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How to make an offer on a house that needs extensive work

Posted by mrsgomez (My Page) on
Wed, Apr 25, 12 at 7:42

Hello,
My husband and I are considering making an offer on a house that obviously needs extensive repairs. How can we determine the amount we should offer given its current state? Can we do an inspection prior to making an offer and get estimates for the repairs needed?

For starters, the house was in need of structural repairs due to termite damage to joists/sagging floors (is that a red flag that should make me run from this property?). The seller is currently replacing the affected joists and hardwood floors. I'd obviously need a thumbs up from a structural engineer before buying this house.

Beyond that, there is a laundry list of repairs and renovations that would be needed. I have an idea of what the house would be worth once it's restored, but am not sure how much $$$ it would take to get there.

What would be the best way to proceed?

Thanks!


Follow-Up Postings:

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RE: How to make an offer on a house that needs extensive work

"structural repairs due to termite damage to joists/sagging floors (is that a red flag that should make me run from this property?)."

Generally yes unless there is some feature that makes the place really worthwhile.

If there is termite damage to that level it has been prolonged and ongoing, and there is very likely other damage that only a VERY careful inspection is going to find.

I repair and rebuild houses with significant damage sometimes, and have done a termite house in the past.

It was one of the few not worth the effort.


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RE: How to make an offer on a house that needs extensive work

You need a good idea how much repair is required and you need a price that is low enough to allow for those repairs plus a good allowance for the unexpected and finally you need a house that is worth repair. If you wind up with a house in a poor location for instance just because it seemed cheap, you've made a poor investment.


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RE: How to make an offer on a house that needs extensive work

I never understood how people place offers on houses based on how much they think they will need to spend to bring the place up to par. To a certain extent, whatever you want to spend is your problem, not the sellers. I am sure they are already aware of the issues this house has, and the asking price should already reflect those issues, right?

The way you describe the house, it sounds like it would be better off as a complete tear-down. This place would have to have a signifigant historical value or a majestic setting in order to be worth the effort.


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RE: How to make an offer on a house that needs extensive work

Typically a house is priced based on its condition already. You can try to do an inspection prior to making an offer, but I honestly dont think you would get your offer accepted by deducting the cost of a complete renovation. You would probably be wasting your money on an inspection.


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RE: How to make an offer on a house that needs extensive work

A house should be priced based on its current condition, but it often is not. There's nothing wrong with taking the "restored value" (likely somewhat higher than asking price) and subtracting "fix-up cost" to come up with an offer.

In addition to the termite issue, is the work needed along the lines of cosmetic updating? Like gutting a kitchen or bath or replacing carpet? Or does the house need to be re-wired? If it's the former, you could do a walk-through with a general contractor to get estimates and use those numbers. If it's behind-the-walls stuff, it'll be tough to get an estimate.

If you've not been through a whole-house remodel before, and aren't equipped to DIY it, I would be very careful about jumping in to something like this, because it could be a money pit. If you're DIY-ing a money pit, all you're potentially out is a lot more time than planned. But if you've got to hire it all out, you've got the potential to be taken to the cleaners if more problems are found along the way and you have to trust the pro's to fix them.


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RE: How to make an offer on a house that needs extensive work

Why do you want to purchase such a risky unknown? What is available here that you can't find elsewhere? It would have to be a heck of a positive, such as being lakefront in a highly sought after location to be worth the hassle and money. And if it has such a desirable location, you probably won't get very far by doing a lowball offer. Investors would be ready to snap it up and you'll lose out.

A home like this should only be a possibility if you are extremely experienced in construction, i.e already a contractor or have DEEP pockets. Anyone in the middle "bargain hunting" should run away. The house will win every time.


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RE: How to make an offer on a house that needs extensive work

Well it sounds unanimous that I should run from this property :)

I've been daydreaming about this house for the past year because it is one of very few we've seen that meets our criteria. We are looking for a larger home in our current town and trying to stay within walking distance of shops/school/train, which limits the available inventory of houses. Most houses in this town were built in the 1920s and have tiny lots, often only one bathroom, no garage/driveway, etc... Not only that, most houses we've seen have their share of repair issues given their age -- things like knob and tube wiring, asbestos, rotted wood, old roofs, odd do-it-yourself renovations, you get the picture.

The main selling point for us is that the yard is private and backs up to an open field that will never be built on. The house itself meets most of our admittedly picky criteria... well, aside from its poor condition. In two years of looking, this is the first house that's really interested us.

It's an estate sale, and I don't think the house has been lived in for quite some time. The original listing price was insane, and even after dropping it by $100k there was still no interest, according to the realtor. That's why I was trying to arrive at an offer price independent of what they're asking.

It's not that I want them to pay for upgrades that I *want*, or that I'm looking for a bargain. This house just needs a lot of work and the sale price should reflect that. I guess in my mind, I could pay (just making up numbers here) $600k for a house that's decent, or $400k + $200k in renovations to get everything I want in a house.

Admittedly, I love old homes and the idea of restoring them to their former glory. We've done a lot of repairs and renovations to our current old home, so I'm well acquainted with the stressful surprises that creep up, and the feeling that there will always be more to do (and $$$ to spend). I am probably just being sentimental about this unloved house, but I need to be logical.

I'll most likely heed the warnings here and concede that it's too much work and money for this non-pro. It's been fun to dream about this house, but I should probably leave it at that.

But then there's that voice in my head saying, "Well, if I could get it at the right price..."


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RE: How to make an offer on a house that needs extensive work

Absolutely, if you can get it at the right price and it's what you want, then you should buy it. However, be forewarned that you are biting off a big hunk. Your original question was whether you could bring a contractor through and the answer is yes. You should build the needed repairs and upgrades into your price as well as some cushion for the unexpected Whether the seller wants to let it go for that is another question!


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RE: How to make an offer on a house that needs extensive work

"I never understood how people place offers on houses based on how much they think they will need to spend to bring the place up to par. To a certain extent, whatever you want to spend is your problem, not the sellers."

It is very obvious you have never even tried to make money renovating houses.

I have been doing it profitably with only a few problems for 30+ years now.

I care VERY much what it is going to cost to make the property salable in its local market.

A lot of the houses are referred to as 'old lady' houses.

A husband has died and left a widow in their marital home.

Maintenance has been neglected more often than not, and updates never performed.

The house is generally in the same configuration as when the spouse died, with deferred maintenance since that time.

The value the owner sees is what nearby residences have sold for, almost always with updating and good maintenance (or repairs).

There MUST be enough room between the price I am paying and the price I can get after renovation to cover costs.

Few folks will even consider houses as bad as I routinely purchase.

How much that renovation costs is a driver in the value of the house.


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RE: How to make an offer on a house that needs extensive work

I would just make an offer based on market price, with a contingency of "satisfactory report from structural engineer and pest inspection". Upon getting an estimate of $X, withdraw the offer completely, then make another offer at market price minus X.


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RE: How to make an offer on a house that needs extensive work

We faced pretty much the same situation a few years ago. Estate house in poor condition, a layout we could work with in a location we loved. They had had a contract on it but it fell thru after the inspections. We bought the inspections from the buyers that backed out (for 1/2 price!) and reviewed it all keeping in mind what it would take for us to get it liveable.

It needed massive work. There was only a 50 amp panel & a recalled breaker box on the whole house - it's a wonder it never burned! Termite damage but there was evidence of a treatment & no current activity. 40 year old septic that would need upgrading.... the mechanical list went on & on before we even touched on the cosmetics of a 1964 house with the last updates probably done in the early 80's.

We wrote a nice letter to the niece & nephew handling the estate sale detailing our concerns & reasons & offered about 1/2 of the asking price. We also told them they didn't have to fix anything or even come back to clean out the house.

After very minimal countering, we agreed & it was a deal. Two things probably helped us: they had already had someone back out because of the condition & they had no money in the game - everything was "free" money to them. They could take our money, split it and go on their way. Neither of them wanted the house because of the distance, their ages & neither wanted to put money into it.

I think if you explain your offer, you might have a shot.


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RE: How to make an offer on a house that needs extensive work

"I guess in my mind, I could pay (just making up numbers here) $600k for a house that's decent, or $400k + $200k in renovations to get everything I want in a house. "

The only thing missing from your equation is the actual knowledge to make that work. It's not a knock on you. It's just that there aren't a lot of homeowners who can accurately predict construction costs on a large project. For the vast majority of us, that means the equation has to look like $600k for a nice house or $300k + $200k in repairs + $100k for stuff we don't know about. So, you either have to get a heck of a bargain on the purchase price, do a lot of that $200k in repairs yourself, or be really good at estimating cost so you don't need a $100k cushion.

Personally, we are in the middle of a similar project. 1912 construction - bought from a widow. The price was fair for the condition. ie we didn't get a steal. The only way we are making it work is by doing the vast majority of the repairs ourselves. The no-so-hidden "cost" is that we are living in a construction zone for over 2 years now. On paper, we'll probably "make" some money in the process, but that is going to be well below minimum wage for the hours we've put in.


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RE: How to make an offer on a house that needs extensive work

Agree billl. We did a lot of the work ourselves. Not sure we'd have come out on top if we'd had to hire a lot of the work done - even with our big "discount". In the long run, I'm glad we did it, but it was a lot of work.


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RE: How to make an offer on a house that needs extensive work

If you are paying cash, there should be no problem to close. If the appraiser identifies the damage, s/he might make it a condition to repair prior to closing, or put money in escrow, like a 203k loan for example.


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RE: How to make an offer on a house that needs extensive work

I have purchased houses that should scare just about anyone away.

Galvanized steel pipes that only allowed a trickle of weater though.

A 30 amp (I have a picture of the meter, "30 amp contact rating") but at least it was 240 V.

The electric stove was fused at 50 amps, and the conductors from the meter to the first fuse panel came out out of the conduit bare.

The insulation was so cooked it fell off the wires as they slid out.

The platform outside the back door had collapsed from rot.
Open the door to a 39 inch drop.
The stairs still stood though.

The stairs from the side porch (originally screened, now glassed in) had collapsed though.

The executor of the estate stop doing anything once the contract was signed.
The basement filled with 3 inches of water the day of settlement.
The drain for the outside steps had over a foot of leaves in it, so in the thunderstorm water came through the door.

My now ex-wife was in tears when we showed up that afternoon after settlement.

The walk though that morning showed a dry basement (in the pouring rain).

Open the door, unclog the drain, water gone in a few hours.
Close the door and wet vac up the rest.

Plaster ended about 4 inches above the floor, so no real damage their.

New main panel on Saturday (permit pulled on Friday afternoon while things drained).

I lived their four ten years, installed Unico central air, restored the yard and a lot of other work.

Sold for a very nice profit and purchased an even nicer house (run in place plaster moldings on the first floor).


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RE: How to make an offer on a house that needs extensive work

We bought a house in an estate sale situation that was not in bad shape as a whole, but needed a number of obvious repairs. We made our offer taking into account our rough estimate of the amounts we guessed would be needed to repair the obvious. It was accepted. Then inspection revealed other issues as well. We then got estimates from contractors of what it would take to do everything we needed to do from a repair standpoint, deducted this amount from our accepted offer and told them this was our new offer. The sellers balked and there was a lot of back and forth, but ultimately we got the house at the adjusted price. You just have to be willing to walk away if you can't reach an agreement that makes economic sense.


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RE: How to make an offer on a house that needs extensive work

"Old lady house" -- interesting that there's a term for this. That's exactly what this house is. Brickeyee, I wish I had your expertise at assessing/fixing a house like this!

Billl, you are totally correct that I have no skill in determining what it could cost to get this house back into shape. That's the scary part, which is why I might end up not even submitting an offer.

For those that have bought extreme fixer-uppers, did you regret the choice or end up needing to spend more than the house was worth?


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RE: How to make an offer on a house that needs extensive work

I don't regret the choice. We were looking for something very specific in couple of downtown neighborhoods. We plan to live here forever, so we weren't too concerned with short term resale considerations. We also had a decent amount of cash and cash flow, so we didn't need to hit some narrow budget numbers.

And yes, EVERYTHING cost more than we thought! Not outrageously so, but there are just a billion little details that add up to serios dollars. If we were paying someone else to do the renovations, we'd certainly have more invested in the property than it would be worth. If we were borrowing money to finance those repairs, it would have been quite foolish.

For the people I know that do this semi-professionally, they all say that the money is made on the buy. You need to get a very good deal on a distressed property. You also need to keep the improvements to the scale of the neighborhood. If you try to make it your "dream home", you are bound to eat up any margin you might have. There is nothing inherently wrong with building your ideal house, but you ALWAYS end up spending more that it is worth to others because it is your ideal house, not theirs.


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RE: How to make an offer on a house that needs extensive work

Ha ha, the most disgusting house we have bought was an "Old Man House".


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RE: How to make an offer on a house that needs extensive work

Ha ha, the most disgusting house we have bought was an "Old Man House".

Same here! Rags were stuffed in the cracks of windows, there was a space heater in the middle of the kitchen (anyone remember those?), the upstairs light was turned on by pulling a string at the bottom of the stairs... it was our first house, paid $15,000 in 1978 & loved it. Didn't even cost that much to make livable.


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RE: How to make an offer on a house that needs extensive work

"Old Man House"

Same thing.

one of them tok the executor over 6 months to even empty out.

Some stuff was valuable (a lot of old trains) and even some gold coins

The vast majority was just junk.
A couple of high wall roll offs of junk, and then another one for furniture.

Executor had contacted me favorite RE agent about bringing it on the market.

I purchased before it was even officially 'for sale.'

The clean up job was well done, even though the house itself was still in very rough shape.

20+ years of no maintenance leaves a lot of damage.


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RE: How to make an offer on a house that needs extensive work

Before you buy it, make sure you can rebuild it you tear it down and what permits you will need to bring it up to code, if that is required.


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RE: How to make an offer on a house that needs extensive work

Unless you are willing to have very little free time or privacy, and can't shell out large chunks of your money, then pass on the house. Your dream home could be a nightmare.

After moving into a 1970's home, we've been hit by bad "surprises" that a standard inspection missed.
We were new to the process, but have become experts and know what we'll do next time!

We are stuck with $20,000 in repairs. The inspector didn't even look in the attic to report that we had no insulation over 4/5 of house! An electrician discovered it while re-wiring something. We later found out from a neighbor that it had also had a fire.

During showings and inspection, the floor was covered with furniture and rugs, so we didn't notice how uneven it was until we moved in. We trusted his assessment and got burned. We don't know if litigation is even worth it.

One contractor gave me the wisest advice...

Next time you buy, hire a roofer, a basement company, an electrician, a plumber and an exterminator to look over the house.

Even if you are spending hundreds more, you may be very glad to have bargaining power or the knowledge to walk from the deal. Bad news has a way of waking you up from a dream. Hope this helps you!


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RE: How to make an offer on a house that needs extensive work

The best way to proceed ... straight to the exit!


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RE: How to make an offer on a house that needs extensive work

"Next time you buy, hire a roofer, a basement company, an electrician, a plumber and an exterminator to look over the house. "

Or learn enough to spot the dogs.

It is not all that hard.


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RE: How to make an offer on a house that needs extensive work

"Old Man House"

"Same thing. "

Yes, but I wonder if things will change in the future. Seems like more couples share duties now days. Men help with the cleaning, and women are more involved in the home maintenance and renovations.

I would like to think if I am the one left alone, I would at least know when to get something fixed, even if I couldn't do it myself.


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