What does $325,000 buy you in Bellevue?

I previewed a house today. I just had to see what $325,000 would buy me in Bellevue. It’s a bank-owned house, bought back by the bank for $549,000 in September and quickly put on the market in October, and already has an offer pending inspection. The listing photo only showed a peek of a view through overgrown landscaping. I assumed there must be a reason.

It was an area where I rented a house many years ago, so I was familiar with the age of the neighborhood – late 1960s, split levels, tri-levels and the like. Though many of the original homes remain, many have had facelifts to update their facades, others have at least had a new coat of paint in the past few years and still others had been torn down and replaced with smaller versions of McMansions. I was hopeful that this bargain house would be a diamond in the rough and that I might have stumbled upon a real treasure. Well…the operative word turned out to be rough.

I pulled up in front of the house. It sat on a corner of an arterial, typically a drawback, but in this case, seemingly not too noisy. The mature landscaping could use some attention, but had potential. To the left of the garage was a half-rotted lean-to. Easily fixed by a tear-down.

The front entry was dirty and dusty and had the predictable cobwebs. Golden 1960s plexiglass flanked either side of the painted, Mediterranean carved door. A damp, musty wave greeted my as I pushed the door open. The slate entry floor was in excellent condition with a workable design. Potential, I mused. To my right, a massive brick fireplace in the sunken living room. But, of course, the carpet was heavily stained. The walls were dingy, the windows filthy. On to the dining room, with equally stained carpet and a frilly-shaded brass chandelier. The deep blue shag in the room off the dining room was…the master? Its master bath, with it’s chipped enamel sink and broken pink tiles was in desperate need of a complete overhaul.

What might the most important room for selling a home – the kitchen – hold? Promising…a large brick fireplace. I imagined making s’mores cozily inside on a rainy winter night. But everything else – the slab walnut laminate cabinets, the original range hood, and worn out counters. Well, this too begged for a complete remodel.

Other rooms in the house were no better. The room count and square footage were good. The location very convenient for commuting and shopping. And with $150,000 for remodeling, this will be a great home.

But I had to ask myself, “Where did all the money go? If the bank originally loaned $478,000 on this home in 2006, with who knows how much down, was that just the sale price? The bank bought it back for $549,000 and it can be assumed, that was for less than was owed. What happened to all the money? If they borrowed to rehab the house, where did the money go? It sure wasn’t put into the house. If they paid $478,000+ for the house, they certainly overpaid, even in a hot market. And if they borrowed to buy a new Mercedes SUV or a vacation, the bank sure got the raw end of that deal.

So here we are with the banks holding a lot of distressed assets that have potential, but a whole lot of baggage attached to them. And we seem to have a shortage of buyers who have not only the vision to see the potential a home has, but not the resources to bring it to fruition. It’s going to take some time for this to get sorted out. In the meantime, buyers should keep watching for and moving on those great deals.