AS-IS Seller will NOT make Repairs!!!
Tuesday Mar 28th, 2023
Why not just say "It's nasty, broken, wood & termite infested, falling down, no good, and should be bull dozed."?
Because that is what this statement says. It says "Run!"
Would you buy a car that is advertised "AS-IS. NO warranty once you drive it off the lot!"
Would you spend $3,000 to make $22,000? Read on.
Now, there are many situations where an as-is is necessary. But, many are not. In many, I would venture to say it's simply the seller hoping to not have to come out of pocket on anything and the seller agent not having the expertise, confidence, or care to tell the seller how much this may cost them in the long run.
Sellers do NOT know what we know. The average home owner will buy and sell about 5 homes in their entire lifetime. Some of us agents have done that many in a single month. What we bring to the table is money saving and making experience. Allow me to give you a scenario to help you understand what I am getting at.
Bob is selling a home AS-IS for $250,000. The last time Bob sold a home, the buyers asked for repairs and it was a nightmare to Bob. Because Bob wanted to save a few bucks and do the work himself. It was a headache and one Bob vowed to never go through again. Bob's showings are slow due to his AS-IS statement. So, after a month the agent advises Bob to lower the price to get some traction. They come down to $240,000. After some showings and feedback, they decide to lower it again to 225k. Finally an investor picks up the house and plans to renovate. Bob gets $225,000.
Now, Tommy lives across the street and has the same floor plan as Bob. Tommy knows he needs some work on the house and the HVAC is not working well. He needs to get out and just move on. He has no money for repairs and also wants to go as-is. But, Tommy's agent advises him to refrain from the words "AS-IS". He decides to ask for $255,000 since that's what Bob asked, plus expected repair costs. The showings were many on opening weekend. Bob gets two offers and accepts one for $250,000. But, it's an FHA loan and may require repairs. The snazzy seller agent advises the buyer agent that the seller doesn't have money for many repairs. The two of them agree they will try to work through it and be reasonable. Remembering what was said, the buyer goes easy on the seller during inspections. Asking only that the HVAC be repaired or replaced and there are some plumbing leaks under the house that Tommy thought he fixed. Together, the seller agent and Tommy call a few contractors and ask if they would allow payment to be made out of proceeds at closing. Tommy closes the deal paying $3000 in repairs. Tommy gets $247,000.
Bob finds out about Tommy's sale and gets upset with his seller agent for getting him $22,000 less for the same style home. He should be upset. Because the seller agent should have helped Bob understand that a statement such as "AS-IS" often changes the buyer pool from end user to investors.
The seller agent's task is to market the home most effectively to reach the largest buyer pool. A seller agent's job is much like a fishing guide. They will know where to go for the most fish and how to catch them. Imagine 14 rods sticking out of the boat on the best spot on the lake. NOW, each time you scare off a certain type of fish, it is like removing one or 10 of those fishing rods. Selling is not just about pictures and signs. There is strategy to this stuff.
To help you understand what makes some sellers get more purchase price than others, I want you to do a little doodle. Grab a piece of paper and a pencil or pen. Seriously, do it. It won't take long. Now, draw a circle. This circle represents the total number of buyers in your market looking to buy a house from 0-$10,000,000. Now, think about how many you believe are looking for a house in the price range of your home. Draw a triangle to represent that % on your circle pie. In Charleston, about 25% of the buyer market is between 200-300k. That number was also right around 5300 buyers in 2022. So that is your buyer pool. Total number of potential buyers in a given year. Now, how many do you believe are using some sort of financing? Make a mark to represent that number. AS-IS typically attracts cash investors and handymen with cash or conventional loans. While pushing away FHA, VA Veteran buyers. So make a mark to represent cutting out all first time home buyers, FHA loans, and Veterans. Getting smaller? We are not done. Add another line to represent everyone who is not handy. And one for people who fear buying a headache and problem homes. There are many ways to slice a pie, but you should have something on your paper now resembling a knife edge. That is the buyer pool you are marketing to by using those words. In order for a seller to get this most purchase price, he/she must reach the largest number of buyers. So, that neighbor you heard got a crazy high sale price most likely strategized more than you realize.
MORE SHOWINGS=FASTER OFFERS=MORE PURCHASE PRICE
I was inspired to write this morning while looking for a home for a client. Knowing they want less headaches in their new home, I skipped over everything that said "AS-IS". When you purposely cut out this many buyers with an unnecessary statement, a seller can expect longer days on market and a lower sale price. And don't think you will just hold out and be firm. The NAR has millions of transactions to show that longer days on market typically means a lower sale price. Maybe you are different. Your house is different. I know the sentiment. I hear it a lot. But, you are essentially fishing with a single fishing rod in a pond with one fish using bait the fish don't like. And the only one willing to bite your hook is a turtle who doesn't plan on getting hooked. OR a crab if you like saltwater fishing. (I don't want to leave anyone out) 😆
There are many ways to navigate and strategize a property that needs work. First, be upfront and honest about what is wrong on your seller's disclosure. During negotiations, let the buyer agent know there is no money for repairs. Feel free to mention the major problem specifically in the public remarks. Sometimes this is less scary than the mysterious (AS-IS). If you know the house will not pass an FHA or VA inspection, don't suggest those loan types on the MLS. Allow the buyer agent to TRY if they feel the need and love the property. Sometimes the buyer is willing to take care of the costs or the numbers can be worked out together. There are options.
Here is another option....Fix the house. Yep, cough up the dough. A wise mentor once told me "Don't let a nickel hold up a dollar." Meaning, do not allow the fear of $3000 in repairs stop you from making $22,000 more at closing. That is just plain common sense. I have literally witnessed investors picking up an "AS-IS" home, doing the simple repairs and putting it back on market and selling it at a 20% increase. If you can afford the repairs, make the repairs. Be willing to lose a few bucks to make much more. Or the only thing you will be able to do to motivate buyers is drop drop drop the price so the few buyers left in the pool are willing to bite. The best market to be in is the FHA and VA market. They often make higher offers because they have fewer options and less time. This is the hungry fish pond that you do not want to dismiss.
Now, if you know there are tons of problems with a home and it is truly a handyman special, by all means, market to investors to save people's time. But, in many cases I find that "AS-IS" simply means a seller knows of one or two problems and doesn't wish to chase that problem any more. What I tell my seller's is to expect $3000-$5000 in repairs and we price the home and negotiate offers keeping that amount in mind. Constantly remind your seller of that expectation. So when repairs come, they are not surprised or concerned.
If repairs are requested, obtain contractor quotes and pray it's under $5,000. Negotiate like a lion running an obstacle course and get half the stuff cut out. Now, we repair $1500 worth of stuff and offer a $600 home warranty in leu of the rest. Easy peezy and the seller feels like they just made an extra $3k because they expected $5k. FYI: I strongly suggest hiring licensed contractors for the work. While I have used handymen and allowed owners to make their own repairs many times, I have also seen this backfire and cause many delays and issues. Even deal killers. Hire a pro. Get it done. Move on with your life.
AS an agent, do not expect your seller to have any clue at how much more money you put in their pocket by your strategies. They will not realize this. There were not two timelines to compare. They will never see the tactics you or I use to help them gain more value. Only you and I remember every client who listened and those who did not. For me, I just have to brag to my wife at home at how it worked out just as I planned. Knowing I added to someone's bank account and retirement is super rewarding feeling. That's the Job. As the Star Wars character, Mandalorian says "This is the way." As-Is is not the way.
The Real Estate Firm