Selling a home that needs significant repairs...things to do?

[Roland of Gilead]

We want to sell our riverfront house but it needs some significant repairs.   Some of these are cosmetic, but others probably would be flagged before a loan could be made.   I am hearing estimates of $60,000 to $100,000 to do everything.

It isn't a teardown and is quite livable, but being so large (4000 to 5000 sq ft of space with a 5 car garage) the various areas that need things really add up.

We want to be out of here in a couple of months.  No loan on the house but I don't want to totally give it away either.  What I really don't want to do is watch $100,000 vanish from my bank account and end up with a house we still can't sell for some reason (slow market, too expensive, botched repairs).

I really am leaning toward an as-is sale targeting cash buyers, but have no experience in this.   Do you think a real estate agent is necessary?   We can drop the price $15,000 more if we don't have to pay commissions.

[Cassie]

From what I have heard you end up with less $ when you sell as is but I am sure that more experienced real estate investors can better advise.  That sounds like a ton of $ just to get ready to sell. What is the house worth before & after repairs? I think I would get 3 opinions on that before listing for sale. You won't be obligated to use any of the agents.

[Tjat]

Sounds like you have an investment property, but the good news is you already own it!

Why not get an assessment for the as-is price, contract with a flipper, have him do his thing, and sell it much improved? Then your profit is the sale price - initial assessment - contractor costs that you can divide in some fashion.

However, if you prefer to do zero work and just be done with it an as-is sale could work, but it seems like a shame to leave that additional return on the table. Do you have an idea of how much you could sell the house for after the repairs?

[GizmoTX]

I'd definitely try to sell as-is at first, disclosing what you already know, so that potential buyers won't think the issues are larger than they are. If you've done an appraisal or inspection, you should include it in your disclosure. You really don't care about cash buyers because even mortgage buyers will deliver cash to you at closing. What you do care about are contingencies that could tie up or ruin the sale -- insist on pre-approvals for those buying with a mortgage & no contingency to sell their house first.

I'd also definitely use an agent in the area who is successful with your kind of property, because s/he knows the market & should have pocket buyers that you won't have access to. In this case, trying to save the commission could very well lead to many months on the market & a lot of wasted time on your end. You want an agent in a high negotiating & educating situation, which this is. I think FSBO works best with a more standard house with no issues in a hot neighborhood.

[Roland of Gilead]

So just scout around until I find an agent that is willing to list the house as-is?

The first agent seemed to want me to do these $100,000 in repairs (probably because it would increase her commission, but claimed it would make the house sell faster and aid in ability for buyers to obtain a loan)

I hate wasting the time of a bunch of agents that I don't end up listing with, but maybe I should get over that.

[MsPeacock]

If am understanding correctly, you may have trouble selling because anyone who needs a mortgage may find that the bank won't lend money on a house that needs such expensive repairs. I would suggest that you get the house appraised (in its current condition - make sure the appraiser is aware of needed repairs and that you have estimates to show), talk to several real estate agents once you have the appraisal about the best course of action, and proceed from there. If the house is priced consistent w/ an appraisal then a borrower should be able to get a loan for an adequate amount of money (particularly if they have a down payment).

I think you have a choice to make between selling the house quickly (e.g. in the next several months) by pricing it competitively (on the low end, given the extensive repairs needed) vs. doing the repairs (which may not have a great ROI, but will make it easier to sell the house) and selling the house down the  road.

Also - 60k-100k is a huge range - maybe get some nailed down more specific estimates. Also, doing the inexpensive cosmetic stuff prior to sale always helps (fresh paint, etc.)

[forummm]

An appraiser or a good home inspector can or a good agent can probably tell you what the bank would require as a minimum to lend against the property. Insurance is another issue where they might balk at some things not being fixed--but sometimes those inspections by insurers happen after closing.

An appraiser might run between $250-500 depending on your area. But they'll also give you a dollar amount as is (and maybe with repairs). It's not a guarantee you'll get that at market though. A good agent could do this for free. But it's hard to know if they are being honest with you as you point out.

[Another Reader]

The only person that can buy your home is likely a cash buyer.  No bank is going to lend on a home that needs extensive repairs.  Cash buyers are often flippers, which mean you will get low-balled on price.

An appraisal in this situation is usually a waste of money.  Most residential appraisers appraise for lending purposes and would have no idea how to value this house.  Even an improved value less cost of repairs is not helpful, because it underestimates the discount you will have to give your typical buyer.  Skip the appraisal and talk to three or four of the most experienced agents in the area.  Tell them you want to sell "as is."  The agents that will be most helpful here are those that handle probate and other estate sales.  Older folks often do not maintain their properties and these properties often sell "as is" during the estate disposition.

If this a unique property with a very small market, you will likely take a huge hit on value, as very few investors are going to take the chance of ending up with a white elephant. 

[GizmoTX]

So just scout around until I find an agent that is willing to list the house as-is?

The first agent seemed to want me to do these $100,000 in repairs (probably because it would increase her commission, but claimed it would make the house sell faster and aid in ability for buyers to obtain a loan)

I hate wasting the time of a bunch of agents that I don't end up listing with, but maybe I should get over that.

You are interviewing them for a job. It's not a waste of time.

[clifp]

If it is a riverfront house, than the land almost certainly is valuable. Do you have an idea how much the lot is worth.  How about the property over all?  A 4000-5,000 foot house is almost certainly not a tear down.  It is also likely out of the price range of a cash buyer wanting to flip it.

I think you'd be crazy to sell it without an agent, one of the kind properties are the ones that most benefit from an agent,  I like the idea of working with agent who has extensive experience with selling older folks houses/probate.

Also the idea of working with person who specializes in flipping houses is a good one,but I think it would hard to find such a person.

[Roland of Gilead]

The lot is a double lot, probably the best in the neighborhood (on our street there are only 5 houses with any riverfront property at all).  I would guess the lot is worth $100,000 to $150,000 by itself (I think the tax assessment values it near $100K).

I am leaning toward going with an agent after all.  I drove a half a mile to another house on the river that was for sale (4000 sq ft and half the size lot/river frontage) and they are asking $449K (down from $499K).   The agent was having an open house and had a lot of signs in town and at the house, so I grabbed a flier and called her from home to set up an appointment.   She is coming over today after the open house.  I figure if she is selling another house in the area on the river, she has some experience, and the extent she went to place signs and directions is encouraging.

I can price ours a lot lower than $449K, but it is possible the other house needs no work.

This is our river front in the backyard.  Great fishing, probably one of the best spots for salmon and steelhead on the river.

[Axecleaver]

If you want to minimize your risk, put it up for sale as-is. If you want to maximize your ROI, fix it up first.

The problem with requiring an all-cash purchase is that you restrict the number of potential buyers significantly. So, you're down to just the house flippers, and flippers have to price risk into their offers, too. While they will do everything possible to be sure they understand the risks in your house, there is still a lot of unknowns with 100k worth of work that needs to get done. That risk ends up driving down your returns.

You can remove that risk by paying for the work yourself. Then, do a good job staging the property to get maximum return on your investment. Good staging makes a huge difference, but you need to have the basics in order before staging can help you.

I liked Tjat's idea of partnering with a contractor to get some of this work done, and share in the profits. Structured correctly you can incentivize him to keep his costs down and share in some of the upside when it sells, while sharing some of the risk if it doesn't sell quickly.

[Fishindude]

Selling it "as is" does not limit you to only cash buyers.
It weeds out the 5-10% down, 30 year mortgage crowd.  Folks who wouldn't have any other significant tangible assets other than the home they want to borrow on.

If a potential buyer has good credit, a 20% or more down payment and other assets or net worth to use as collateral, they should have no problem getting a loan for the home, plus whatever remodeling money they need.

[frugaliknowit]

What repairs do you feel might be flagged by the lender?

For example, if the heating plant is very old, but works, I don't think the bank cares.

[Gone Fishing]

Can you list the needed repairs?

If nothing else, assuming it needs it and you can do it (well) yourself, paint.  Freshening up paint yields the highest ROI of any home improvement. A couple weeks of painting in the evenings and on weekends could easily net you $10-20k more on a house that size.     

[clifp]

Selling it "as is" does not limit you to only cash buyers.
It weeds out the 5-10% down, 30 year mortgage crowd.  Folks who wouldn't have any other significant tangible assets other than the home they want to borrow on.

If a potential buyer has good credit, a 20% or more down payment and other assets or net worth to use as collateral, they should have no problem getting a loan for the home, plus whatever remodeling money they need.

Various loans have various restriction, conventional loans have relatively modest requirements if the home is habitable. Fannie Mae loans require appliances to be working no major plumbing issues.
VA,FHA, and agricultural loans are even more restrictive.  A realtor should be able to tell you specifically what you need to do make your home eligible for each loan. I think the only one which is  really important is Fannie/Freddie.

[Fishindude]

Various loans have various restriction, conventional loans have relatively modest requirements if the home is habitable. Fannie Mae loans require appliances to be working no major plumbing issues.
VA,FHA, and agricultural loans are even more restrictive.  A realtor should be able to tell you specifically what you need to do make your home eligible for each loan. I think the only one which is  really important is Fannie/Freddie.

A person with suitable credit can get a loan to buy this property, or any other, in any type of condition, so long as they have appropriate collateral and can prove the ability to re-pay the loan.

[Axecleaver]

A person with suitable credit can get a loan to buy this property, or any other, in any type of condition, so long as they have appropriate collateral and can prove the ability to re-pay the loan.

Fishin, that has not been my experience dealing with bank mortgages. Underwriting has long lists of requirements that the property must comply with before they will agree to fund the loan. Examples include working appliances, a heating source, running water/adequate well flow rates, functional plumbing, a connection to a sewer system or functional sewage tank and leach field, a functional roof, grounded outlets, GFI outlets in the bathroom and kitchen, and on and on. Deficiency of even one item on the list is enough to prevent a mortgage from being granted.

The OP stated that "some items would be flagged" which I took to mean would prevent a mortgage from being underwritten unless fixed. His options would be to fix the problem or to seek an all-cash buyer who didn't need a mortgage.

[justajane]

What about providing a few allowances or credits to the buyer to sweeten the deal? It's all funny money, but for the uneducated buyer, they might lead more people to make an offer. For instance, I've seen 4K "flooring allowances" or 10K "air conditioning allowances." Then adjust the price upwards accordingly.

It would help if you could list the specific repairs.

I would definitely pay money or do some sweat equity to do cosmetic repairs. This would give the house the illusion of being in better condition than it actually is. You might still have some sellers that bail in light of the major repairs, but it only takes one.

[Fishindude]

Fishin, that has not been my experience dealing with bank mortgages. Underwriting has long lists of requirements that the property must comply with before they will agree to fund the loan. Examples include working appliances, a heating source, running water/adequate well flow rates, functional plumbing, a connection to a sewer system or functional sewage tank and leach field, a functional roof, grounded outlets, GFI outlets in the bathroom and kitchen, and on and on. Deficiency of even one item on the list is enough to prevent a mortgage from being granted.

In the event you are talking about someone who is applying for a loan to purchase a home to move into, where this home will be the only collateral against the loan, I don't doubt that you are correct.

What you have to consider, is that many folks have significantly more assets than this home they are wanting to get a loan on.
Say for instance I make the deal to purchase the home in question for $400,000, 20% down, borrow $320,000.  Then after appraisal, it is determined there are many things wrong and it only appraises for $200,000.   So long as I have other personal assets that I am willing to pledge as collateral, such as another paid off $400,000 property, I should be able to get this loan no problem.  These type of loans happen every day.

[clifp]

What you have to consider, is that many folks have significantly more assets than this home they are wanting to get a loan on.
Say for instance I make the deal to purchase the home in question for $400,000, 20% down, borrow $320,000.  Then after appraisal, it is determined there are many things wrong and it only appraises for $200,000.   So long as I have other personal assets that I am willing to pledge as collateral, such as another paid off $400,000 property, I should be able to get this loan no problem.  These type of loans happen every day.

Yes money is fungible, film at 11.  The number of people without a $400K property that could be used for collateral is much larger than those without.  We are trying to find a situation that the OP can get spend as little as possible to get his property fixed up so as many people as practical can qualify for a loan.

[aj_yooper]

If your house is on a double lot, are you able to sell one, assuming the house is not on both?  That might provide much of the funds for your renovations ($50-75).

If the sale price on your home is, say $450, and the lot yields $50-75, then you have the renovation budget.  $60-100 in repairs on a $350 house, net of second lot, is a very big upgrade.  Narrow down your list of fixes and get some estimates so you know what's up.  Having the realtor come by and do a walkthrough is a good start.

Best of luck.