Damaged facade

Most home purchases require an appraisal. The appraiser must determine that your house is worth at least the purchase price. So, what if your house is in no condition to be appraised at all in the first place? The process can get a little messy for both the buyer and seller, but sellers do have some options.

Fixing Up the Home to Get It Appraised

Sometimes the home you’re trying to sell won’t meet the conditions for an appraisal. This could be for any number of reasons, including exposed floorboards or water damage to the home.

Brandon Mulrenin, director of brokerage services at Rocket Homes, said it may not suit your needs to repair some of the issues found during an appraisal.

“My recommendation to folks that have these homes that are just trying to get rid of them is not that they go spend a bunch of money out of pocket,” Mulrenin said. “Why don’t you just lower the selling price because it’s not money out of your pocket?”

The data bears out Mulrenin’s suggestion. On CostVsValue.com, Hanley Wood publishes data each year on the cost of 30 different remodeling projects, comparing the cost of completing the project versus the return in property value.

Let’s say a homeowner in Metro Detroit needs to do a full roof replacement. The scope of the project includes removing the existing roof down to the wood sheathing and applying 30 squares of fiberglass asphalt shingles with felt underneath.

What kind of return can you expect from this project? Not as much as you might think. According to the report, having a midrange replacement done in Metro Detroit would cost $21,354; you can expect your property value to increase by $11,826. If you can expect to recoup only 55.4% of your costs, it really doesn’t make sense to me to complete the project.

Selling the Home for Cash

However, if the house can’t be appraised because it’s not in a livable state, no lender will be able to finance it. So, who can you sell it to without losing money on repairs?

“When we list these types of properties, we market them to investors,” Mulrenin said. “Most of these homes, you can’t get financing on them. Your typical home buyer can’t buy the home at all unless they have [the full purchase price in] cash.”

The investors you’re looking for are interested in inexpensive properties to fix up and then either sell or rent quickly. If this path is right for you as a seller, talk to a real estate agent who may know how best to find these buyers.

If you want to attract the biggest pool of potential buyers, you might consider offering seller financing through a land contract.

“The buyer would give the seller a small down payment and then make payments like they would with a mortgage,” Mulrenin said. “That way, the seller’s property is more appealing to a broader spectrum of buyers.”

It’s important to note that with a land contract there are risks for both buyer and seller.

The buyer should really scrutinize the contract. Because the seller holds the title until the purchase price is paid off, a land contract doesn’t come with the protections of a traditional mortgage. If you’re late one time and you don’t have the right provisions included in the contract, the seller can kick you out of the house. Also, be sure you work out a payment structure you’re comfortable with. Will the payment amount remain the same for the entire contract, or will there be a balloon payment at the end?

When a seller enters into a land contract, they should examine income statements and statements of assets and debts from the buyer, just as a lender would, in order to gauge the ability of the buyer to make monthly payments. In addition, you’ll need to determine, in advance, who’s responsible for paying for maintenance, taxes and insurance.

If you’re selling your current house, maybe you’re ready to get into your next one. If you need a mortgage, get started online through Rocket Mortgage or call (888) 728-4702.

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