Q: What's a home seller to do when he wants to sell a house but it needs repair?
A: Home sellers who have structures in need of substantial repairs can find a buyer's market to be their worst enemy. When a housing market favors buyers, buyers want to truly have their pick of inventory. Buyers can find great deals on homes that are in pristine condition.
Most buyers don't want to be bothered with fixer-uppers, especially when they can see many homes that are in move-in condition for the same price. Also, distressed properties such as short sales and foreclosures are commanding a significant amount of attention from buyers.
A seller will most likely net more money from a property sale by completing repairs and placing the home on the market in good condition. A buyer takes a look at the condition of the property and assesses the repairs needed. Then, an estimate typically is
doubled to ensure room for any surprises. In other words, a need for repair will substantially reduce the offer price below the estimated cost of repairs.
Also, a buyer will typically discount the determined value to account for their time and trouble to fix up the property.
Investor option
One solution is to market the property to home investors. There are many investors in the marketplace who buy properties, fix them up and then either rent or resell the renovated property. Commonly known as house flipping, fixing up a property for resale gained popularity during the hot market a few years ago. It seemed like rising prices meant anyone could buy, fix and flip a home and make money.
It is not as likely now that the market has turned. Now that it's harder to sell homes and prices have risen for building materials, the flipping craze has slowed.
Even though the amateurs may have left the market, there are still plenty of professional real estate investors still buying homes to fix and resell. Often these buyers can make cash offers, close quickly and have ready sources of funds for this type of property investment. They will typically demand a big discount off the market value of the property as buying a house in need of repair can be risky in a tough housing market.
But with the right price, these investment buyers can take a house that needs work off the seller's hands.
Another alternative is to offer incentives to potential buyers. These could include seller assistance or allowances. However, it's hard to get a bank to lend to an owner occupant if there is significant work needed on the home and to get a loan with seller allowances for repairs.
There are loan programs available that will allow you purchase a house needing repairs and financing the cost of repairs needed. There are FHA loans that allow the purchase of a property and include the costs of renovations and repairs.
They are referred to as 203K loans.
Disclose everything
It is imperative that a seller disclose everything that is wrong with the house. Disclose any major or minor problems to avoid litigation. Sellers are legally obligated to disclose known defects to the property that could affect the property's value. If a seller intentionally fails to disclose known defects, he or she could be sued for more than the repairs would have cost to complete.
Selling a house is not difficult when the selling price reflects the condition of the property. It is not the most desirable of condition but with proper marketing and a qualified Realtor experienced in such types of sale, the home in need of repairs can be sold in today's market at a reasonable price.
Get answers to questions you might have about real estate from Randy Durham, who is president of the Chattanooga Association of Realtors and a broker with Keller Williams Realty. His column appears on Sundays. Send your questions to Business Editor John Vass Jr. at jvass@timesfreepress.com.