Buying a fixer-upper is an appealing concept for the DIY-inclined homebuyer on a budget. However, improving an old or damaged home isn’t easy, and a low price point can be deceiving. Here’s how to gauge whether a house is a diamond in the rough or just a lump of coal.
‘As-Is’ Home Buying
When you’re considering homes that require some repairs, you’re probably going to come across the phrase “as-is” at some point. If a seller lists a home as-is, that means they’re not willing to make any changes or improvements to the home before selling, which could include things like structural issues, Chinese drywall, problems with the roof, and instances of mold and/or mildew. Basically, you agree to accept the home however it comes.
This can feel like a big undertaking, particularly if the house needs a lot of fixes before it’s live-in ready. However, as-is sellers are usually relatively motivated, meaning they may be willing to negotiate with you on the cost. You may be able to convince them to sell for a lower price, making the cost and work of repairs ultimately worth it.
How to Spot a Bargain
There are several early hints that a house for sale might be an especially good deal. Foreclosed homes, for example, can go for extraordinarily low prices while in pretty good shape. “Make me move” listings indicate a motivated seller, who may be willing to negotiate more than a seller in a more favorable position. And of course, any listing that comes in substantially below what you’d expect for the area has the potential to be a good pick.
These can be good ways to sniff out potential bargains while looking at listings, but you can never know for sure until you have the home inspected. Once you have a clear understanding of what actually needs fixing, you can weigh your options. Ultimately, an as-is bargain comes down to two things: does the cost of the discounted price plus the repairs still come in below your budget, and will the repairs lead to a significant profit when it comes time to sell? If both of these things are true, you’re looking at a potential steal.
Signs It’s a Bad Call
An “as-is” home is only a good deal under the aforementioned circumstances. If the home needs major upgrades, such as structural, electrical, or plumbing repairs, the odds are much higher that these fixes alone will push you out of your budget. Unless the house is already selling for a low price, these fixes may or may not impact your bottom line as much as you’d like when selling. Often, minor cosmetic changes make a bigger difference toward increasing a home’s value – but even those aren’t worthwhile if they push you out of your price range.
If a home isn’t being sold as-is, you may be able to get the homeowners to make some repairs before you buy. Some fixes can’t be made while you’re living in the home — in that situation, it makes sense to ask the sellers to do the work. Even if you can live in the home while repairs are ongoing, you might not want to. Strongly consider what you’re willing to live with, and then ask the sellers to handle anything you’re not before you agree to a sale.
Of course, there’s always a chance that, despite everyone’s best efforts, you and the seller won’t be able to reach an agreement. In this situation, it’s usually best to walk away. It may be tempting to compromise on your requirements in order to get the house you’re interested in, but think carefully about this choice. After all, a house that needs more repairs than your budget can handle is still out of your budget — even if the initial price is perfectly affordable.
Remember: There will always be other houses on the market that catch your eye. Don’t romanticize a house into being “the one” and put yourself in a bad position. Only buy a home you can afford that needs work you’re willing to do.
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