According to the National Association of Realtors (NAR), there were over 5.5 million transactions in real estate involving existing homes in February 2020. However, 2 percent of these properties fall into the distressed sales category and require a significant amount of work. But this doesn’t mean you should walk away from such a deal!
For agents, this means the house is not updated. Sellers and buyers might not share the same definition. When buying a house that needs repairs, the definition of “work” very much depends on the property type you’re looking at.
There’s Beauty in All Properties
Homes put up in the 1940s had smaller rooms that were separate from each other and four-inch tiles on kitchen counters, certainly not trendy. Cabinets have painted wood, and floors are linoleum. Millennial buyers would rather update the home, while the purist will try to maintain its original condition for as long as possible.
Which types of property for sale by owner in California and other states in the US are you likely to come across?
Fixer-Upper
Basically, this type of property is sold as-is. However, it could show signs of lack of maintenance, as the owner could be unable to keep up with the upkeep and repairs. Perhaps, it could also be one that was passed on to an heir who does not want it, or maybe, there was a death on the property.
The seller will usually peg the selling price depending on comparable sales based on the units that are in the same location and have the same number of bedrooms, square footage, and age. The seller arrives at an asking price and then deducts the approximate cost of repairs. Sometimes, the seller may deduct further for an all-cash sale or a quick sale.
The buyer (who is an investor) can then flip it, hoping to bring in a fast profit or put in a little work to make it habitable for the first-time homebuyer. Whichever route you choose, make sure you look at the profit margins and amount of work necessary before making an offer on a fixer-upper.
The property might have additional issues if it’s been on the market longer than usual. The repair costs may be higher than the seller’s expectations, or the home is appealing to a small pool of homebuyers.
New But Outdated House
According to an article on how to sell a house that needs major repairs – Property Escape blog, this type of property is usually located in once-thriving neighborhoods. Some reasons for such areas to become depressed include an oversupply of property, jobs leaving town, or other attractive homes coming up a couple of miles away for less money.
Owners usually have no interest in remodeling outdated homes to keep up with changing trends. Instead, they like the homes the way they are and will sell them now.
As the buyer, you would want to look for turnkey homes that do not require extra work. Plus, you could ask for a discount if any home improvement projects are needed to be undertaken.
Updates, such as re-painting the house with modern colors, replacing fixtures, and installing newer appliances, are usually all that’s required to generate higher interests on these properties.
Foreclosure Home
This bank-owned property is almost always sold as it is. It often sets vacant for long, and banks will do little to no landscape upkeep or maintenance as they are not responsible for disclosing facts they cannot know.
You might see pre-foreclosure homes on some websites, but they are not intended for sale. This is just a process banks go through when the seller defaults before they take full possession.
Vintage Property That Is in Mint Condition
Mint-condition vintage houses may sell at a premium price. Such properties include the Italinates, Victorians, Craftsman bungalows, or Queen Annes. Houses put up in the 50s and 60s are very popular because of the historical prominence of past residents or owners.
Sellers usually add the premium price on top of comparable sales figures to such types of homes. Many offers come in due to their attractive design. Note that prices are likely to go further up if fixtures in the property are original.
Some might overprice vintage homes in perfect condition when they have been on the market longer than others. Plus, some sellers are not keen on selling such property, and they may set a price that is high enough to make it worth their relocation.
Home Offered on a Short Sale
A short sale usually occurs when the lender accepts less than the total mortgage balance that’s due from a buyer. This is usually the most misunderstood type of sale, especially when buying a house that needs repairs.
The seller may not afford to fix up the home or make repairs if they cannot keep up with their mortgage payments. This means the seller lender offers a little incentive to cooperate in the short sale if they align the price with the current real estate market.
Banks might make more money if it forecloses the property instead of taking the short sale route. The broker’s price opinion has little effect because the investor wants a net that matches the foreclosure net.
Packrat House
The process of selling a house for cash is often easier for this type of property. After all, its price can be very low.
However, packrat homes are probably the worst properties you will come across. Expect to find stacks of belongings lying everywhere in the home, bedrooms sometimes full of boxes, junk, and furniture. Sometimes, it’s even hard to open the door!
Hoarders and pack rats are continuously collecting and saving anything they come across. Prepare for a combination of moisture problems, piles of dead rodents, or years of neglect when you step into such properties. One way of getting rid of the debris is renting a few 30-yard dumpsters if lucky, but underlying issues can be more problematic and expensive to fix.
How to Negotiate
How you pursue buying a house that needs repairs depends on the type of property you are looking at. Your best bet is to rely on comparable sales and deduct repair expenses. Get the deductions from written estimates from a licensed contractor, and this might encourage the seller to reduce the price even further!
Homeownership is a style and an investment, and you need to make a lot of decisions along the way. Check out our blog to understand the intricacies of real estate management, selling, and buying!