Homes that need work have to be the best bang for the buck on the market. Surprisingly, financing plays a big role in this circumstance.
For example, imagine you have a perfect home worth $200,000. Then imagine that same house only now it needs $5,000 in renovations. Is it worth $195,000?
You know its not and a big part of the reason is that buyers love perfect homes. Selling a house that needs work is like trying to sell a used BMW that needs a muffler. The Beemer will be devalued by far more than the cost of a new muffler.
This is why home renovators buy houses that need work and then flip them. There is great value in making a home perfect and they earn a living because of it.
Additionally, in the perfect home scenario, the home buyer has to pay $5,000 for the renovations out of their savings account. I don't know too many people with $5,000 just laying around that they don't know what to do with.
It always surprises me how few people know about purchase plus improvements mortgages. For the buyer, it means that if he can negotiate the $195,000 house down to $193,000, he now owns a $200,000 house for $198,000 since now the $5,000 renovation is covered by the mortgage.
For the seller, it makes sense to inform prospective buyers that they can put renovations on the mortgage so that they don't have to worry where they will get the $5,000 needed for renovations.
If you want more information feel free to contact me.
-Jef
