When making the decision to put your property on the market, having a real estate agent whose opinion you can trust by your side is the single most valuable thing you can do upfront to help your property fetch top dollar later. Real estate agents come with a trove of knowledge garnered from years of experience selling homes in the city or suburb they operate in, and sellers can rest assured that any advice a real estate agent gives is legitimate and will certainly help to sell the home quickly, and at the best possible price.
As far as it concerns preparing the property to go on the market, your real estate agent is likely to recommend that you do everything you can to put the home in the best possible light when prospective buyers start seeing it on the web and in person. In this regard, renovations and repairs can add real value to the property – this is even truer when it comes to particular areas in and around the house that are notorious for being expensive to repair. Here, we often refer to upgrades to the plumbing, the roof, the kitchen and the bathroom. Aside from being quite extensive, repairs to these parts of the house may become very costly, which is why many buyers prefer to steer clear from a home where these things are issues – that is, unless they’re in the market for a fixer-upper anyway.
“Fixer-uppers”, as they are colloquially known, are properties that require quite a bit of work. They typically don’t sell for as much as their counterparts without similar issues do, but do give the industrious buyer the chance to renovate the property and make a handsome profit when they flip it later.
What are sellers to do if they own a property that is in dire need of a bit of decent TLC, but they don’t have the money to undertake said repairs? This is a common conundrum, but shouldn’t put sellers off. While homes that require more work do usually spend a little more time on the market than properties that are ready to move into immediately, there are ways to make this type of property more attractive to potential buyers. One of these methods is to offer buyers a credit allowance – essentially, a discount – once the property is sold.
Sellers who think that buyers won’t notice those parts of the property that are red flags can think again. Make no mistake about it: prospective homebuyers will scrutinise every part of the home when attending the open house, and even if there are things they miss, these are bound to come up again later when the home inspection is done.
A key part of the home-selling process, the home inspection is conducted by a qualified home inspector, who assesses the overall state of the property. The recommendations that home inspectors make may pertain to many aspects of the property, but will not include things that relate to a buyer’s taste or convenience, like the brands of the appliances or the colour of the walls. Instead, they pay special attention to other things that may lead to problems later, like plumbing or roof issues, or structural problems.
Should a seller be financially unable to undertake the repairs recommended by a home inspector, some other common ground will have to be found if the sale is to go through at all.
Of course, the trade-off is that the seller will have to sacrifice some of the profits they could have made, had the home been upgraded and sold. However, the allowance that a seller offers a buyer should be founded by legitimate concerns raised by a home inspector, and the amount that is offered should be firmly backed up by finding out exactly what the recommended repairs and renovations will cost. Sellers can do this by getting a few different quotes from reliable contractors in the city or suburb, and establishing an average amount for repairs based on these.
When buyers want to negotiate the price for a fixer-upper, having the paperwork to back up the allowance offered is very important – this ensures that the buyer isn’t paying too much for a property that requires less expensive repairs, and that the seller can still close the transaction with some profit in pocket.
When offering an allowance, sellers can write these into the sales agreement (which is signed before the deal is officially closed and the final transfer is completed) as either a discount applied against the sales price, as a discount on the closing costs, or as cash credit.
Benefits of offering an allowance
Many buyers will consider a discount on the property a benefit that allows them to choose finishes that appeal to their preferences and taste, while addressing important repairs that add value to the property. For the home seller, a discount helps to push the sale of the property through without them having to fork out cash they don’t have to sell a house they don’t want anymore.
Disadvantages of offering an allowance
Of course, offering an allowance to prospective buyers can come with caveats for sellers – not least because pointing out one flaw in the property might make buyers suspicious about the property in its entirety.
Unintended consequences like these may prove disadvantageous to sellers, but they should also keep in mind that most buyers will far prefer a home that is in tip-top shape anyway, citing the hassle that it is likely to cause buyers when they are responsible for undertaking work on the home, having just moved into it. To buyers like these, offering an allowance on the property will do precious little in convincing them to sign a sales agreement.
If buyers do agree to accept an allowance, sellers should be prepared for questions about how the amount that is offered was calculated, which is why they must be meticulous in collecting a number of quotes for the work that is required to back up their claims.
When speaking to your real estate agent about the option of offering a discount on your property, make sure that it’s the right thing for you. Generally, allowances should only be considered on properties that are spending a particularly long time on the market as a direct result of the state they are in.
DIY updates with no budget
Do the sellers of fixer-uppers that have gone stale have any other option but to offer a discount? Even small cosmetic repairs that can be done without enlisting the services of a contractor can make a world of difference in terms of the impression that the property creates with potential buyers.
Selling a home in need of repairs need not look like a dilapidated piece of junk that is ready to be demolished. Applying a fresh coat of paint, tidying the yard, scrubbing oil stains off walkways and driveways, and cleaning gutters don’t require the expertise of a professional, but do help to convince buyers of the untapped potential a property has. When buyers see something resembling a dump, they’ll assume that a dump is exactly what it is. On the other hand, buyers have a lot more time for a property with clean windows and an overall tidy appearance.
As with any other property on the market, pricing the home correctly is absolutely essential if the property is to sell, no matter its state. This is even truer when it comes to fixer-uppers, as potential buyers might need more convincing.
When interviewing potential real estate agents, ask them specifically if they have ever been involved in the sale of a property that requires some attention – agents that know their stuff in this regard are important partners and can give you sound advice about everything related to selling a fixer-upper.
If a real estate agent does advise that you consider offering an allowance on your home, ask them about contractors in the vicinity that are reliable, but don’t cost an arm and a leg – this way you can limit the amount you’ll be sacrificing in profit.
Offering potential buyers an allowance against the sales price, closing costs, or as cash credit is sometimes the only option for homeowners who are selling a property that requires expensive repairs and renovations. A home that goes stale is usually characterised by the property spending significant time on the market without attracting any noteworthy attention from the pool of available buyers. This is often because buyers are in search of convenience, and think of repairing the property upon moving into it an unnecessary hassle.
In economically trying times, an allowance can be attractive to buyers who don’t have the money to spend on a property that is in prime condition. However, an allowance does mean that a seller will have to give up some of the profit they might have thought they would make on the sale of their home, and it may come with the unintended consequence of making the house less desirable to some buyers, who can become suspicious about the general state of the property. Before offering an allowance, consider conducting some basic cosmetic improvements which don’t cost too much.
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