As for relationships, just remember that, however sizzling, every relationship is still going to have more time for talking than, well, not. Humor is essential. Even when you’re, well, ahem. Never mind. I’m going to go look at houses now.

Say, MDAccount, what is the relationship equivalent of all this? In other words, instead of getting carried away by beautiful blue eyes, a clever turn of phrase and a nice bottom (see earlier blog post on the bottom), pay attention to, what? Whether or not the person is kind to animals?

When I first began looking at houses, I did the usual rookie stuff — imagined my furniture in the space, was impressed by staging, etc. Having been through a few bids now, my priorities line up with David’s. Some things to watch:

1. Cracks in the foundation or obvious attempts to cover over previous ones. It may be nothing more than cracked stucco, but it could be something more — you’ll want an inspector to take a close look.

2. Is the wiring current and properly done? A modern looking wall outlet does not mean up to code wiring. Again, an inspector should check this, but keep an eye out yourself — if you see exposed wiring, it’s not a great sign.

3. Plumbing — are the pipes lead or copper? If they’re lead, eventually you’re going to have to replace them. It may not be an immediate issue, but again, it’s something to look for.

4. If you need to fix the electrical, plumbing or heating, is there space in which to do it? As mentioned about, one house I bid on turned out to have only half a crawl space under the house — I would have had to dig out the rest before making any repairs.

5. Do the floors slope? If so, there’s a chance it could signal foundation problems. Ask about it.

6. HVAC (heating and cooling) — how old is it? How large a system is it? I’ve seen homes with huge old furnaces. They might still function just fine, but again, it’s something to look over and ask about.

7. Drainage and slope — if it rains, where does the water go? “The living room” is not the answer you want. Are there gutters? What are they made of? Do they take water away from the house? If there are retaining walls, are they in good shape? You don’t want your yard in your living room, either.

8. Are the windows single-pane? If so, you’ll either need to replace them or take steps to minimize your heat loss in the winter.

9. Venting — do the stove and dryer actually vent to the outside? Don’t assume — check.

10. Dry rot and/or termite damage outside the house, signs of moisture intrusion inside the house. Stains on ceilings, bulges in the paint, mold in the windowsills or around HVAC outlets. Especially in the middle of summer, anything that looks recently wet inside a house should be a warning sign.

It’s important to remember that almost every problem can be fixed with the application of time, money and knowledge. Problems aren’t always a reason to avoid a house; sometimes they’re your opportunity to add value to a house (and reap the rewards later). Just be clear what you can handle, and what you cant.

Oh, and once you’ve finished looking for wiring and drains, you can go ahead and get caught up in the staging!

“Stop looking at the view and start looking at the wiring,” is sage advice indeed, and nicely phrased.

Reading your comments, at least as far as myself personally, I cannot imagine ever trying to buy a REO. I don’t have the skill or the money to fix one up and it sounds like a full-time job! But for someone like you, I know it will pay off richly.

The first house was a dream REO. Small (1K sf) but in superb condition, including a large and modern kitchen, new windows, great hardwood plank floors, and all in one of the best neighborhoods in Vallejo. It went on the market for $225K in April and I bid on it 24 hours later. Another bid came in, I bumped mine to $230K and lost to a bid of $235K. Perhaps there were unseen structural or pest damages, but it’s a great little house in a great spot. When the market comes back, the new owner is going to make money for sure.

The second REO was a small dutch colonial in another excellent neighborhood. Great curb appeal, views of Mare Island and the Napa River, and originally marketed for $279K. Nothing happened, but when the price dropped $40K, I jumped in and my bid was accepted. I knew the house would need work, so I had three contractors take a look — the first was a quick review by a friend’s friend, who said “live in it a year, then decide what to fix.” The professional home inspection pointed to a number of problems, but since home repair ain’t my thing, I asked a third contractor to review the house with the inspection in hand. He made a list and summed it up with, “$100K before you can move in, $40K more to make it truly nice.” Among other things it needed all new electrical, all new plumbing, a new heating system and, to achieve all that, a workable crawl space had to be excavated. That’s before you got to the retaining walls and the drainage.

I backed out of the deal and the home eventually sold for $215K to an absentee owner. A construction team has been hard at work for a couple weeks, and there’s clearly more for them to do. I’m very, very glad not to have bought that house.

Today’s house was a heartbreaker. Again, a good neighborhood and a house with stunning views in all directions. The backyard abuts open space. The house offers 1800 sf (2/1) with a finished basement. And it’s a alluring wreck. Dry rot in the bathroom eaves; long cracks near the foundation; stucco that goes straight into the ground; a yard that’s a mess; an outbuilding that blocks much of the view; and more. On the market for $250K my realtor suggested a $200K bid, but I won’t make it.

Could I live in the house right away? Yes. Would there be some big immediate projects? Yes, but I could probably cover the cost. The killer would be the slow bleed of long neglect. If I could do the work myself, it might be possible. I can’t, and by the time it all finished, I suspect the house wouldn’t be a bargain anymore.

So from someone in the field:

A) Check REO’s the instant they come on the market — the good ones will go fast. Expect multiple bids and be willing to bump it up.

B) ALWAYS get a pest inspection, a home inspection and, if there are any potential issues, other inspections as well. I spent $500 bucks on inspections, but is saved me $140K. Be VERY thorough.

C) If a REO has been on the market awhile, approach with caution. Other people will have seen it and walked away, probably for good reasons. Do check ‘em out — surprises happen — but stop looking at the view and start looking at the wiring!

D) Know what you can’t do. Homes that need work are for those with a lot of free cash or those with contracting skills. I have neither, which is why I’m very careful about getting in over my head. If I had money or skills, however, I’d be buying REOs in good neighborhoods as fast as I could — they can be an amazing deal.