th post in our “how we bought our ranch house” series. You can find the rest of the story here:
Week two – Finding a Realtor and Learning What We Want
Week two – Our First Offer and the Bidding War
Week three – Putting Offer on Our Ranch
Week five and six – Convincing the Bank to Buy Our House