The house in question was built in the early 70s. It hasn’t had many upgrades. It still has the white tile and black grout counters, original cupboards, single pane windows, linoleum floors and manual garage door opener.
If you have the money, do the upgrades. Why? Because we are dealing with what I call “The HGTV generation”. They expect every home to have Cherry Cabinets in the kitchen, travertine tile in the kitchen, baths and entry and Hardwood floors everywhere else, in fact they think carpeting is unsanitary and will trigger their allergies. They expect new, double paned, energy efficient windows and a two car garage with automatic garage door openers. If you expect this generation of home buyers to do work on the house, you had best be prepared to pay them. Any home that is listed needing, “TLC” is going to bring a much lower price than a home in move in condition.
In addition to the repairs you can see, you may want to have a home inspection done, proactively, to find out if there are any unseen areas that need to be repaired. How new is your furnace, water heater and roof? Are they in good condition in spite of their age? Does your home have public sewer and water, or do you need to also have your septic and well evaluated? Has your home been tested for radon gas? Is there any asbestos in the home? Is your property located in a flood zone? Do you know whether or not there are any wetlands on your property? All these are things you may want to consider when determining what repairs and renovations need to be done and the cost of those items.
If you do not have the time, or the money, or the will, to do the upgrades and repairs, consider advertising your home as eligible for an FHA 203K and/or Fannie Mae Home Style Renovation Loan. For a small fee, an FHA Consultant will come to the house, prepare a repair sheet and even an estimated cost to repair. Your agent can prepare an opinion of the value of the home after the renovations are done, and you can advertise a potential equity in the home to be gained by a buyer willing to do the repairs. The promise of building equity can be a good marketing tool for people selling a home that is in less than pristine condition.
The other alternative is to market the home to investors and cash buyers. These buyers are also going to want to realize a profit in the form of equity. They generally borrow the money to purchase the home and to do the renovations, on a short term basis, at a much higher interest rate than the typical buyer. And they are going to use a specific formula to determine the price they are willing to pay. The formula is this, the After Fix Up Value of the home, less the cost of repairs, less 30 – 40% depending on the strength of the market. The 30 – 40% will pay their carrying costs, interest, points, etc., for the time that will elapse between the date of the closing, through the time it takes to renovate the home, and the time it takes after the renovations are done to market and re-sell the home, plus their profit. Don’t make the mistake of thinking their profit is 40%, it is not, their profit is whatever is left after they pay taxes, filing fees, closing costs, the realtor’s fee, interest, points, etc.
Your realtor can help you to determine all these factors, costs to repair, time to repair, after fix up value, and the amount you, the home owner, can expect to net under each of these scenarios. Then you can determine whether you prefer to put in the time and effort to do the repairs yourself, or whether you would prefer to net a little less and save yourself the time and trouble.
I specialize in renovation loans. If you find yourself in this position, call me and let me help you make a well informed decision and get your home SOLD!
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