How to Sell A Defective Home

A bad location can be the worst defect

Law offices and boarded up shop, Mount Greenwood, Chicago
••• stevegeer / Getty Images

No matter how many times you hear that real estate is about location, location, location, sellers sometimes forget about when it's their own home and they've lived in it long enough to enjoy other positives apart from the location. Location matters most to buyers, especially in buyers' markets when choices are plentiful due to excess inventory. Buyers will pass up a good home in a bad location in favor of a less desirable home in a good location.

Understanding Bad Locations

The public might perceive some neighborhoods as bad even though more desirable areas might be as close as across the street. Whatever the reason for the perception, bad locations affect the values of homes by tens of thousands to hundreds of thousands of dollars. Owning a home near any of the following types of locations often is detrimental to market value:

  • Main thoroughfares with a lot of traffic
  • Railroad tracks
  • Commercial or industrial properties
  • Apartment buildings
  • Utility structures such as waste, electrical, or nuclear power plants
  • Cemeteries
  • Noise pollution from nearby airports or freeways
  • Garbage, landfills, and recycling
  • Schools
  • Government housing or government buildings
  • Sports arenas
  • Odors from neighboring farms or factories

Many of these are based on preference. For example, many home buyers would prefer to live closer to schools, but they might not want to live right next door, where there will be constant activity and constant traffic. Living near thoroughfares, freeways, or airports can be convenient for transportation, but living too close generally is unappealing.

Overcoming Bad Locations

The best way to overcome an objection is generally by home pricing. For example, a seller on a busy street near commercial buildings and across the street from a cemetery should consider why she bought the home in the first place. The answer likely is price.

The right approach often is to put the home on the market at a price lower than competing inventory. It's not an approach designed to turn a profit from a sale, but it is better than leaving the home on the market for too long without any interest.

Additionally, it's important to emphasize the benefits of the perceived weaknesses of the home's location. For example, cemeteries are quiet, break-ins and other crimes are less common on busy streets with a lot of people around, and the nearby commercial properties might be convenient for shopping or for work.

Understanding Bad Layouts

A bad location is not the only defect a home on the market might have. In fact, the home might be in a great location, but other factors, such as a bad layout, can turn off buyers. Not all bad layouts can be rectified easily and often are considered incurable defects. If the cost to fix exceeds the boost in expected selling price, it might be better to offer a remodeling credit to the buyer. Examples of bad layouts include:

  • Narrow doorways and halls
  • Interior stairs facing an entrance
  • Hallway facing an entrance
  • Adjoining bedrooms
  • Bedrooms located on separate levels
  • Dining room in the center of the home
  • Bedrooms accessed from living or family rooms
  • Guest bathroom in an unappealing location
  • Choppy placement of rooms without flow
  • Upper-floor bedrooms with stairs in the center

These types of homes sell for less than surrounding homes with more conforming layouts of similar square footage. Many homes of this nature in desirable neighborhoods land in the hands of house flippers, who have the vision and expertise to change the layout and resell the property at a high profit.

Damage and Deferred Maintenance

Contractor or handyman specials are common terms for fixer-upper homes. Regrettably, the best solution sometimes is to tear down the home, selling it for lot value or giving the buyer a closing cost credit to do the tear down after closing.

Homes that require a lot of work will not sell for the same amount as comparable homes that do not require work. Buyers will refuse to pay top market value for homes with deferred maintenance. A contractor who plans to resell a home in fixed-up condition will expect a reasonable profit and will factor in the costs of resale upon purchasing.

Most buyers of deferred-maintenance homes demand an added incentive as compensation for unforeseen problems. For example, a home that requires $50,000 of work among homes selling for $300,000 will not command a price of $250,000.

Sometimes a buyer will purchase a home to fix up because the buyer expects the renovation to be a labor of love. However, those homes typically sell for a bit more due to location.