Setting:
In this story we buy a house without ever seeing it in person. We’re in the UK, the house is in Alice Springs, Australia. It’s our first internet house purchase. We’re in the process of moving back to Australia and it seemed like a good time to buy. Why wait?
Story:
“Hey, look at this one!” I exclaimed to my wife Marieta, as I sat in my little office room overlooking the Yorkshire Dales in late 2006. I was on-line looking at residential properties in Alice Springs, Australia. I thought I’d found a good one and Marieta should have a look.
Marieta popped her head in the room and I continued talking.
“See, it’s got four bedrooms and look, for that price, we get the pool for free!”
The asking price was $480,000. Based on my study of the Alice Springs (Australia) market, I figured the house was worth at least $500,000. After all, it had all the features – four bedrooms, ensuite off the main bedroom, large living room, large kitchen area, large dining area off kitchen, separate formal dining area, large 1000 square meter block of land, and to top it off a large in-ground swimming pool. Oh yeah, it was also on the golf course in one of the most exclusive neighborhoods in town.
Then I thought to myself, “Hmm, there must be something wrong with it if it’s going for that low price.” That’s the challenge of property and the internet, how do you determine the “intangibles?” I was treading again, in new territory.
Why were we looking?
We were looking to find a home for us to live in as opposed to the usual investment property. We’d been in England for two years and I decided it was time to go home; back to Australia. My contract was over; I didn’t want to stay for another hitch. Marieta and my two daughters weren’t thrilled about my decision; neither were most of my co-workers. I was pretty much the only one who felt going back to Australia was a good idea.
Why would you leave England? Are you crazy?
My co-workers thought I was crazy. “Why would you go back to Australia and take a crappy position when you’ve got such a great set-up here?”
I had no good answer; at least not one that would make sense to any of my co-workers. I had lined up a JOB in Australia but to call it “crappy” would be a euphemism. It was way worse than crappy.
“Dave, are you willing to work shift work?” The question came over the phone. I then replied, “Sure.” I was having a phone interview with the folks over in Australia. That’s all they had for me, a lowly shift worker position. And, I – still addicted to the paycheck – was willing to take it. I figured the best way to transition back to Australia would be with a JOB and then make my transition to freedom. But, looking back I realize this is “loser” thinking. I realize now, the JOB was keeping me broke. It’s the mentality that goes with the JOB that was killing me financially and otherwise. The whole JOB thought process is geared towards broke. I needed to “break” the JOB mentality “broke” thinking cycle. It’s a financial and psychological killer; and it was killing me.
But, I accepted the lowly position, thinking it would only be for two years. I thought to myself, “I can do anything for two years.” Boy was I wrong! And, besides, I thought, with all my experience and skills, it would only be a short time before I moved into a more agreeable day staff position. That would a least make the two years go by quicker and make my time at work a lot more interesting. Again, I was wrong. It was going to be a long two years!
Girls Want to Stay
“You know Dad, we can stay in England. We don’t have to go back to Australia.” Said my youngest daughter MC (Maria Clara).
My wife and two daughters were really enjoying life in England. I was so proud of them for adjusting to the move from Australia so quickly and so effectively. It’s as if they “hit the ground running.” My daughters seemed to transitions seamlessly into their new schools. Yes, there were a few incidents here and there, but again they handled them in stride; and, faced them head on.
In a very short time, Marieta had a whole network of friends. She was constantly taking off to visit auction houses or off on trips with the ladies of the parish. She even went off to Germany one weekend with the parish ladies for some praying but mixed in with a lot of shopping!
We all loved living in the city of Harrogate where everything was so convenient. Lots of big grocery stores to choose from. Lots of department stores, novelty stores. And, lot of nice places to eat out. And my personal favorite – Betty’s.
Betty’s is a Harrogate icon. It’s the “swankiest” café on the planet. By swanky I mean upper-tupper-wupper society. It’s the top of the class scale. It’s where you drink your tea with your little pinky sticking up in the air; if you violate this rule the “Betty’s” manners police will arrest you. I’m not sure what happens to offenders but I’ll bet Betty’s clientele would approve severe punishment; cast them out – never to be allowed back again for such a serious breach of etiquette! Betty’s is an experience; an event; one I grew to greatly enjoy.
Another exciting aspect of living in England was the travel. I took a total of seven weeks off work for travel. Seven weeks spread out over two years for sightseeing. Along with a few 4 or 5 day excursions and a bunch of weekend trips. We took holidays to the following locations:
• A week in the Costa del Sol, Spain. I remember getting up the first morning and looking out our resort patio and seeing the Mediterranean sea for the first time. I was spellbound. I then made a point of running down to the ocean and dipping my toe in the water. It was a thrill for me to have touched the Mediterranean sea. It something I’d wanted to do for years.
• Seven day cruise of the Mediterranean sea; starting in Venice, Italy, stopping in Athens and the Greek islands of Mikanos and Rhodes. Then back to Venice with a stopover in Dubrovnik. My dream cruise. The whole family agrees this was our best holiday ever!
• A week in a Duke’s Hunting Lodge in Scotland, next to Lock Ard, near Aberfoyle. Addressing the haggis, whiskey tasting, wine tasting, tour of Sterling, walking tour of the Scottish landscape and a tour of an old Scottish farm were all on the sightseeing list.
• A week in an old Royal Mansion near Balcombe, West Sussex; halfway between London and Brighton Beach. Tour of Dover Castle, Brighton beach, down to Portsmouth to see Lord Nelson’s ship Victory, horseback riding at a real English stable farm and a dash of archery were all included on the activity sheet.
• A week in a Resort in Stratford-Upon-Avon. We saw “A Midsummer Night’s Dream” at the Shakespeare theatre. My daughter Franchesca has to explain it to me. She was reading it for school and had a great understanding of what was taking place in the play. Me, I had no idea.
• A week in a beautiful resort in Cornwall; southwest corner of England. Saw the towns of St Ives and Land’s End. Breathtaking scenery. We saw the new James Bond movie in Redruth. I remember the Redruth theatre as being very plush and we had virtually the entire cinema to ourselves. It made for exceptional viewing; I remember thoroughly enjoying the movie in that quaint Redruth theatre.
• A week in a resort in St David, southwest Wales. Magical. I wanted to go to Wales very badly. We’d technically already been when we traveled to Ireland and caught the ferry from Holyhead in north Wales. But, somehow that didn’t do it for me. I wanted to spend more time on the ground in Wales. A week in St David did it. A page right out of Harry Potter. Wales seem like a magical place to me. Almost mystical. It felt like the entire westward expansion of Europeans completely bypassed Wales, leaving it still a quiet out of the way place. I’d love to spend some more time there.
• Three day trip to Ireland. Stayed in Dublin – does that count? They say Dublin is not Ireland so, I guess we need to go again to see the “real” Ireland!
• Took three trips to the continent. Two to France. First, to Paris then a separate trip to Normandy on a WWII D-day tour. Then, another trip to Germany to visit Munich and the surrounding area. Bottom line for me; I loved France and Germany. Both places seemed like great places to live. I just wanted to drop everything and move in. “Can I live here?” Generally, people seemed to have the same outlook on life, “If you’re friendly to me, I’m friendly to you.” Very simple. I remember walking past a French home and a lady was peering out the open window. No screen, no glass, just a big opening on the second floor. I looked up and saw her, and then calmly – in my best French accent – said, “Bonjour!” Her eyes lit up and I thought I saw her mentally jump back in surprise. Then she gave me the biggest smile and excitedly said, “Bonjour!” It was the best conversation I had that day. I smiled for the next few hours thinking about it. I think I made her day. I know she made mine.
So, another two year contract would be more of the same adventure. Not a bad life.
Also, the folks at work were offering me another promotion. I’d already received a promotion when I first arrived, now another was on offer if I stayed for two more years. And, they’d given me several hefty pay raises as well. They were looking after me. And they were pleading with me to stay. As good as it all appeared I knew deep down it wasn’t for me.
So, why the rush to leave England?
The JOB world is not for me. I had to get out and staying in England would only keep me locked in. I was scared to death I’d wake up 10 years later and find myself still in a JOB with no prospects of getting out. It frightened me.
I was serious about getting out of the JOB world. Even though my JOB in England was probably the best one I ever had, in the end, it was still a JOB. I wanted out. I knew if we stayed in England, I would probably never get out of my JOB. I would just continue on like everyone else; like all the other cows, getting milked and collecting my paycheck. A nice life … maybe; but not for me. I wanted out and I was serious.
My stay in England required me to have a JOB. Without my JOB, my visa was invalid. No JOB – no visa. So, essentially, I was a hostage to the JOB as long as I stayed in England. No thanks!
I knew the answer was to leave. The answer was to get back home; my adopted home; Australia.
Lousy JOB
I applied for a JOB back in Australia and landed one. Same pay, good benefits, but lousy JOB. They offered me a lowly entry level shift worker position. I accepted. My strategy was to take the JOB, get the relocation benefits back to Australia, then work in the position for the prescribed two years, and then leave the JOB world. That was my simple plan. It took me a little longer than the two years. And, I would have liked to have made a smoother transition out of the JOB world. But, in the end, I got there.
But, that’s another story …
Don’t NEED to Buy
We didn’t have to buy a house. Like I mentioned before, my JOB included a good benefits package; part of which was housing. My family and I would be provided a three bedroom house upon arrival in Australia. Therefore, I could hold off on buying if the right deal didn’t materialize. I was in a good buying position.
Then What’s the Rush?
But, there were several reasons why I was so keen to buy a house back in Australia during those last months of 2006. First, having a house would make the transition from the work force easier. The last thing I wanted was to leave the work force and then have to shell out for a house. I never like being in a position where I HAVE to buy; or HAVE to rent. That puts the seller/landlord in control. I always like to control the situation so I have options. I want to be in a good bargaining position. How can you be in a good bargaining position if you have to buy or you have to rent? You’re at the mercy of the market.
Next, it seemed like there was a lull in the market. A small window of opportunity to negotiate a good price. I figured we needed to strike when the iron is hot. Why wait if the buying is good? Why wait if there’s a good deal right now?
From my internet research, I felt this was a relatively good time to buy. So, instead of waiting until I needed a house, I wanted to strike when the buying was good. It was late 2006 and there were houses for sale in the golf course area for under $500,000. I’d been tracking home prices in Alice Springs and I knew this represented good value. I figured if we could pick up a golf course home with four bedrooms and maybe even a pool for under $500,000 we should grab it. I found one.
“It’s got four bedrooms and a pool. And, a thousand square meters of land. This looks like a good buy at only $480,000.” I explained to Marieta.
“It looks pretty nice.” Marieta replied as I showed her the picture show of the house on the computer.
At $480,000 this house represented value. It had all the main features; good sized block of land, double carport, four bedrooms, large in-ground swimming pool, big kitchen, informal and formal dining areas. And, the biggest feature – on the golf course in one of the most exclusive neighborhoods in town. All for under $500,000. I started to wonder if there was something wrong.
“The Internet House”
Let’s Make an Offer:
“The owners want to sell. It’s an aboriginal corporation and they just want to get it off the books. It’s been a rental the whole time and the company wants to put the money somewhere else.” Relayed the agent to me over the phone.
I liked what I was hearing. The house was owned by a corporation. That told me there may be more room for negotiation, since I’m dealing with an “entity” not a person. They may be more open to cutting a quick deal and getting it over with. The house had been sitting on the market for while and they wanted it sold.
“How much was it renting for?” I asked.
“They were getting about $450 a week, but I bet it would rent for the $470 to $480 mark now.” The agent shot back with confidence. It doesn’t cost her anything to throw out a high-side estimate. And, it might make her a sale. But, I felt her rental estimate was probably not far off the mark after I did a quick study of the market.
This was new territory for me. We were buying this home for us to live in; not as an investment property. I was having a tough time making the adjustment. But, I figured that it’s probably wise to assess the property as a rental for later on down the track. Or, if we want to sell, we need to make sure it’s going to be attractive to buyers. I wanted to get a feel that the property had good rental and resale potential. And, it also made sense to get it at a good price. These are the same considerations I use when buying an investment property. So, it seemed like my thinking was somewhat skewed towards the direction of an investment property. I couldn’t help it.
“Is the owner open to offers?” I asked innocently as if I expected a negative response.
“Absolutely.” Shot back the agent. “They want to sell. The sooner the better.”
“Let me talk to my wife and call you back. We may want to make an offer.” I wrapped up the phone call.
This deal was looking good. I felt the $480,000 asking price was fair. Now, I was looking at getting the property for something less. I love getting a lower price on a home. Even if it’s only a little. It’s probably the same feeling you get when negotiating a lower price on a garage sale item. It just feels good. And, if the seller is on the ball, there’s room in the price for such negotiations.
Now to figure an offer price. Hmmm?
I wanted to come in low. The last thing I want to happen is to make an offer and have the agent come back immediately and say, “It’s yours.” That means the owner would have gone lower. I’d rather have some back and forth.
Buying costs for this home would be about 5% of the selling price. That’s a ballpark figure I use and it’s generally pretty close. This figure includes stamp duty (government tax – about 4%) and legal costs. So, 5% of $480,000 is $24,000. Why not let the seller pay these costs? How bad does he want to sell? And, if I can’t get a good deal, I can always walk away. Besides there are several other homes I’ve got my eye on. “Remember,” I kept telling myself, “don’t get emotionally attached!”
Arrive at an offer price:
So, to arrive at an offer price, I derived a formula; take off the buying costs and then round down. I know what you’re thinking … “That’s it? That’s your formula? My 6 year old daughter could have come up with that!” Sorry to disappoint but I try to keep things simple. I already felt the asking price was reasonable, so anything off the asking price would be gravy. Remember, this was a house for us to live in so I wasn’t looking really hard at the rental return.
Running the numbers, I came up with $480,000 minus $24,000 is $456,000. Then rounding down to $455,000. That would be my offer; $455,000.
“Would you run an offer of four fifty five past the owner?” I asked the agent over the phone.
“Oh, that’s a bit low, but I’ll run it past them.” She replied.
A few days later …
“Dave, the owners feel your offer is too low. Can you come back with something higher?” asked the agent gently.
I thought for a short moment then to gain a little thinking time I said, “Well, we don’t really need the house. We can live in the company house and then start looking when we get to Alice Springs. It’s not easy buying over the internet.”
“I think we can reach a good price for you but your offer is just a tad too low.” She hinted that we were close to a number that would work for the owners.
After a few back and forth phone calls, we finally agreed on a price of $465,000. Our offer was contingent on finance approval and the normal inspections; pest, gas, and building.
Negotiating when you’re not even negotiating.
When the building inspection came back I could understand why the house sat on the market so long. And, why the owners had to keep dropping the price.
The inspection started off with good news; no structural faults. Building was just fine for its age.
Then the inspector dug in his heals; started earning his fee. He stammered off a laundry list of 25 maintenance items. The list took up nearly all of page 2 of the report.
Reading down the list I wasn’t too concerned as all of the items were manageable. A lot were cosmetic. But, I could see why someone on the ground looking at the house would be turned off. People looking at the home would be wondering … “If it’s this neglected, then what else is wrong with it? What items are hidden? How much will it cost to get this house up to scratch?” Most buyers would be turned off by all these nagging maintenance items.
I called the agent to discuss the building inspection report. I just wanted to ask a few questions. Find out if the seller was willing to consider fixing some of these items. It was worth an ask. But, I didn’t expect anything from the seller. I figured I negotiated a good price that allowed for these type of maintenance items. I figured the house was going for below market price for a reason. Now I knew why; it hadn’t been looked after.
“I just received the building inspection report and it looks like the house hasn’t been maintained very well.” I stated matter of factly.
I didn’t realize how keen the vendors were to sell until the agent started talking. It seemed like she was afraid I was about to pull out of the deal.
“The vendor has seen the report and has agreed to fix 11 of the items on the list. And, he’s agreed to fix 2 of the items on the gas inspection list as well.” She exclaimed before I could say anything more. Then she kept going.
“The seller won’t do any of the other items because they are just cosmetic and he feels you’re already getting a good price on the home.”
I paused for a moment and thought to myself … “This conversation is going better than I anticipated!”
Then I spoke, “Ok, what items are you talking about?”
Then I started ticking them off on the building inspection report as she read them out:
• Remove leaf debris from gutter eastern side.
• Eaves lining western side are loose
• Missing roof screws to various locations on roof (approx 20)
• Silicon seal to ridge flashing joints failing
• Secure moulding above laundry window (external)
• Fit door closer to front screen door.
• Secure hinges to 4 kitchen cupboard doors
• No doorstops to walk-in robe, bathroom, bedroom 2, 3, &4 doors.
• Seal/regrout vertical corners in ensuite.
• Laundry spout leaks when taps in use
• Rear fence has collapsed. Posts rusted off at ground level. Suggest other fencing be fully inspected.
“The seller is going to replace the back fence for you. And, in addition to these items he’s agreed to tighten the gas fittings in the living room and provide a proper chain for the propane tanks to hold them in place. These last two items were identified on the gas inspection.” The agent dutifully explained to me.
So, there you have it. I somehow managed to negotiate thirteen maintenance items without even asking. The seller offered them to me straight away. By simply mentioning the inspection report, I got thirteen items for free. Not bad.
“Ok, so the seller is pretty set on fixing only these items and none of the others?” I replied trying to make it sound like I wanted more; like I wasn’t satisfied.
“Yes. That’s all he’s willing to fix. But, I think it’s pretty generous.” She replied.
And I agreed with her.
I supposed I could have pushed for fixing more items but I was keen for the deal to go forward. And, I was happy with the negotiated selling price which allowed for cosmetic repairs.
But, don’t feel too bad for the owners. I’ll bet they were ecstatic with our offer. They’d had the house for years and I’m sure they made a hefty profit from the sale. They probably walked away from the settlement table with over $300,000 after all the bills were paid!
And, I’m happy for them. I have no problem with people making a handy profit through honest gainful business enterprise. It’s good for everyone. And, it gives me hope that if they can do it, so can I. The seller’s purchased the property and accepted all the associated risks of ownership. Then years later when they decided to sell, they reaped the reward of accepting that risk. Good on ’em!
Paperwork at a Distance
The day after Christmas 2006, Marieta and I were signing the “Northern Territory Transfer of Lot” paperwork at the RAF Base Menwith, Hill, North Yorkshire England. A US Air Force major witnessed our signatures and planted his “Staff Judge Advocate” stamp prominently on the page. His stamp satisfied the signing requirements for getting the paperwork completed and ready for settlement. We then put the documents into an envelope and dropped them off at British Post for the long journey back to Australia.
On 12 Feb 2007, the property changed hands; we now owned it.
Get it Rented Short Term
Then next issue on the agenda was to get the place rented. We wouldn’t arrive in Australia for several months so we had a local real estate agency rent the property on a six month lease. That way we could move in shortly after we got back to Australia. It rented quickly for $470 a week. Not a great return on investment but we were just looking for some income to offset expenses until we moved in.
Never Moved In
We never moved into the property. We did a walkthrough inspection upon our return to Australia and decided against the move. It just needed a little too much “TLC” and our company provided house was very comfortable; and priced right. We decided to continue renting the property and living in the company house. Financially, it made sense. And, besides, the house was there for us when I was ready to quit the JOB world. The house was serving its purpose; it provided us with an option – a place to live – when my days with the company were over.
Fast Forward
Fast forward to today. The house is still renting very nicely for us. Except today it’s renting for $650 per week! We’ve carried out extensive maintenance over the past few years and the property has held up well. I just went to an inspection last week and I was pleasantly surprised how impressive the house looks now. I still remember those early days when the property looked very tired. For some reason I still think of the property in this tired condition. But, those days are over; it now presents very nicely. Recently, we had multiple offers to rent; and none of the applicants balked at the $650 per week asking price.
Our plan is to keep this property on the books for maybe several more years. In a few years time we may decide to sell. Why? Because this property requires more looking after than most. It’s a bit older and the pool can be a maintenance headache. Also, this property will probably fetch a handsome amount as it’s located in an exclusive neighborhood and the pool would be a definite plus in the sales market. Folks in Alice Springs are looking for pools. And, we’d probably price it so potential buyers would be say something like we said when we bought it, “At that price we’re getting the pool for free!