Thinking of selling a fixer-upper or an old outdated house? Selling a home involves putting it out there to attract potential buyers. Yet if your peeling paint and diy repairs look shabby compared to the house that just down the street, you might feel like hiding it.
But no worries. Maybe you haven’t maintained your home regularly or you’ve inherited it. Regardless, your house doesn’t have to be perfect for these buyers. It just has to show the potential for them to make money, build equity, or obtain the lifestyle they want within their budget. If you’re wondering how to sell a house that needs work, we’ve got tips from real estate professionals who have seen houses in various conditions to get you to the closing table with confidence.
Possible buyer #1: The real estate investor
What’s a real estate investor?
Real estate investors can be individual house flippers, small or large scale rental landlords, or even house-buying companies such as Easy Outs Homes.
You also may have heard of the tech-enabled cash buyers such as Opendoor, Offerpad, Redfin Now and HomeLight (though tech companies use technology to value homes and make near-instant offers and thus are not always accurate and don't represent the price you will actually sell for to them).
How do they operate?
These buyers usually pay with all-cash and prefer to buy homes off-market. Many will purchase homes “as is,” meaning the seller isn’t expected to do any work.
For this type of buyer, a purchase is generally all about how the numbers shake out since they don’t plan to live in the property. Would the costs of buying and rehabbing the property allow the buyer to resell it at a decent profit? Or, alternatively, would the cash flow cover their expenses should they aim to rent the property?
Possible buyer #2: The bargain hunter
Who are the bargain hunters?
This type of buyer would love to live in a specific location but hasn’t been able to land their dream home, either because they can’t afford the average home prices there or because someone else — like a cash buyer — has snapped it up first. This buyer may be a first-timer who is unable to tap into existing equity to buy a new home, or a DIYer who isn’t afraid of a house that needs some TLC.
How to sell your fixer-upper to an investor
Because price drives the investor, you don’t have to stress about looking through paint or flooring swatches. However, you should still prepare the house so it’s presentable, especially for your peace of mind.
1. Spend a few hours cleaning up
When you sell your home to an investor, you skip the process of staging and showing your home. However, an investor is still likely to perform a digital or in-person walkthrough of the property. The investor may arrange to stop by or send a representative of their business to perform an assessment.
Do what you can to make this a good experience. Clean dirty dishes, run the vacuum, and make the beds. Clear countertops and use a multi-purpose cleaner to scrub the bathrooms. Even when you sell “as is,” a little sprucing up never hurts.
Arrange for a dumpster if you have a ton of junk. If you can, get rid of the bad smell (such us from smoke or pets)
2. Get a home value estimate
You can pay for an appraisal or contact a Realtor to provide an accurate estimate of your home value in its current condition.
3. Collect contractor estimates
Collects estimates from a team of contractors, plumbers, painters, carpenters, electricians and builders to help set and negotiate a price. Check out Hone Depot or Lowes for the cost of new appliances or flooring materials since those would need to be most likely included in the estimate.
Some people just see the house as, ‘Oh, it’s cosmetics. It’s 10 to 15 years old. It’s dated.’ You can look at that house, and you can look at a house that’s in massive disrepair. But the costs could be similar to repair both.
If the house is dated, you still have to redo everything: the whole kitchen, the countertops, the cabinets, the flooring, paint the walls, remove wallpaper. If the house is in disrepair, you’re still going to have to do all those things.
The only real difference is the mechanicals. Is it in such bad repair that you have to replace and redo the electric, the HVAC, and all that? A house can look awful and a house can look dated, but you’re probably looking at the same or close to the same rehab costs.
1. How much repair work does your house need?
If your house needs significant repair work or a complete renovation, it’s possible that it won’t sell on the market to another family. Instead, you’ll likely attract cash buyers or property investors. These companies want to buy your house for the purpose of investing in renovations and reselling it for a profit. Consider this option if you want to sell your house faster.
If you suspect your house is not likely to sell on the market due to its condition, your agent may have to find cash buyers or developers to help you sell your house. If this is the reality of your current situation, you’re probably better off going straight to a cash buyer to avoid paying agent commissions and other fees (see below). Most off-market buyers will also pay for closing costs. However, if you think you could attract some buyers who’d like to move in and handle renovations and repairs themselves, then keep reading.
2. What are your estimated net proceeds in each scenario?
The key to seeing how much you might make selling on the market with an agent is to look at both the potential sale price and the cost of the sale. Real estate agents will argue they can get you a much higher sale price if you list your house, which is often true. However, there are many more costs associated with selling the traditional way, whereas there are usually zero costs subtracted from a cash buyer.
When you list your house to sell, in particular if the house needs a lot of repair work, the sale price is the starting point from which all costs are deducted. What’s left over afterward is the net profitor net proceeds. Doing a net proceeds calculation gives you a better apples to apples comparison of the two offers.
How to calculate your net proceeds
When listing with an agent to sell your house, follow these steps to calculate net proceeds:
1. Estimate a realistic sale price
First, look at other comparable houses in your area for sale in terms of square footage, bedrooms and bathrooms. How does the condition of your house compare? Unless your house requires no repairs and has up-to-date fixtures, appliances, and design, the price you get for your house will not be in the same ballpark as the ones that do.
According to publicly available data from 2019 home sales, homes that haven’t had updates to kitchens, bathrooms, appliances, and flooring within ten years of listing on the MLS will sell for 17% less than comparable houses that have been recently updated.
Example: Comparable houses in good condition are selling for $300,000. Reduce that price by 17% based on the as-is condition of your house that needs work ($51,000), and you get a realistic asking price of $249,000. Price based on comparables
in good condition$300,000
Price reduction based on condition (-17%) $51,000
Realistic asking price$249,000
2. Calculate seller concessions due to repairs
Next, look at the inspection. Are there items that a buyer would need to have fixed before moving in? Buyers will often require that the seller reduce their price to accommodate the costs associated with these repairs. For example, if the roof needs to be replaced, or there’s a foundation issue, you’ll likely need to come down another 1-2% from that realistic price to sell your house.
Example: Sellers may negotiate down about 1-2% if your house needs work on the roof or foundation, which would be $3,775 out of a sale price of $249,000. Realistic asking price - $249,000
Seller concessions (1-2%) - $3,775
Actual sale price - $245,265
3. Calculate transaction costs.
When you sell on the market through the traditional sales process with an agent, you are likely giving up between 7% – 9% of the sale price to pay commissions to your agent and the closing costs, which are paid to the companies handling all the finances (escrow) and paperwork (titles).
Example: From your actual sale price,
subtract 6% for agent commission ($14,716) and
1-2% for closing costs - ($3,679)
a total of $18,395. Actual sale price - $245.265
Agent commission (6%) - $14,716
Closing costs (1-2%) - $3,679
Total transaction costs - $18,395
4. Calculate your holding costs.
Consider the out of pocket costs of owning the house while waiting to find a buyer and sell it. These holding costs include mortgage, taxes, utilities, and any other monthly fees you owe such as solar panel bill, HOA fees, and maintenance costs you pay before you sell the house. The average time to sell a house in Maryland is about 60 days.
Example: Subtract two months of mortgage, utility, taxes, HOA, and any other recurring costs of owning the house while you’re trying to sell it. For two months, we're using the example of $5,200. Monthly holding costs (~0.7%) - $1,716
Months on the market - 2
Total holding costs -$3,432
5. Calculate your net proceeds.
Subtract the amounts you’ve calculated for seller concessions, transaction costs, and holding costs from your realistic sale price – this is your estimated net proceeds, the amount of money that you might have after you’ve sold your house as-is using a real estate agent. Keep in mind that if it takes longer than the average 60 days to sell, you’ll be profiting less and less as you continue to pay holding costs.
Example: From a realistic asking price of $249,000, subtract 1 to 2% for seller concessions ($3,775), another 7 to 9% for transaction costs ($18,395), and then two months of holding costs ($3,432). Your net profit from selling a house that needs work would be $223,438. Realistic asking price - $249,000
Seller concession (1-2%) - $3,775
Transaction costs (7-9%) - $18,395
Holding costs - $3,432
Total net proceeds - $223,438
Consider soft costs
These price and cost calculations will help you estimate the profits you get when you sell the house. But you also need to factor in the many soft costs associated with the traditional sales process. These costs include:
Time – a traditional sale requires hours of managing the process
Uncertainty – there is no guarantee of a sale, much less at your desired price
Stress – the mental strain of dealing with a demanding challenge
Work – the hassle of cleanings and showings
At this point you may want to ask yourself, what is it worth to NOT deal with these hassles? What would it be worth to be able to walk away quickly from all the repairs and possible bottomless money pit? Comparing your estimated net proceeds to a cash offer from a property investor will help you answer that question.
If you’re willing to accept lower net proceeds in exchange for being able to sell your house without doing any work, then it might be worth exploring an off-market sale to a property investor. An off-market buyer probably won’t give you as much as a traditional sale. But based on your net proceeds calculation, they may come closer than you think. And they can sweeten the offer by offering a fast closing and short escrow period.
Off-market buyers will take the repair work off your hands and buy your house for cash. This means you don’t need to wait for a mortgage to be approved to sell it nor risk having the sale fall through. Some homebuyers even offer a cash advance to help alleviate any needs during your transition.
4. Request a cash offer and sell ‘as is’
Now that you have an estimate of home value and an idea of what repairs to your home might cost, you’re ready to see what an investor would pay.
Consider requesting a cash offer from a cash buyer that provides cash offers for homes in almost any condition.
The big advantage for the seller with a cash offer is the convenience factor. You close in as little as two weeks; there won’t be an inspection, just a walkthrough.
We see some houses where someone has lived there for a long time and the house is in good shape. We also see homes with major disrepairs where someone hasn’t lived there in five years or kept up with it. It’s a pretty big variety.
So basically, if your house is in decent shape you still might try to sell it with a Realtor. But if you don't feel like doing any work at all and want an easy and fast sale, then selling to a cash buyer like Easy Outs Homes will be the best choice.
