Considering a Fixer-Upper? Follow This Checklist First
With home prices rising at exponential rates and more competition than ever, many buyers are having to explore alternative options.
One of those? That’d be fixer-uppers, which tend to offer a low price point (albeit more work) than a traditional, move-in ready home would.
But make no mistake: Fixer-uppers aren’t always a great deal. Sometimes, they come with serious problems or even safety hazards, and hidden costs are common.
Considering a fixer-upper and want to make sure it’s the right choice? Go through this checklist before making your move.
1. Do your research.
Fixer-uppers can sometimes be money pits, so it’s important to know all you can about a property before signing on that dotted line.
First, ask your agent to look into the history of the home. How many times has it been listed, de-listed, and sold? How long has it been on the market? Are there any seller’s disclosures you need to know about?
You can also use local property records to learn more about the house when you’re considering a fixer-upper. Has it been foreclosed on? Are there liens against the property? What building permits have been applied for at the address? These details can all give you a better picture of the home and its story.
2. Walk the home with a contractor.
When you tour a potential fixer-upper, don’t go it alone. Always bring along both your agent and a trusted contractor or construction pro. They can help you spot potential problems right off the bat, as well as recommend areas that might need updating or fixing in order to make the home marketable.
3. Get a handle on the repair costs.
After you’ve walked the home, ask your contractor to draw up a rough estimate of the repairs and upgrades they think the home needs, as well as their costs (labor and materials included). You’ll need to factor these costs into your offer if you plan to bid on the home, so make sure they’re as detailed and accurate as possible.
4. Estimate the future value of the home.
To make sure the home is a good investment, you’ll want to get a good idea of its value — the final value, once your repairs and renovations are complete. Your real estate agent should be able to help you with this by using comparable sales figures in the area.
If you’re considering a fixer-upper to flip and sell later on, try and follow the 70% rule when you make an offer. Under the 70% rule, you should pay no more than the 70% of the home’s after repair value — minus repair costs — if you want to make a profit.
5. Understand the local market.
You should also work to understand the local real estate market, too — especially if you think you’ll sell the home in the next few years. Given the home’s current state, as well as the renovations and repairs you’re looking to make, will there be demand for the property down the line? Will it align with local buyer preferences? Will it gain value and give you a good return on your investment? Your agent can help you with this step as well.
6. Get a full home inspection.
If you make an offer, make sure you include an inspection contingency, and get a professional home inspector out as soon as possible within that inspection window.
The inspector will give you a full report detailing the home’s problems, defects, and safety hazards, and you can use it to either renegotiate with the seller or even back out of the deal entirely. It can also serve as a great punch list that your contractor can work off of. (You should have them update their repair estimate based on it, too!)
7. Take in the full picture when considering a fixer-upper.
Finally, sit down and look at the full picture. Now that you have an accurate idea of what the home will take in terms of repairs, renovations, and costs, does it fall in line with your budget? What about your timeline? Do you have the time to complete all the necessary repairs and fixes? Will you be able to live there during the renovations, or will you need to keep your existing property until they’re complete?
You should consult your professional partners here — your inspector, your contractor, and your real estate agent — and get their opinions. Is the home worth it? Or is there likely a better deal out there?
Ready to get started?
If you find that fixer-upper is the right fit, you’ll want to get pre-approved for your mortgage loan before submitting an offer. Contact the Embrace Home Loans office in your area to get started today.