What is Considered a “Fixer-Upper” When it Comes to Homes for Sale?
When looking at homes for sale, buyers are likely to hear the term “fixer-upper.” While they may have a general idea of what that means, they might be less clear about how that house might differ from one described as “needing some TLC” or one that is advertised as “perfect for flipping.”
A fixer-upper can be a dream come true—or a total nightmare. The outcome often boils down to these questions:
- How much work does the house need?
- What will it cost?
- How long will it take?
- What is the potential buyer’s tolerance for all of these?
To determine if the purchase is worth it, a buyer must first take a long, realistic view of each of these factors. The outcome is just as much about the buyer’s expectations as it is about the actual answers to the questions.
Defining a “Fixer-Upper”
There is no single definition of a house that is a fixer-upper, but it can usually be described in the following way:
- It needs repair, remodeling, or redecoration.
- It has more than one simple issue or problem.
- The problems may be cosmetic, structural, or both.
- The asking price has been lowered because of the problems.
- Despite the problems, the house can be lived in.
If a house only has a few minor issues that need work, it might be described as “needing some TLC'' instead of a fixer-upper. Flipping houses is on the other end of the spectrum and often includes houses that are truly uninhabitable. Individual investors or investment companies (you’ve seen their billboards and heard their radio ads) purchase houses sold “as-is” with the intention of fixing them up and reselling them rather than living in them.
Why Would Someone Want a Fixer-Upper
Some people like a challenge and enjoy the type of work that goes into refurbishing a home. Being responsible for the transformation of a house can be gratifying, especially when it involves returning a unique or historical home to its original condition. This might be true for a 100-year-old farmhouse or a mid-century-modern ranch.
Another big reason for seeking out a fixer-upper is getting a good deal. Houses that need work often come at a deep discount, meaning a buyer can get more house for the money or get into a neighborhood that they thought was beyond their budget. Fixer-uppers can also be perfect starter homes for someone who is willing to put in the hours and elbow grease to get it in shape.
Finally, in a seller’s market, where houses don’t stay on the market long and bidding wars are common, a fixer-upper might be all that is available in a buyer’s price range or their preferred neighborhood.
Making an Offer on a Fixer-Upper
Even though a buyer might pay considerably less for a fixer-upper than similar houses in the neighborhood, they need to take into account what it will cost to fix the house when making an offer. Even if they plan to do much of the work themselves, there are still material costs to consider. Only a full accounting of their expected expenses will tell them if the project is within their budget.
The website for the home improvement show “This Old House” offers this formula:
- Start with the market value of the house after all of the proposed work is done. Use comparable properties in the neighborhood as a guide.
- Add up the costs of each project planned to fix up the house.
- Bump that amount up by 5-10% to account for price fluctuations on material, extras you decide to include, inflation, and a margin of error.
- The future market value minus the inflated cost estimate gives an approximate amount to offer for the house.
It is a good idea to make an offer on a fixer-upper contingent on an inspection. This is often the only way to discover the complete list of things that need to be fixed in the house. The inspector is a great resource for prioritizing and adding up the cost of the work. They can help determine what is urgent and what can wait. For example, they may report that the furnace should be fine for 4 or 5 more years, but that the roof needs replacing before the next rainy season.
Another advantage of having an inspection contingency is that the buyer has a way to back out of the deal if the repairs prove to be more than originally thought.
It is important to remember that there is almost never a dollar-for-dollar return on investment when fixing up a house. For example, replacing old knob and tube wiring will cost about $8000. That doesn’t mean the house’s value will automatically jump by $8000 once it is done. Getting rid of an obsolete system by updating to something modern is expected and is a somewhat “hidden” improvement.
Some changes, however, pay for themselves when the house is resold. For example, adding another bathroom can be worth twice as much as what it costs upon resale. But if the owner plans to live in the fixer-upper, resale value is secondary to what these improvements will add to the functionality of the home.
Doing Things Right the First Time
Taking on the challenge of a fixer-upper is a significant investment of time, money, and patience. Whether a buyer chooses a DIY approach or hires a contractor, they need to make sure things are done properly the first time. Doing a project too quickly, cheaply, or without the necessary skills will end up costing more time and money in the long run.
Buyers who plan to do a lot of the work themselves need to have the necessary skills and access to the proper tools. Sometimes, in an effort to save money, a buyer does work that ultimately must be redone by a professional. Knowing when to call in the professionals can make a big difference in saving both time and money. Most people discover that even professionally done work ends up taking longer and costing more than expected. Deciding at the onset which projects are doable and which aren’t can spare buyers a lot of headaches.
Another aspect of living in a fixer-upper that should not be ignored is the disruption to daily life. Buyers will have to put up with some mess and inconvenience. If they have contractors doing the work, it means strangers in the house too. Depending on the extent of repairs and remodeling, completing work on a fixer-upper can take weeks, months, or even years! The entire family must be on board with what buying a fixer-upper will mean to their lives.
What Type of Work Needs to be Done?
The nature of the repairs in a fixer-upper will help determine the cost and the time it will take. It will also help the buyer decide how much they can do themselves versus what they’ll need to hire someone else to do for them. All of these factors will ultimately tell them whether buying the house is worth it.
If a house has “good bones”, meaning it is structurally sound, the necessary changes may be mainly cosmetic. These projects are usually less expensive and some are not too intimidating for buyers to try on their own. This might include things like updating paint, installing new light fixtures, flooring, buying new appliances, and landscaping.
More expensive and usually requiring professional assistance are foundation work, knocking out or adding walls, plumbing, and electrical work.
Some people know that they do not care to even paint a room by themselves, let alone doing any electrical wiring or plumbing. Others are willing, but their lack of skills and safety issues might make finding a contractor a better idea. Be honest with yourself about just how much you are willing to do.
Let Your Real Estate Agent Find the Right Fixer-Upper
Let your real estate agent if you are open to the idea of a fixer-upper. As you discuss what you are looking for in a home and neighborhood, you can also discuss exactly what type of home-improvement projects are acceptable and which are deal-breakers. They will be able to steer you toward homes that can provide you the right combination of potential and challenge.
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