An Offer for a House in Need of Work

How to Calculate Offer Price for a House in Need of Work/Repair

Are you planning to buy a house that needs work?

In the real estate world, this is probably one of the easiest ways to own a property without paying a lot. That is, if you can manage to make an offer that will factor in the appropriate cost for every remodeling work required.

Construction of new homes might have increased, according to a 2017 report in Fortune, but people continue to buy existing properties, including fixer-uppers.

If you plan to do the same, make sure to offer a price that takes into account the cost of renovation. How do you do this exactly?

It is important to understand the types of properties that need work and how their prices are calculated.

• Fixer-upper homes

Sold as-is, these homes are often priced based on comparable sales minus the estimates for repairs. These home typically are priced well below market rate to cause a bidding war in order to get the best offer.

• Foreclosure houses

Even when sold as is, similar to a fixer-upper, you are unlikely to get a discount off the asking price. Bank owned properties are usually reluctant to lower the asking price.

• Short sale house

Buying such a home is a complicated process. A short sale happens because a seller can no longer afford to make mortgage payments which means they can’t also pay for repairs when required. On top of these, lenders are unlikely to cooperate unless the price is in line with the real estate market.

• Vintage houses in mint condition

Although such properties sell at a premium, the need to modernize it may have an impact on the asking price. A premium price pad is often added on top of the comparable sales. This is one of the houses that need work where a seller can dare to raise the price higher. It is up to you to pay the asking price or negotiate a discount.

• Newer but outdated properties

Would you pay top-of-market if the house requires upgrades? Unlikely. You can ask for a discount based on the cost of home improvement.

How to Calculate an Offer to a House That Needs Work

Seek professional real estate advice

Hiring an experienced real estate agent remains the easiest and safest way to ensure that you pay the right price for a property. After all, we have the industry knowledge and market connections to provide you the essential information.  Have your real estate agent conduct a comparative market analysis to gather data on sale prices of comparable properties that have recently sold and are located within proximity to the house you want to purchase.  

Hire a building contractor

If realtors can provide comparable property prices, building contractors can provide you an estimated cost of a house’s remodeling work. They can estimate the cost of building materials and the man hours needed to complete a renovation project.

If you plan to repair the house by yourself, you still need to calculate the possible costs you’ll incur. If you lack comprehensive knowledge of the construction market, refer to building contractors just the same.

Consider the extras

For major work you might need to hire a structural engineer, architect, and get building permits. It is important to take them into account when determining your purchase price.  I can recommend contractors that can help keep your cost down.  

Inspections

The buyer should have a general building inspection and a pest inspection. Based on the findings during the inspection the seller might make repairs or give the buyer a credit.  A house that is sold in “As Is” condition means the buyer needs to account for the cost of repairs in their purchase price.

Work out the details

With the data from your real estate agent and the estimated cost from your building contractor, you can then calculate how much to offer a property in need of repairs. 

You should also deduct the cost of extras. From the result, make adjustments for contingencies, such as project delays due to bad weather and fluctuation in the price of building materials.

Now that you know what to do, start shopping for properties in need of work. Make sure to consult with a local real estate agent or contact me if you are buying real estate in San Francisco.