Home Pricing Strategy - damaged property/investor sale

[icyappraiser]

Looking for some outside input/thoughts on our pricing strategy for our home. We had a fire which damaged our home and have decided the best decision for us personally and financially is to sell the property as-is.

I've talked to a few realtors on market value and listing strategy. It is a bit difficult because we do not know for sure if there may be interest from flippers/rehabbers, or just from builders planning to tear down. We're in a desirable location within the metro with low inventory still where flips and demo/build infill is common.

Comps of similar lots where builders have demolished have sold for $155-170K. Similar flipped/rehab properties have sold for $170-190K (re-sold for $300-350K after repair). With our square footage being on the smaller side of comps, we are probably closer to $300K after-repair value if they don't add any square footage.

Insurance rebuild bid was ~$130K before overhead/profit, but there may be multiple ways for a rehabber to do it for less (e.g. insurance approved ~$25K for full house siding when only one wall of siding is actually damaged, $20K for full house flooring when only half the flooring is damaged). Someone could also theoretically keep undamaged portions of the home (foundation, certain framing/walls, garage), rebuild 1st floor, and add 2nd story which would probably sell for $450-500K. New builds on similar size lots are going for $700-800K.

One realtor initially suggested pricing closer to the low end ($155) targeting builders, while another felt $165-185 is market value. I know real estate is hyper local and it may be difficult to say without knowing the market/seeing the property, but any thoughts on what would be a good target list price given this information?

[johnnyqnola]

I don't feel like I can weigh in without more info and specific details (prop conditions, actual scope of repairs needed, sales comps), but I'd advise you to try looking through the lens of a RE flipper.  They often use a 70 or 75% of ARV rule of thumb to assess deals, i.e. they want to have 25-30% margin after purchase + rehab costs to cover their profit, holding costs, and closing costs.  If the After Repair Value of the prop is $300k, and they think they can rehab it for $75k, they'll wanna buy it for $135-150k.

If it's a common thing in your area for new builders to knock down grandma houses and build new homes, those sales comps are available, as you mentioned.

The rehab cost may be a fraction of what insurance is estimating--or there may be enough framing and system damage that it's gonna be a big project, no matter how resourceful a person is.  Does the whole house need to be rewired now?  All PVC plumbing toasted?  Are the roof and floor structures still sound, or is there a lot to reframe?

It's hard to say without knowing these things and seeing the comps.  Good luck and sorry about the fire :(

[Omy]

I'd probably start with $175k....and drop to $165k if you don't get offers quickly.

I once listed a horribly abused short sale property (flooding, mold, and smoke damage - and feces on the wall) for $185k in a $400k neighborhood. Most realtors thought it was priced way too high. We got multiple offers from contractors in the first week on market and it escalated to $210k.

In my experience, distressed properties fly off the shelf if they're priced anywhere in the right ballpark.

[ChpBstrd]

I don't think the intentions of the buyer should concern you.

It's a simple reverse-auction strategy of initially setting a high price and lowering it until a buyer bites. This is how you get the highest price. The realtor suggesting you start at the low-end price might deserve to be fired. They are out for a quick buck.

That said, you have to manage the costs of the building while you're waiting for someone to buy it, so don't hang out at the high end for too long. I suggest initial pricing at $185, and in two months lower to $175, and if that doesn't work lower it to $165 two months later. If you end up taking $155 after all that, then at least you know that was exactly what the market will bear.

How To Raise The Price You Get
Rehabbers need to reduce their uncertainty about a property like this. Specifically, they are unable to see all the damage, like melted wires or pipes inside of walls, or how much of the roof or wall lumber must be replaced.

You can reduce their uncertainty by (1) removing all personal items, furniture, and garbage from the building, and (2) starting demolition by ripping out sheetrock, ceilings, carpet/flooring, cabinets, insulation, doors, etc. The emptied-out or stripped-out house will be much easier to estimate, causing the rehabbers to lower their contingency budgets and offer more for the house. Additionally, whatever labor you perform is labor they don't have to perform. Order a dumpster, wear gloves, and an N95 mask.

Of course, this effort is wasted if the buyer wants to demolish the house, or if a buyer appears at your high price range. So you only do this if it's been on the market 3-4 months. And, frankly, this kind of work is not for everyone. It's dirty, dangerous, labor-intensive, and smelly.

Finally, take lots of pictures for the listing. You need 20+ pictures showing both the damaged and undamaged areas in great detail. This screens out the unserious people while also giving the serious people some information to work with.

[Paper Chaser]

I don't think the intentions of the buyer should concern you.

It's a simple reverse-auction strategy of initially setting a high price and lowering it until a buyer bites. This is how you get the highest price. The realtor suggesting you start at the low-end price might deserve to be fired. They are out for a quick buck.

That said, you have to manage the costs of the building while you're waiting for someone to buy it, so don't hang out at the high end for too long. I suggest initial pricing at $185, and in two months lower to $175, and if that doesn't work lower it to $165 two months later. If you end up taking $155 after all that, then at least you know that was exactly what the market will bear.

Waiting to make price adjustments or sticking to a given price might work in rising markets, but it hurts twice as bad in falling markets where you're forced to cut the price after the market value has dropped.

If the price starts at $185, and eventually sells for $155 4-6 months later you've just spent 4-6 months worth of carrying costs while price discovery took place, and the price the market might bear could've gone down as we're now exiting peak selling season in most locations. I'd price it at the lower end in order to avoid holding the property for weeks or months longer than necessary while the market goes through seasonal cooling. It's better to sell now for 155 (perhaps undervaluing it), than to carry the property for a few months and then sell for 155 fair value.

[icyappraiser]

Thanks, all. Our initial thought was that $155 was low and purposely listing low doesn't make much sense with investors, who won't be as emotionally invested in the purchase.

We'd like the property to move relatively quickly so we can have the $ towards a new home purchase. That being said, we would of course wait a few weeks for an extra $10K. But we don't see the value in waiting 4 months for an extra $5K (which is negated by carrying costs as mentioned). Our tentative plan was to list at $169,900 and if we don't receive offers within 14 days to quickly cut to $159,900.

@johnnyqnola understand it is hard without more details on a forum. The stuff that definitely has to get done is rebuilding a portion of the front facing wall and the front gable of the attic/roof from the fire and replacing flooring/drywalls/ceilings in the front rooms from water damage, and basement carpet/drop ceiling (water soaked through to basement). Otherwise most of the walls and the foundation are fine. Plumbing was untouched and electrical is OK except for 2 circuits near the fire damage which were already taken out by the restoration company the day of the fire.

[sonofsven]

I would list it at your absolute lowest acceptable number. It's possible that it would create enough interest that it would be bid up.
Indicate that you will entertain offers for a specific period of time, one week, one weekend, whatever. Then take the best offer and move on.
High prices initially can kill any momentum, while low prices generate interest.

[Dicey]

I would list it at your absolute lowest acceptable number. It's possible that it would create enough interest that it would be bid up.
Indicate that you will entertain offers for a specific period of time, one week, one weekend, whatever. Then take the best offer and move on.
High prices initially can kill any momentum, while low prices generate interest.

Agreed. Home prices are sliding. Start reasonably and walk away happily.

[GilesMM]

Thanks, all. Our initial thought was that $155 was low and purposely listing low doesn't make much sense with investors, who won't be as emotionally invested in the purchase.

We'd like the property to move relatively quickly so we can have the $ towards a new home purchase. That being said, we would of course wait a few weeks for an extra $10K. But we don't see the value in waiting 4 months for an extra $5K (which is negated by carrying costs as mentioned). Our tentative plan was to list at $169,900 and if we don't receive offers within 14 days to quickly cut to $159,900.

..

Sounds reasonable.  I would have the realtor make a plan to get feedback from all the flippers that come look.  I would even consider showing it to them myself to get their ideas and thoughts unless the realtor had a strong reason to demonstrate that was a bad idea.  I have bought and sold tricky homes via extensive direct interaction with the counterparty and it has been very successful for both parties (and our realtors).

[2034 ER BSC]

Had to do this about a year ago and priced it competitively to move it quickly. To me, the after repair value didn't justify the time and effort to rebuild it.

What part of the US are you located? If the property is salvageable I may be interested in taking a look at it.