One topic that comes up often in a market where one in three homeowners is upside down on their mortgage is how to price a home that needs repairs.
Too often, I think that home sellers overlook the reality of the market and conclude that buyers will just adjust their offers for the improvements that are needed in the home.
This is an unfortunate mistake.
Price A Home That Needs Repairs
So here is the thought process that most home owners utilize if they have a home that needs repairs.
Homes like mine are selling for $300,000. My home needs a $15,000 roof, $10,000 in flooring, $10,000 in appliances, and $5,000 in repairs. That is a total of $40,000. I will just price my home at $300,000 and be willing to entertain offers in the $260,000 range.
Long-time readers of the Tallahassee Real Estate Blog will know right away that this type of thinking is broken. They understand that to price a home to sell, one must understand the current supply and demand dynamic, and they must always view home values through the eyes of the potential buyers in the market.
Why would a buyer pay $260,000 for the right to put work and money into a home and still own it at full-market value? Don't you think most buyers would choose a $300,000 house in perfect shape if they are not going to gain any equity for their work and time spent buying a home that needs repairs?
Even if the owner would price it at $260,000, they are not providing the incentive for a buyer to choose a less than perfect house.
Ultimately, you have to price a home that needs repairs in such a way as to account for all the work that needs to be done, PLUS an incentive for the buyer to go through the hassle that would not be required by buying a home in pristine condition.
Selling A Home That Needs Repairs
Ultimately, if you are selling a home that needs repairs, you have to decide who is going to take the risk and reap the benefits for doing the repairs.
If you as the seller repairs the home before putting it on the market, you should expect to get full market value. But then again, what if you don't?
But as the homeowner, if you want to pass the work on to the buyer, are you prepared to provide an incentive to bring a buyer to the table?
If you are financially capable, you should weigh both options before you decide. Of course, we would like to help you through this analysis.
So if you are considering selling a home that needs repairs, please drop me a note and we can schedule a time to review your options to optimize the amount of money you gain from the sale.
Joe Manausa, MBA is a 25 year veteran of real estate brokerage in the State of Florida and has owned and managed his own company since 1992. He is a daily blogger with content that focuses on real estate analytics and providing his clients with a tactical advantage in today's challenging market.