Need your collective wisdom

cpateNovember 14, 2012

We recently moved into a new custom home out in the country and moved out of the house in which we'd lived for nearly 30 years. My question is about selling the older house.

Some background because I don't think you can give me advice without knowing the situation...

We own the old house free and clear. It is in a booming city that was never hit terribly hard by the housing bubble. However the city has traditionally been pretty much divided by a highway that runs down its middle into "white neighborhoods" to the west and "minority neighborhoods" to the east. The market value of homes on the east side of the highway has ALWAYS been anywhere from 20% to 50% LESS than nearly identical homes on the west side of the highway...even when they are in developments that are virtually identical.

The actual neighborhood in which the house sits was developed in the 60's. It is on the east side but is VERY convenient to downtown and also has easy access to major highways. It was settled by a mixture of white collar professionals (mostly minorities) and blue and pink collar workers (a blend of Anglos and minorities). Despite its age, most of the homes (although not all) have been well maintained. Nevertheless, to realtors the neighborhood has been considered to be "on the wrong side of the tracks" so oftentimes, whenever the original owners sold, realtors would only show the homes to minority buyers or those looking for rental property so, over time the ratio of homeowner to renters went down and about the only Anglos who remained were older homeowners who'd purchased when the development was brand new or their children who chose to stay on in the neighborhood where they had been raised after inheriting the homes. (As Anglos, when we bought 30 years ago, we practically had to fight with our realtor to get her to show us any homes in the neighborhood! I remember her specifically telling us "you don't want to buy there... it's going downhill." We're contrarians tho and we liked the racially mixed neighborhood so bought anyway. Only sold because we've always wanted to live out in the country and could finally afford to buy 4 acres and build...again in a nice racially mixed neighborhood. LOL!)

When we moved out two years ago, our intention had been to do some cosmetic work on the old house and then sell it. It needs new carpet upstairs, a paint job, and some updating on the kitchen cabinets. We had (and have) no desire to be landlords. However life intervened and the cash we'd expected to have on hand to pay to fix up the old house was spent on dealing with a family emergency so the house sat empty for two years. We kept the power and utilities on, kept the yard up, and dropped in often enough that the house did not deteriorate but we simply have not been able to get together the cash to do the necessary sprucing up. And with the mortgage on our new home, we're not really happy about the idea of taking out an additional loan for fix-it-up money. A year ago, we let a friend who'd lost her home in a fire move in while she rebuilt... charging her only enough in rent to pay for the taxes and utilities. She just moved out a few weeks ago.

Then, last week, out of the blue we were contacted by someone wanting to buy the house. (My guess is that they saw our friend moving out and decided that the owners just might want to sell.) We agreed to let them come out and look and they made us an offer on the spot for an "AS IS" buy. We figured it was probably a totally low ball offer from a flipper who figured we were probably desperate to sell. So we told them that we wanted to have an appraisal done before we made any decisions. Turns out that the offer is only about 8% below the value the appraiser gave us for the house "as is." However, the appraiser also let us know that our neighborhood is now one of the hot new places to buy.

Reason? the old city airport which was also on the east side and just south of our neighborhood was moved about 10 years ago and a brand new housing development was built on the old airport land. That area is VERY HOT and apparently the new development's popularity has been enough to FINALLY start breaking down some of the racial bias against neighborhoods on the east side. Young professionals who can't quite afford the steep prices in the really hot new neighborhood have been looking around at some of the nearby neighborhoods and seeing the great deals available. So sales in our neighborhood have been heating up as well.

He estimated that if we put $10K to $12K into cosmetic work, we could ask for and get another $40 to $50K. We had already put in hardwood floors downstairs and remodeled the bathrooms but the upstairs still has carpet (that badly needs to be replaced) and the whole house could use a paint job and it is probably time to redo the roof. Also, the windows are old single-pane glass but we're in a cooling regions and the house is heavily shaded by some huge oak and pecan trees so our electric bills were always so low that it never made economic sense to replace the windows. The HVAC is only about 6 years old.

So, after all that long-winded story, my question...

Would you take the offer? Try to negotiation with the buyer to get him to come up to the "as is" appraisal value? Or turn down the offer, borrow the money to do the cosmetic work and take a chance that you could actually get another $40 to $50K when you have the house ready to sell?

We're leaning toward negotiating but are unsure of the best way to go about doing that. Any advice would be most welcome.

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Is this in Austin by any chance?

Anyways I would negotiate the current offer. An offer is better than any unknowns that may not happen. What are the terms as far as the buyer paying for the home? If cash you could trynto negotiate above appraisal to see how bad they want it. If financing then you'll need to stick to appraisal.

I would not go into debt for a potential profit, that is unless I wanted to be a flipper myself and deal with all that comes with remodeling etc.

    Bookmark   November 15, 2012 at 12:41AM
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I agree with lyfia, don't borrow to fix for the unknown, counter the existing offer.

    Bookmark   November 15, 2012 at 9:10AM
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If you're spending another $10k to $12k, to make another $40k or $50k - remember, you need to subtract your investment back out of that. So you are really only making $28k to $40k and remember, remodels frequently cost a lot more than you originally thought. Plus when you go to sell, chances of a buyer buying "as is" may be greatly reduced. You may have to discount the house depending on what pops up in the ispection. You will also have a termite inspection to pay for, possibly other things, and you will have realtor commission. It definitely is better to work with your existing offer.

Hate to sound so negative - maybe you CAN flip your own house and do very well with it. Other people have been successful at it, but most of these people have been doing it for a while. I would think first time flippers would have a much harder time at it. I don't think I would take the risk, myself.

Good luck

    Bookmark   November 15, 2012 at 9:48AM
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I'm thinking a bird in the hand is worth two in the bush. I would probably try to work with the buyer I have and move on with my life. There is no telling how your local economy is going to do in the time it would take to fix up the house in order to sell it. You may not make the money you would like. You've already moved onto your dream home. I would use my time to work on it, meet my neighbors and enjoy my life.

    Bookmark   November 15, 2012 at 10:33AM
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Always counter. Also, are they coming with a realtor or without? (will you have to be paying any realtor fees)?

I'd aim to go above your appraisal price by some percent, and see what they counter with.

    Bookmark   November 15, 2012 at 11:29AM
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Go with a counter offer As - Is like kirkhall suggests...
Today's jobless claims report is at a two year high.

    Bookmark   November 15, 2012 at 4:03PM
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Thanks everybody! "Make a counter offer" was my gut reaction but spouse isn't so sure. Keeps saying we should consider doing the fix-up ourselves so that we get to pocket the profit instead of some flipper. But I am soooooo sick of the whole construction thing. I'd rather spend my free time puttering around in my new home that running back and forth into town to supervise subs working on the old house. And, what if another family emergency should come along and whack us? Although I don't think we'd have any problems getting a loan to fix up the house - as I said, we own it free and clear - I'd much rather build back up our cash emergency fund than take on additional debt.

So, any advice on negotiating techniques or how to pick a counteroffer number? I don't want to leave any money on the table but, if we're going to take the time to negotiate, I'd rather not scare this buyer off by initially countering with too high a value. A local friend who just got her real estate license suggested that we counter at 20% above their offer. But dearly as I love my friend and knowing that she has our best interests at heart, I also have to recognize that she doesn't really have much experience so may not be giving me the best advice.

Can I expect a flipper - who sought US out, and has already made two trips out to see the house and now want to make a third trip on Tuesday to "take more pictures and make some measurements" - to be willing to pay at least the appraised "as is" value? I actually think the appraisal we got is a bit low because one of the comps used was a foreclosure sale which pushed down the avg value by quite a bit. BTW - buyer is saying that this would be a cash sale, closing by Thanksgiving, no realtors involved.

And Lyfia - you guessed correctly that this is Austin. I suppose anyone who lives here would have recognized the description.

Thanks in advance for all advice.

    Bookmark   November 16, 2012 at 2:07PM
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Anyone who is making a third trip to the property is likely willing to pay more than their original offer.

From their focus on cash and a quick close, it is likely they are hoping the property is distressed and that you are willing to sell at a discount.

I would let them know that you were thinking of renovating yourself and reselling (implying that you have no pressing need for funds or to sell immediately. Let them know that their offer is low, but that if their highest and best offer is reasonable, you would be willing to sell.

If you can't talk them into negotiating against themselves counteroffer some percentage above the appraisal.

    Bookmark   November 16, 2012 at 2:42PM
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Yes, I'd go some percentage above appraisal. They will likely have their own appraisal, so you don't need to provide yours. You can use the comps on the appraisal you got, except the foreclosure one (take that out of the equation) and use them to present your counter offer.

    Bookmark   November 17, 2012 at 1:36AM
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I'm with kirkhall: take your appraisal, remove the foreclosure and counter back with the average of the remaining comps (adjusted, of course).

    Bookmark   November 17, 2012 at 8:04AM
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I think invisible hands advice is good as to how to get them come up without having to give a number yourself.

    Bookmark   November 17, 2012 at 8:48AM
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