The Dreams That Die on the "As Is" Hill
When you hear the words "As-Is," what you hear depends on whether you are a buyer or a seller. And what a particular client hears may be far from the reality of As-Is. A property I showed earlier this week was a fantastic example of the dreams that will be crushed for seller and buyer both, thanks to those magic words.
No seller wants to be bothered fixing up a home prior to putting it on the market. They fear the money they will put into it, will not equal the money they get out of it. And in some cases, those sellers may be right. As a full-time, professional real estate agent in Bristow and Gainesville, I can not tell you how many times I have sat across the table from sellers who will say, "We'll just sell the home as-is." Somehow, they think that's an easy way out. Believe me it is not.
There is a perception with comes with the words "as-is" in the buyer's mind. At a minimum, if you dump the work of simple fixes like carpet and paint on a buyer, there is what I joking call a pain-in-the-a** tax associated with that. The buyer doesn't want to do that renovation any more than you do, so the cost associated with doing it goes up in their minds and is deducted from the seller's list price. Worst case, the home may be in such poor condition that a lender may require certain repairs be made or a loan can't fund, thus they need cash buyers. And let me tell you, cash buyers are not into paying full price for anything. They feel they deserve discounts.
The estate sale I viewed on Thursday night may well have been the setting for a haunted house the night before. Just looking at the pictures before I arrived, I knew there was going to be mounds of crap and likely a ton of deferred maintenance. We were lucky the lights were working. The home had spotty sections of mold on the upper level, but was loaded with it in the basement. MAJOR problem. There was no central air conditioning, unlike neighborhood comps. The home was outdated and in bad condition. In my professional opinion, it would be lucky to get the list price of $250,000. But in speaking with the listing agent, I was informed that the members of the estate expected a bidding war to burst forth from this low, low price. Ha! If they sell for $199,000, they should thank their lucky stars. Yet, these sellers felt "as-is" would be their saving grace and they could leverage a property close to a park with water rights, as a fantastic location that buyers would fight over. That's how a seller's dream dies with "as-is." Expectations of true market value for condition are out of whack.
The buyer, meanwhile, was drawn to the property like a moth to a flame. They had friends that lived in the neighborhood and knew that homes in good condition would sell for $300,000 or more. They were dealing with a limited budget and wanted the most for their money. They had very limited funds for down payment, so the entirety of the renovation would have to worked into a renovation loan. This is where buyers fail to see the concept of "other people's money" (OPM.) Over and over I heard things like, "I can just take some bleach and spray the mold till it dies," or, "My buddy can come over and help me do an HVAC installation." "We can definitely fix this up for under $50,000."
When you are cash poor and using OPM, particularly in the form of a renovation loan, you are going to have to employ licensed, certified renovation contractors. What YOU or YOUR BUDDY can do is irrelevant. The mortgage company that is backing your home wants to know renovations were down properly. Licensed, certified contractors aren't going to do things as cheaply as you or your buddy could or would. And that's where "as-is" kills the dreams of cash poor buyers. They truly don't get the concept that there are different requirements for using OPM.
You can hear the train crash coming between these two sets of unrealistic expectations, right?
It takes some time with cash poor buyers, but most will get the concept over time that that they are not going to buy more house in "as-is" condition and fix it up with a renovation loan for less than they will buy a move-in ready home. At least with move-in ready, you know what you are getting and how much it costs NOW. I represented one set of cash poor buyers that purchased a home with a mold problem using a renovation loan about five years ago. The home is eating them alive with the other repairs that got penciled in for side projects. All they do is sleep, work, eat and renovate. They are dumping the home as soon as they can get into a state that is sale-able to another buyer and they will never buy another fixer upper again.
Sellers, on the other hand, usually only learn that "as-is" condition is going to cost them, not bump up the value once they have hired the agent that reinforces their twisted belief that they can cash out near just as high without making a single repair.