Should you take a risk on that fixer-upper?

Should you take a risk on that fixer-upper?
Date Published: March 23, 2015
Kari McCoy

Dear Kari,
My wife and I have been trying to buy a home. We both have good jobs and we do not have that much extra time to fix up a home. We were clear with our real estate agent that our goal is to buy a home in mint condition. Our problem is that the mint condition homes are selling fast and for more money than we want to pay. Our real estate agent is trying to tell us to look at a fixer property. Our parents are advising us not to even consider that condition of a property. We would like to hear your opinion on this subject.

Answer:
Thanks for your question. It sounds like you have a good real estate agent that is willing to continue in your quest for the perfect home along with your budget criteria. Your parents probably have heard of horrific stories about how folks have bought a fixer-upper where one seemingly small problem leads to a huge problem and then to another problem. The stories are true and I have seen them myself. Let’s look at some ways to troubleshoot the problems upfront. This way you can take advantage of a fixer-upper home instead of the fixer-upper home taking advantage of you.
The fixer-upper home typically offers a discounted sales price, less competition, more desirable neighborhood and in the end, it can be tailored to your taste and needs. Decide if you are the kind of folks who have the ability and time to perform the work yourselves or will the work be performed by paid contractors. Now is the time to be honest and realistic with this decision. In your search for a fixer-upper home you would be wise to select the best location (best schools) with a well laid out floor plan.
The optimal fixer-upper home would be one that has fundamentally good bones and is only in need of cosmetic improvements such as paint, carpet, new light fixtures, new kitchen cabinets, replacing doors, changing out vanities in the bathrooms and so on. Educate yourselves with the high ticket repair items such as a new roof, new plumbing, sewer lines, new windows, rebuilding garages, new driveways, new heating and central air, replacing exterior siding and so on.
Once you have found a fixer-upper home that you like, have your real estate agent create a Comparative Market Analysis. This will show you the hard data showing you what other homes in the area are valued at that are in mint condition.
You will need special contingency clauses in your purchase contract. This will allow you to have inspections and obtain bids of any needed repairs with the understanding that if the work is more than you anticipated then you do not have to continue with the purchase.
I would recommend the pest control/termite inspection to take place first. Make sure to be present when the inspection takes place. Ask questions and know the report is laid out in a two sections. The first section consists of items that must be completed before a clearance can be issued. Section two items, if left alone for a period of time, may turn into section one items. It is good to know that the section two items do not have to be completed in order to obtain a clearance report.
Use caution if you see anywhere on your pest control/termite report labeled “further inspection.” These two little words could mean thousands of dollars of hidden damage. The further inspection items are drawing your attention to an area that the inspector could not see or find enough access for a complete investigation. In the event that this does occur, re-quest the seller allow further inspection. This could be as simple as moving a few boxes away from the garage wall and having the inspector take a fast peek. It could also mean that the inspector may need to drill holes on the outside of the property or cut open a wall to make sure there are not any unforeseen problems such as termites.
Once you are satisfied with the pest control/termite inspection, then get a home inspection. Next, obtain specific bids on each repair or replacement item. Then do the math. If the price of the home with the repairs adds up in your favor, continue with the purchase of the home. If the home requires significant structural improvements, (unless you are a contractor) I would suggest that you just walk away and move on to another home.
Taking on a fixer-upper home project can be exciting. It can also be extremely rewarding and profitable. Folks have made instant equity just by making the right offer that lets them take advantage of the repair in their favor.
One last thought, if you are making the repairs yourselves and find that you are losing too much time with your children or spouse while you are remodeling your home, you may want to consider selling and buy a smaller home in better condition. That may sound silly, yet it is done more than you would think. Happy home hunting!