Fixer worth it? Condition vs. Cost

In many areas of the country, distressed (mostly fixer) properties comprise the majority of homes for sale. This is particularly true among short sales and REO (real estate owned) properties acquired by banks through foreclosures or forfeitures. This has not been a deterrent for many buyers, who will gladly take on the challenge of a fixer-upper if the price is right. Getting the best deal is top priority – but when that’s the case you will often get what you pay for.

 

With an REO, the bank is under no responsibility to deliver a property in any condition – even one that fulfills the minimum standards of livability. Properties are sold ‘as is,’ which puts the responsibility on the buyer to make an evaluation during escrow.  Most of them are fixers.

 

The contractual agreement should allow time to conduct an investigation. It may just be seven days, but that should be sufficient with proper planning. I recommend hiring a qualified, credentialed home inspector, who will not only assess any areas of concern but also make recommendations on any other inspections that might be necessary.

Of course, follow your own instincts as well. If the roof looks suspect, even if the inspector doesn’t mention anything, don’t follow through on the purchase unless you are certain it is what you want. Once the inspection is complete, you’ll have to make a final decision or risk losing your deposit. A clean inspection is not the last hurdle to overcome for buyers who can only muster a minimum or low down payment. Many lenders will not offer loans on distressed or fixer properties, particularly for those seeking FHA loans. Even if the bank owns the property, and is primarily responsible for it falling into a state of disrepair, they will appraise its value as is and close the deal only if certain repairs are made in advance.

 

For this reason, cash buyers and buyers who can offer a larger down payment will receive preferential treatment from lenders on REOs. Even buyers who obtain an approval from a bank could still ultimately lose the property to an investor or speculator with more cash on hand. It’s frustrating and it’s not fair, but loan security is a priority among lenders in this challenging economy.

 

So the question remains – is it worth taking on a home that may be in a sorry state if the price is right? Ask yourself if it’s really a good deal given what will have to be done after purchase. Is the property going to be your home, or is this an investment purchase? That may also impact your decision. But if the deal is right, and you have the wherewithal and cash flow to make repairs, go for it.