Offer on Fixer Upper - what's a good range? (stucco, negotiations, agents)

[soccerfan27]

There is a fixer upper home that I have been looking at. The home has been on the market for close to four months and has not been sold. It does have a large lot (about 2-2.5 acres) but the home in and of itself is a total mess. The home was originally listed for $450k, then lowered to $429, the lowered again to $399.

However, this home needs everything done on it - roof, pest removal, plumbing, a gas line has to be put in (assuming it's able to be done), carpets need to be pulled and replaced, new oven and dishwasher. The home also needs a lot of wood work - there is wood surrounding the roof and home and it has been rotten. Needs full replacing. The trees are a safety hazard reaching telephone poles and need to be trimmed or cut down. The fence around the property is in dire conditions. The house needs a lot of stucco work and is not built in a way that allows for proper draining (hence the need to replace the roof to make sure leakages don't happen). The bathrooms need to be completely re-done. The house also needs a LOT of cosmetic work.

I am wondering, given the amount of work that needs to be invested into this property to make it livable (which I should mention it is being lived in currently) and decent, what is a sound offer to make? I estimate there will be anywhere from $75,000-$125,000 in repairs.

To put it in perspective, there is another house in the market (same zip code) with same baths/bedrooms, and 7.0 acres (instead of 2.0) and that's selling for $475 and its move in ready.

I think $399 is way too high for this property and I don't think it's worth more than maybe $300. Thoughts?

[BoBromhal]

the only thing that matters is what is it worth AFTER the improvements, especially as it relates to other comparable homes sold, and its condition compared to the other active listing you mention.

It could easily be a $200K value now, since when fixed up it's only worth $350K. Only you can tell us - and include your location and general market conditions.

[soccerfan27]

@BoBromhal one of the listing agents sent me an inspection report from June 2018 and it details all the work it needs done - which is a lot.

I'm in California - home is in Jamul. It's my understanding it's a high demand market right now. But this house has been on the market for almost 4 months...

Also, I'm a first time home buyer. So I want to make sure I'm not ripped off lol

[MrRational]

Originally Posted by soccerfan27

I'm in California - home is in Jamul.
Also, I'm a first time home buyer.

Find some other property to break in on.
Look for something that doesn't need ANY work.

[Diana Holbrook]

Do you have cash, soccerfan, or are you planning on getting a loan?

Because the home you are describing is probably not financeable with most kinds of conventional, FHA, VA, USDA or other typical kinds of first time buyer financing.

Rehab loans do exist, but they're a little more complicated to get than a standard mortgage.

[soccerfan27]

Hi Diana,

Thanks for the message. I would be doing a loan and have looked at FHA rehab loans. I've spoken to a lender at length about it and what it would take - but I'm aware a licensed contractor would have to go out and see the property. That hasn't happened yet since this is still in early stages.

I'm considering other properties as well - ones that don't need an overhaul like this one and that would be more appropriate for conventional and regular FHA loans.

[Diana Holbrook]

There are lots of rules and limits with rehab loans. Good that you have a lender you can talk to at length, because the process depends on that. It's complicated.

You not only need to have a licensed contractor SEE the property, a licensed contractor needs to do all the work, and on a fairly tight time frame. Rehab loans are NOT for people who want to fix things up themselves. It must be set up so that a contractor is contracted to do all the work and be paid through the loan at closing. The bank is loaning on the finished place at the finished cost... not the place as is.

I know the low price of fixers is appealing, but for a first time buyer, most times, a place that is more turn-key on structure, with only minor updates like paint or flooring left to do... as it can be afforded.... is the better way to go.

[ACWhite]

IMHO, first time buyers should NOT buy houses that need substantial and expensive work. You likely do not know well who are the best available contractors to do the jobs that you say the house needs, and may not have the knowledge to be able to determine when you are getting ripped off, which options you should select, etc. If I were you, I would look for a house that is move-in ready, or one that needs some cosmetic work that a non-pro could do, e.g., good and updated systems, but paint or wallpaper in some rooms that you don't like; a yard that has a lot of weeds, etc.

[chet everett]

Originally Posted by Diana Holbrook

There are lots of rules and limits with rehab loans. Good that you have a lender you can talk to at length, because the process depends on that. It's complicated.

You not only need to have a licensed contractor SEE the property, a licensed contractor needs to do all the work, and on a fairly tight time frame. Rehab loans are NOT for people who want to fix things up themselves. It must be set up so that a contractor is contracted to do all the work and be paid through the loan at closing. The bank is loaning on the finished place at the finished cost... not the place as is.

I know the low price of fixers is appealing, but for a first time buyer, most times, a place that is more turn-key on structure, with only minor updates like paint or flooring left to do... as it can be afforded.... is the better way to go.

Technically there are ways for a buyer that is appropriately skilled to handle the renovations needed in either a full-on 203k, a streamline, or HomeStyle to do the work themselves. It involves EVEN MORE cooperation from the lender and will be even more burdesome for someone who has never before bought a home...


The keys that OP really should focus on ARE NOT "how low an offer should I make" but how "out of my depth am I going to be". Having a "home inspector's report" is frankly USELESS to probably more than 90% of first time home buyers as they have ZERO context for which items truly are going to rapidly make the home a "money pit" vs which are the sort of mostly trivial things that the vast majority of home owners live with for a long, long time.


Beyond what is on the report and/or clearly visible as "not right" with the home the FACT that this is allegedly a "high demand area" but the home has been on the market SINCE THE EARLY SPRING is a HUGE RED FLAG. It may have to do with the poor condition OR OTHER ISSUES THAT MORE EXPERIENCED BUYERS have discovered. That can range from things like the specifics of the site / nearby failed changes in zoning, to a seller that has foolishly dug in their heels during other negotiations...


No matter the OP, as a first time buyer wants / needs a place to live or is more interesting in potentially reaping some profit from this property the fact that in their estimation is remains grossly overpriced would have me strongly advise that this situation will not work for them. Perhaps they can come back to this or a similar "total mess" in a few years after they've had some experience / success finding a home that needs much less work to be either lived in or flipped. The connections one develops by fixing up little things can really be helpful when needs to take on bigger projects. That said if one has no such experience the degree to which even honest contractors can lead a new home owner toward solutions that are no economically sound is a HUGE negative.


I myself learned the hard way that sometimes very honest tradespeople simply are not very adept at telling a potential client that somethings just are not worth "fixing the right way right now". Who can blame them? Consider a new home owner, likely with a spouse and younger kids. The "home inspection report" say the HVAC is "at the end of its useful lifespan". The home owner calls three HVAC firms that are recommended by trusted friends. The conversation goes like this "I need to get estimates to replace this equipment. I'd like to spend a fair amount and understand the payback period for various options in terms of efficiency. Please recommend what you'd want in your home." WELL the HVAC almost certainly knows that while the unit is technically 22 years old and well beyond "its expected lifespan" and might be using twice as much energy as newer gear the fact is if it is brand name equipment from an era when quality parts were made and repairs are easy the "projected payback" is very different than simply the "energy saving". The old gear is FULLY PAID OFF, new gear might mean putting on a credit card at 22% interest. It likely will also "open the door" to fancy upgraded home automation / intelligent thermostats that far too few people actually utilize in a way to minimize energy use (instead they tend to use the features to cool the place off while they are stuck in traffic so they come home to a something comfy ...).




The same sorts of things happen with costly replacement windows, fancy doors, all kinds of other appliances, even landscaping and remodels of kitchens & baths. The further fact that even after all these costly items the real value of a 2 acre parcel may have ZERO positives due to the home and far more to do with what nearby builders would pay to resubdivide the parcel and plop half a dozen new homes onto the land completely negates and "value" from renovations!

[jdhall1]

Construction loan and look at what the after repaired valueis once all updated to see if the project would be worth while investing your time. That seems like a lot for a first time buyer and something has to be quite wrong in a 'hot' market otherwise a builder would have fixed it up, or perhaps that sellers are not motivated.