There’s an interesting thing that happens when a buyer is looking at a home that needs some repairs. If a home has paint colors that are off-putting or simply just outdated, a buyer will start ascribing a made-up price to these items. They start making a mental list of items in their head and start to keep a running total of all the items that need updating and what that will cost–then they will expect you to pay for those things! The first problem with this approach is that many times the consumer will grossly over-estimate the cost for these projects. Many times a real estate agent can help to negotiate excellent deals with contractors to help complete these projects at very competitive rates. The second and worse problem is that even though you priced the house “AS IS”, the buyer is mentally tallying up the list of improvements needed, and often will ask the seller to pay for those improvements, by offering much less for the home.
Let’s use my earlier example to show you how this works:
Listing Price: $117,000
A buyer offers $107,000 because the house needs these improvements: Some sheetrock work, a new water heater, the walls are beat up, a nd the interior needs entirely repainted. They are estimating about $10,000 worth of work that needs to be put in (even though we were able to get that work done for the seller for $7000).
Right off the bat, as the seller, you are at a disadvantage. Your home isn’t updated and in excellent condition, there isn’t competition for it. Because there’s no competition for it, the days on the market increase because the other “cute” homes beat it every time, even if the price is right. Because the days on market is high, a buyer will use this information to assume that the home is overpriced. That leads to lowball offers.
Let’s assume that you land somewhere near $114,000. You bought it back in 2009 for $87,000. You made a decent profit so you’re happy. The buyer, in turn, got a great deal on your property! They bought it for a steal because there was so much stuff that needed to be done, and then they put in about $7000 worth of work to the house before moving in because it needed new carpet and paint and odds and ends. Oh, and by doing those improvements, they have instantly added about $30,000 in market value to their new home! WHAT!?
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