Dear Kari,
Our house has been listed for six months and we haven’t had one offer.
Our Realtor has done so much work so we feel for her, too. Our house is a bit run down and needs a new roof and some other repairs but we just do not have the money to fix them.
Do you have any suggestions?
Answer:
Nicer homes are getting lots of attention and multiple offers from investors and other buyers with strong offers (all cash, large cash deposits, or down payments) are leaving many first-time buyers out in the cold — or heat.
Many first-time homebuyers prefer the flexibility and the low down payment option of Federal Housing Administration financing, which is not as appealing to sellers.
With home prices so affordable and the interest rates at historical lows, we must not overlook giving things a twist.
We know that most buyers prefer looking at homes that are clean and in good repair with minimal or minor cosmetic issues.
The “ugly duckling” homes — those requiring repair and or renovation — are usually out of consideration.
Purchasing one of these fixers might require the new homeowners to spend all their weekends working on the home. This could also require the new owner to pay the renovation costs out of pocket or charge up credit card debt to pay for the materials.
Remember, the seller cannot afford to pay either.
Considering a home that is in need of repairs — even major repairs or renovation — should not be discounted. The Federal Housing Administration offers a loan program designed for this purpose.
The FHA rehabilitation loan allows for the costs of repairs and rehabilitation to be added to the acquisition or purchase price of the home.
For example, let’s say the buyers get an accepted offer on the home for $100,000. Let’s say the costs of repairs ($25,000) are added to the loan balance, giving us a total of $125,000.
As long as the home will have an appraised value of more that $125,000 when the rehabilitation work is complete, buyers should get a loan approval.
The escrow period occurs as usual — the loan funds are wired to escrow — and the rehabilitation money is held in escrow until the rehabilitation is complete.
Monetary disbursements are made to the contractors performing the work at prescribed intervals depending on the nature of the work.
The benefits to the homebuyer are several. The buyer is now free from doing the work, there is no out-of-pocket money needed for supplies or labor, and the interest is deductible.
Buyers should take some time to look past the ugly and into the future to imagine what a fixer might look like after being renovated.
What are some common items that can be renovated or repaired? A new or repaired roof, electrical systems, plumbing, new energy efficient windows, doors, kitchen cabinets, countertops and appliances, bathroom cabinets, fixtures and showers, carpet, hardwood flooring, or tile and new paint.
The list goes on. The Federal Housing Administration even allows for freestanding appliances.
About the only thing not allowed would be the addition of a pool or landscaping.
You might be able to avoid the competitive bidding process and ultimate rejection (from being outbid) on the homes that everyone also wants, by targeting their search on fixer homes that most people are not interested in.
Buyers just might bypass all the fuss and get an accepted offer because they might be the only offer this fixer home has seen in a long time and they can build their equity much faster.
The sky is the limit.
Kari McCoy, CRS, has been a Realtor for more than 25 years and owns the Kari McCoy Group, Residential Real Estate, at Coldwell Banker. Call her at (916) 941-1540 or e-mail her at sold@karimccoygroup.com.
