In April, we talked about the need for sellers to make their house “showing-ready” by decluttering and doing all those repairs/maintenance they have been putting off. Here’s a quote from David Bracken in the News & Observer
The combination of historically low inventory levels and more buyers in the market has created a dynamic where sought-after homes quickly receive multiple offers while others that are in need of work languish on the market for months.
What if you can’t do the repairs? Perhaps there is just too much work needed, or its something you can’t do while you are living in the house. By not fixing things yourself, you restrict yourself to two major groups of potential buyers;
- Owner-occupants who are willing to fix-up the place
- Real estate investors
It’s worth taking the time to understand how an investor evaluates the property. For our example, let’s assume you are selling a house worth $200,000 fixed up [a pretty average house in Durham] and those repairs would cost $10,000 [interior and exterior paint, new carpet throughout and some minor deferred maintenance]. Let’s go through three scenarios;
1. Repairs are made and the house sells at “retail.”
This one’s easy – you get $200,000 for the house, less the $10,000 for repairs or $190,000 net
2. Property sold “as-is” to an owner-occupant who will make repairs.
First of all, you have to find one. Most owner-occupants want something they can move right into. Finding someone who will do the work is harder than it seems, and many people who say they will do the work balk when it comes time to buy the house. Oh, and they will always, always overestimate what the repairs will cost – its a negotiating tactic. So your house will take longer to sell and you will get less. In our example, your buyer is going to figure on $15,000 in repairs and offer $185,000 for your home. And you’ll take it because your other choice is . . .
3. Property sold to an investor.
On the surface, this sounds like the perfect solution. investors don’t care much about commission, pay in cash, and close quickly – sometimes in a week. But here’s how the investor will look at the numbers
$200,000 — After Repair Value [what he will get when he sells it]
-$50,000 — Investor Gross Profit [No, he doesn't pocket all this]
- $10,000 — Cost of repairs [the investor knows how much repairs will cost]
$140,000 — Offer to seller
In other words, having an easy sale and not having to do repairs comes at a price
So what’s the takeaway here? If at all possible, do the repairs. Repairs will help sell your place quicker, and maximize your return-that’s cash in your pocket.