How to Sell A Defective Home
No matter how many times you hear that real estate is about location, location, location, it's a fact that sellers sometimes overlook. Location is easy to forget about when it's your own home, and you've lived in it long enough to enjoy other positives apart from location.
Location matters to buyers, especially in buyer's markets when the choices are plentiful due to excess inventory. Buyers will pass up a home in a bad location in favor of a less desirable home in a good location.
Examples of Bad Locations For a House
Some neighborhoods can be perceived in the public eye as being a bad area, even though the homes in a "bad neighborhood" might be located across the street from a so-called desirable area. Bad locations affect the value of the home, which can vary by tens of thousands to hundreds of thousands of dollars. Owning a home near any of these following types of locations is often detrimental to your market value:
- Main thoroughfares with a lot of traffic
- Railroad tracks
- Commercial properties
- Industrial properties
- Apartment buildings
- Utility structures such as waste, electrical or nuclear power plants
- Noise pollution from nearby airports or freeways
- Garbage, landfills, and recycling
- Government housing or government buildings
- Sports arenas
- Wind pollution such as odors from neighboring farms or factories
Overcoming Objections to Bad Locations
The best way to overcome an objection is generally by home pricing. For example, when I asked a seller who had three strikes against her:
- On a busy street
- Near commercial buildings
- Across from a cemetery
why she bought the house in the first place, she said, "Price. It was the least expensive Land Park home for sale at the time." So we signed a listing agreement, putting the home on the market at a price below competing inventory. It finally sold after 90 DOM.
Another Land Park buyer refused to buy a home because the home next door needed a new roof and an exterior paint job. I talked to a neighbor who was able to secure a commitment from the deferred-maintenance homeowner to paint and reroof.
Promoting the benefits of certain locations is sometimes useful. For example:
- Cemeteries are generally very quiet.
- Living near a school for a young family means you can keep a closer eye on your children.
- Home break-ins don't generally happen on streets with a lot of traffic and activity.
If your home is located in a desirable area, other factors such as a bad layout can turn off buyers. Not all bad layouts can be easily rectified and are often considered an incurable defect. If it would cost more to fix than you'd receive in exchange for your added-value efforts, it might be better to sell for less or offer a remodeling credit to the buyer. Here are examples of a bad layout:
- Narrow doorways and halls
- Interior stairs facing an entrance
- Hallway facing an entrance
- Adjoining bedrooms
- Bedrooms located on separate levels
- Dining room in center of 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 Sacramento neighborhoods land in the hands of flippers, who have the vision and expertise to change the layout and resell the property at a high profit.
Damaged Homes With Deferred Maintenance
Contractor or handyman specials are terms I use when referring to fixer upper homes. Regrettably, sometimes the best solution 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. Moreover, most buyers demand an added incentive as compensation for unforeseen problems as well.
For example, a home that requires $50,000 of work among homes selling for $300,000, will not command a price of $250,000. That's not how it works. A contractor, say, who plans to resell the home in fixed-up condition, will expect a reasonable profit and will factor in the costs of resale upon purchasing as well. This means the home will likely sell for less than $200,000.
Sometimes a buyer will purchase a home to fix up because the buyer expects the renovation to be a labor of love. But those homes typically sell for a bit more due to location. It pays to be reasonable in your pricing when your home has defects that you are not willing to address.
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.