Assess the Real Cost of a Fixer-Upper.
Trying to decide whether to buy a fixer-upper house? Follow these seven steps, and you’ll know how much you can afford, how much to offer, and whether a fixer-upper house is right for you.
#1 Decide What You Can DIY
TV remodeling shows make home improvement work look like a snap. In the real world, attempting a difficult remodeling job that you don’t know how to do will take longer than you think and can lead to less-than-professional results that won’t increase the value of your fixer-upper house. Do you really have the skills, time and desire to do it? Can you take time off work to renovate or manage contractors to complete work on your fixer-upper house? If not, will you be stressed out by living in a work zone for months while you complete projects on the weekends?
#2 Price the Cost of Renovations Before You Make an Offer
Get your contractor into the house to do a walk-through, so he can give you a written cost estimate on the tasks he’s going to do. If you’re doing the work yourself, price the supplies. Either way, tack on 10% to 20% to cover unforeseen problems that often arise with a fixer-upper house.
#3 Check Permitting and Costs
Ask local officials if the work you’re going to do requires a permit and how much that permit costs. Doing work without a permit may save money, but it’ll cause problems when you resell your home. Decide if you want to get the permits yourself or have the contractor arrange for them. Getting permits can be time-consuming and frustrating. Inspectors may force you to do additional work, or change the way you want to do a project, before they give you the permit. Factor the time and aggravation of permits into your plans.
#4 Double-Check Pricing on Structural Work
If your fixer-upper home needs major structural work, hire a structural engineer for to inspect the home before you put in an offer so you can be confident you’ve uncovered and conservatively budgeted for the full extent of the problems. Get written estimates for repairs before you commit to buying a home with structural issues. Don’t purchase a home that needs major structural work unless:
- You’re getting it at a steep discount
- You’re sure you’ve uncovered the extent of the problem
- You know the problem can be fixed
- You have a binding written estimate for the repairs
#5 Check the Cost of Financing
Be sure you have enough money for a down payment, closing costs, and repairs without draining your savings. If you’re planning to fund the repairs with a home equity or home improvement loan, get yourself pre-approved for both loans before you make an offer and consider making your purchase sale contingent on getting both loans.
#6 Calculate Your Fair Purchase Offer
Your Realtor can help you assess the fair market value of the property (what it would be worth if it were in good condition and remodeled to current tastes). From there, you’ll subtract the estimated cost to renovate + 10-20% for unexpected expenses/cost overruns. Don’t forget to consider expenses like the cost of living elsewhere during the remodel, if needed, and the costs of funding the renovations. You may also want to factor in the time and inconvenience of the project. What is that worth to you?
#7 Include Inspection Contingencies
Don’t rely on your friends or your contractor to eyeball your fixer-upper house. Hire pros to do common inspections like:
- A professional home inspection is key in a fixer-upper assessment as they can uncover hidden issues in need of repair
- An environmental inspection can test for mold, asbestos, and lead-based paint and other hazardous materials that might be costly to abate in a remodel
- Plumbers or specialty contractors can verify the supply and sewer lines or septic and well systems are in good working order and can accommodate your remodel or alterations
By thoroughly completing your due diligence, you can mitigate much of the risk associated with purchasing a fixer-upper. Having remodeling skills or connections to outstanding contractors is critical. Lastly, purchasing a home that is simply tired and dated, rather than having significant deferred maintenance, will help you keep your project in the black.
Still have questions? Contact one of our knowledgeable brokers for assistance with how to determine your best sale price based on both the average and median price trends.
See what happened in your neighborhood in this weekly report by price segment for the entire Seattle-Eastside market.
G.M. Filisko is an attorney and award-winning writer for the Realtor Content Resource. Republished with permission of National Association of Realtors.
We earn the trust and loyalty of our brokers and clients by doing real estate exceptionally well. The leader in our market, we deliver client-focused service in an authentic, collaborative and transparent manner and with the unmatched knowledge and expertise that comes from decades of experience.
© Copyright 2019. Information and statistics derived from Northwest Multiple Listing Service.