For many of us, fixer upper properties are the foundation for building wealth in real estate. Finding a good fixer-upper is one thing, but making sure we are getting what we pay for is something that often doesn't always receive the same attention as the search process does.
Continuing with the Due Diligence series and following the outline from "Real Estate Investing for Dummies," we now look at the "as-is" sale. The due diligence period is the time between the acceptance of the offer and the close of escrow, when the buyer must find out all they can about the physical and fiscal condition of the house. The purchase agreement should contain a number of contingencies that allow the buyer and seller the opportunity to cancel the transaction if certain things aren't satisfactory.
Why Houses are Sold As-is
Some sellers try to sell their houses "as-is" to avoid disclosing any deficiencies in their house. They think that they don't have to correct problems in the property during the due diligence period, and are not responsible for anything that crops up after the sale. They erroneously believe that their technique to dodge responsibility makes them legally bullet proof. What they don't realize is that the as-is strategy actually only offers minimal protection to the seller. They may still be held responsible for misrepresentation, fraud, or negligence.
When you come across a house being sold as-is, a red light should start flashing in your mind. You could be dealing with a seller that is dishonest and trying to hide significant problems that would reduce the value of the house. A house offered as-is at an unusually low price may give you a headache for a long time to come, with no relief on the horizon.
Honesty the Best Policy
When you are selling a property, don't attempt to hide anything from the buyer. For your own peace of mind, and to avoid long court battles, disclose everything of importance, and share copies of any invoices an reports that reflect on the value of your house.
An Early Experience with an As-is Seller
I once made an offer on a house that was listed "as-is." At the time, it didn't bother me that that the seller wasn't disclosing everything. It would today though. But, what bothered me more, and set off alarms in my mind, was the egotistical attitude of the seller. He wasn't willing to make any concessions and or negotiate anything. Everything had to be done his way. I was an inexperienced investor, but my sense of smell worked alright, and I could smell a rat. I think that the seller offering the property as-is was an insight into the whole self-centered attitude of the seller.
As you know, I prefer an open and friendly approach to negotiating the purchase of a house, as described in earlier posts with the "suppose that... technique" in House Buying Negotiating Techniques, and the Detective Columbo "just one more question" technique in Start Small Profit Big in Real Estate.
While I liked the property, my suspicions made me pull out of the deal. The seller blew up. I guess he had already started counting his money. He angrily told me that if I had signed a contract, he would have held me to it no matter what. I thought to myself, "I sure am glad I decided not to do business with this guy. If he harbors this much anger for someone he hardly knows, who know what lies he would tell to sell a house?"
NEXT UP: TACTICS SELLERS USE TO AVOID INSPECTIONS
How to Completely Remodel a Kitchen for Under $4,000
Info on Terry's Book
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6 comments:
About 3 years ago, we were negotiating with a realtor who owned a 5-plex. The price was low-- *very* low--- and the place looked pristine.
We saw the place once, made an offer, she accepted. Things changed dramatically when we called her to set a date for inspections. Crazy woman blew a gasket-- said we'd already inspected (?), the place was obviously fine and that was that. She also refused to show us the rent rolls, utility bills, etc. Said she *had no records* (guess she didn't file a tax report either... when I asked to see the schedule E, she claimed she didn't have one.)
Of course we walked, but I'm still baffled by her attitude and can't imagine what she was hiding.
Great example. When a seller comes back with that kind of inexplicable over-the-top response, we know that there must be some skeletons in the closet that they don't want anyone to know about.
I think I would probably unless looking for a fixer and was into rehabing run away and fast. I worry about structural integrity, water damage or whats located or going to be located in the area.
As far as cosmetic and being outdated that would scare me off so much but would play into the overall amount I pay for the house.
Port Orange,
If I owned a few of your beach condos in Florida, I don't think I'd be investing in fixer-uppers either! But as there are no ocean-front condos in Arizona I'll keep bringing home the bacon with fixer-uppper rental properties.
However, in answer to your comment, after you do a few, it becomes routine to find a fixer-upper houses with just right things wrong with it. Most problems become pretty easy to spot during inspection, and for those you can't spot, you hire a professional to check it out.
The last house I bought had considerable water damage, which scared off the competition. But during the inspection, I located the damage as orginating from a leaky cooler on the roof. I bought the house, replaced the cooler, fixed the damage inside the house and now it's worth about twice what I paid for it.
One person's nightmare (water damage) can be another person's jackpot.
I think that the best prevention from buying suspiciously cheap house located in a good area, good looking, etc... is to watch The Money Pit with Tom Hanks. It is comedy and has happy end but I would like to see those common people who would do all the repairs and struggle in a real life. Whether you buy or sell a house you should always know the right value of your house in order to be able to negotiate the best final price. I work for West Toronto Realtor and we help people with this effort but you can do a lot of on your own. In my opinion, essential tool could be comparative market analysis so as proper home inspection.
west toronto,
Good point. I too am a firm believer in comparative market analysis to go along with a thorough inspection.
Is the housing market in Toronto as depressed as it is in the U.S.?
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