We Have a Buyer for Our Home

When I detailed what we might do with our home if we bought another one, here is one of the possibilities I offered up:

Sell it for an extremely low price to a needy family -- We know a few families that simply can't afford a nice home. One would even like to adopt but simply doesn't have the space in their home. Our house has more than enough room. If we sold them our home for, let's say $100,000 (hence the target figure in my net worth), they could afford that. Advantages: We get to help out a needy family AND we get some cash for the house. Disadvantages: It's not the best deal financially. Plus we'd need to REALLY spell out the rules (such as they'd have to live in the home a certain number of years or sell the house back to us for $X -- we don't want to sell to them simply to have them put it on the market and sell it for $130,000.) We'd probably need to get a lawyer involved.

Well, we aren't planning on giving the home away or taking that big of a hit, but we do have a buyer who's interested in buying our home at $20k-$30k below market value if they can sell their home. My wife and I talked about it, and we decided that if they do sell their home, we will sell our place to them. The husband works for a non-profit organization and they are a GREAT family. I don't know their finances, but they're probably near the high end of what they can afford. So when they asked if we'd consider selling them our home at $20k to $30k below market value, we said we would -- at the HIGHER discount number (a better deal for them.) It's not that big of a hit for us financially and it will be a blessing for them -- so everyone wins!

Our only problem: we don't have a place to move to. I've told them that we won't move without a place to go (we're not going into an apartment), so if they sell their home, we'll need to make some quick decisions. But that's a big "if" in this market. Houses aren't exactly selling like hotcakes around here.

But who would have ever thought we'd have a potential buyer before we bought ourselves? Guess the best laid plans often go up in smoke!

Comments

[LC]

I think that's a great idea. $20-30k isn't too much of a hit (it might actually be close to what you could get for it anyway), especially considering the money you can save on a realtor, staging fees, etc, since you already have a buyer. I would keep looking around but wouldn't make too many definite plans. You don't know what their house will end up selling for and they may change their minds if they don't get what they expect.

[FMF]

LC --

Just for the record, it's very likely that we could get $20k more than what we're selling it for. We looked at comps, took the price down from there $10k-$15k or so to reflect what we;'d likely get, then took the price down $20k from there. Then again, you never know with this market.

I agree with your other thoughts and we're not banking on this 100%. We're still looking and if we find something, we'll put the house on the market for anyone to buy asap.

[MasterPo]

You are either extremely well off financially in all other respects of your life, or a fool. (that is the correct use of the word as an adjective, not an insult)

[FMF]

MasterPro --

We are doing well financially, but I could also be a fool. ;-)

[Brent]

Take the offer and buy the best house for the money you can get. House prices are not going to be going up much in the near future, especially in Michigan. You will have to sell your house for the price they are offering in a year or so anyways

[Tim]

I guess this is really "free money" finance. I was really wondering if you actually heard yourself writing when you wrote this or heard yourself outloud when you were coming up with your logic.

selling a house to a family that really can't afford a home isn't helping them out. that is giving them a false sense of reality and the tax payer is going to have to clean up the mess. why does anyone need to buy a home. if they can't afford it in the first place, then they ought not to get it. second, if they can't afford a larger home, then they can't afford to raise another kid by adopting a kid, either.

you now have a buyer who has offered you $20-$30k less than market value. you know really nothing about these people and nothing about their finances. okay, so you are biting on the working for a non-profit and being nice when you met them. i'd say $30k off is a blessing for them. that's 25% additional off the house.

your money, but come on.

[FMF]

Tim --

I think you might need to re-read the post.

If they get the house at the price we're offering, they WILL be able to afford it. In addition, they'll have $20k-$30k in immediate equity. Not sure how "the tax payer is going to have to clean up the mess." Your rationale doesn't make any sense to me.

[MasterPo]

So they have $20-30k in equity. The only way to access it is through an equity loan or other debt. Same result.

Also, the $20-30k is a one-time event. If they can't afford that now, how will they afford annual property tax on the home that will surely rise several percentage points a year forever?! As well as afford insurance, utilities, the inevitable maintenance and unforseens that always come with home ownership, etc.

I have to agree with Tim.

[Matt]

Regardless of market conditions that's a very generous offer that you're giving them and the reasons for it are very admirable. Its nice to know that there are still people out there that are generous without any ulterior motives.

[FMF]

Po --

They can afford it with the price break. What's the problem?

[MasterPo]

FMF - So you're saying they can afford all the operating and carrying expenses of home ownership (think about all you have spent operating your home) but just needed a price break to get them on the road? That doesn't feel Kosher.

This feels like they are walking a very tenuous financial line. If the one-time cost of $20-$30k is the only thing standing between them and home ownership, what will they do when a suddenly the water heater, washing machine, and roof all go at the same time? These things happen no matter how good a condtion they seem to be now. And usually when it's the least convenient. Not a criticism of the condition of your home. But these things happen to everyone.

In the first 5 years of owning our house my wife and I spent thousands unexpectedly.

I agree with the others that you and your wife's heart is in a good place. But the road to Hell is paved with good intentions.

If the finances are all good but it's only $20k keeping them for buying a house on their own without your deal I can't help but feel they are on incedibly shakey financial ground anyway.

Best of luck to all.

[MasterPo]

FMF, ps- Let me give a real example:

Last December (a week before Xmas no less) we had a hot water pipe burst in the wall of our lower floor (split-level ranch styel house). It was an old pipe, apparently heavily corroded and just bad timing. Worse yet we were on vacaction in CA! Fortunately my in-laws had come over to check on the house, found it and shut off the water thereby reducing at least somewhat the damage.

From the other side of the country on cell phones my wife and I had to coordinate our contractor to come in, fix the plumbing, the wall, and do the clean up.

Bottom line: I had to pull $6,000 out of my you-know-where to have it done. What choice did I have?

Home owner's insurance only reimbursed me about $2,000 after deductable and insurance BS (like I should have had them coodinate the repair and clean up - like anything would have been done a week before Christmas!, they don't cover this and that, the usual insurance games)

That was an unforseen expense. It hurt! But thankfully we had the cash on hand and spending it doesn't adversely affect our life styles.

I fear the poor family you are trying to help would be SOL if the same thing happened to them in their new home. That's how close to the vest it seems this whole thing is being played.

[FMF]

Po --

I don't think it's being played that close to the vest for them. I think they COULD afford our home at the higher, regular price. But then they would have to stretch (like most people in America seem to do) to do so. So us giving them a big break allows to own a home at a reasonable price and have some cushion if bad things happen.

That said, I haven't asked them to submit a budget, so I can't speak to the state of their finances (the above is my impression from talking to them.) Then again, I wouldn't be able to verify the finances of ANY buyer at ANY price, so I'll never know if I'm selling my home to someone who can truly afford it (does anyone know this?)

That said, maybe I should talk to this family and make sure they can handle everything before we proceed. That's a point I can certainly take from this conversation.

[Kevin]

I'm sorry but I don't understand the angst at what FMF is potentially doing here. He's discounting a house to a good family that he feels is worthy. Why should he have to sort through their finances to see if they "qualify"? Isn't that what a bank's lending department is for? It's not like he's pulling an Extreme Home Makeover here and giving a poor family a half-million dollar home.

[MasterPo]

Kevin - It's not the bank's job to determine if you have the rsources to afford everything that comes with home ownership. All they want to know is your ability to pay the mortgage (including property tax and escrow) and insurance. They don't care how you pay for fixing the roof or replacingthe water heater etc. Maybe they should but they don't.

My point and concern is thar while FMF is trying to do a good deed home ownership is faaaaaaaar more than just a one-time exchange of a check for a set of keys. There are costs and issues that will come up and keep reoccuring for years. Doesn't matter if it's a starter Cape or a McMansion. Doesn't matter if it's a new build or not. All houses have the same issues sooner or later.

IMO that's what is really at the heart of the mortgage "crisis" now: Too many people barely scrapping by already didn't realize all the on going and unexpected costs of owning a house. They just thought once they get the keys that was it.

To put it another way, think of it as buying a huge car of your dreams. You may get a great deal on it but nowadays it may cost you $100+ a week in fuel to drive it! You may have saved on the purchase but the operation will get you in the end.

[Apex]

As to Kevin's comments as I was reading all of this the Extreme Home Makeover is exactly what I was thinking about here. Obviously this is on a smaller scale than what happens there but I think it was also on this site that I read the comment that was posted about how do you go bankrupt and someone well known had make the quote something along the lines of very slowly and then suddenly.

I have to agree with the concerns that this may seem like helping them but unless you plan to continue to subsidize them they may just be slowly taking on more than they can handle. The break can give them a false sense of security. When an issue does arise they can tap the equity on credit, then they have more debt payments. It snowballs and then the big event happens and they get into a forclosure/bankruptcy situation. Certainly might not happen, but This just feels too much like giving people something that is a little bit beyond their ability to manage successfully. The extra carrying costs, the extra spending that comes with more space (you ever get more space and not spend more money filling it, customizing it, making it yours).

Might take years to cause problems but unless they grow their income to fit the house, it just seems exactly like Extreme Home Makeover on a smaller scale. And the only difference between living beyond your means greatly or barely is the amount of time it takes to blow up.

I have helped people out in need before. I saw a family who had a series of personal set backs, car problems, loss of income during job transition, medical bills etc, and they were having a hard time during that month making ends meet. I wrote them a $1000.00 check which they didn't want to take but it helped them get over that hump. But I would not view that the same as helping them to get into a situation that could increase their expenses permanently and do nothing to address their ability to carry those costs long term.

Perhaps they can carry the costs, but if you care about these people as it sounds like you do, I think it would be wise to sit down with them and discuss the carrying costs of their current home and the potential carrying costs of yours and be sure that the 30K break now doesn't just run them 1-2K backwards every year trying to carry that house.

[Kevin]

MasterPo - I realize it's not the bank's job, but it's not FMF's job either. These folks already own a home, so they likely know what that responsibility means. Is FMF supposed to make sure they have an emergency fund to pay for surprises? The buyers have to take some personal responsibility here, after all they are getting a huge discount on this house.

[MasterPo]

Kevin - I agree.

FMF - I won't belabor the point. I hope it does all work out for everyone involved but I hold tight to my concerns. Please do keep your readers up-to-date on the out come of this over the years.

[LC]

MasterPo - you're actually arguing against yourself. You say that unexpected problems crop up in every home, so they have the same risk of that happening whether they stay where they are, buy a cheaper house, or get a discount on this house. How is it a worse deal to have a house that they can easily afford rather than one where they are scraping by?

I guess I would just make it clear to them what your average utilities, taxes, etc, are as well as giving an accurate condition of all your appliances, roof, etc. just so they aren't surprised. But then again, most of that is pretty standard anyway.

Depending on the value of his home, he could spend in excess of $20k just on the realtor and fixing up the place to show. I don't see any problem with just giving that much as a break to the buyer if they will buy it as-is from the owner, no matter who it is.

[suze]

I think that you are doing a great thing here FMF. I understand some of the concerns here from some of the posters, but nothing in life comes without some type of risk. And this is one of the best examples of charity -- and I use the term loosely here, obviously -- I have ever heard of. And I applaud you.