It’s human nature to try to find the best possible deal.
When we’re buying something, our impulses are to comparison shop, to search for the lowest price – and if possible, negotiate.
When we’re selling something, our impulses are to charge the highest price possible, to create a bidding war – and if necessary, negotiate.
Sometimes, you don’t have those options.
Here’s one of the worst possible scenarios: you want to – or have to – sell your house, but it’s in terrible condition.
That puts you in a terrible bargaining position. You have no leverage to charge an astronomical price, you probably won’t be able to trigger a bidding war – and there’s very little chance that people will be willing to negotiate with you.
To use a real estate term, what you’re trying to sell is a distressed property. To use a more common term, most homebuyers will think you’re trying to sell a lemon.
Is there any way you can make lemonade? Let’s check out the possibilities.
When Is a Home Considered in “Bad Condition?”
There are no rigorous legal or industry definitions to describe homes’ conditions. Several are used frequently by inspectors and realtors, however.
- Poor Condition: The house is basically not fit to live in. The issues can include badly damaged roofs or siding; dangerous foundation damage or construction faults; insect infestation, mold, asbestos or lead paint; flooding; major electrical or plumbing problems; or very serious property and landscaping issues.
- Fair Condition: The house is badly and obviously in need of repairs. Most of the same problems (foundation, roof, siding, electrical and plumbing) may exist but to a lesser degree. making the property undesirable but not uninhabitable. A home in fair condition is also likely to need major kitchen and bathroom upgrades as well as repairs to structural items like ceilings, walls and floors, fixtures and faucets.
- Average Condition: The house has wear-and-tear issues which can be handled fairly easily. Everything important works, and there are no major structural problems; some upgrades, small repairs and cosmetic work, plus maintenance work that has been deferred, should be done to make the home more attractive to buyers.
- Good Condition: The house may not be the nicest and most modern in the neighborhood, but it’s been well-maintained. Only cosmetic work is necessary before the home goes on the market, although selected upgrades might increase the sales price.
- Excellent Condition: Just what the name implies.
A home that is in fair or poor condition will be difficult (and perhaps impossible in a slow market) to sell without investing lots of time, effort – and money.
That doesn’t mean that a home seller is out of luck when trying to sell a house in bad condition. They do have several options.
Bottom Line: A house that has major structural, infestation or safety issues, or needs major repairs and upgrades, is generally considered to be in poor or fair condition. Selling the home will be much easier if the problems are resolved, but that can be an expensive and lengthy proposition. Without those repairs and upgrades, it’s necessary to look for other solutions.
Should You Renovate A House In Bad Condition Before Selling It?
To be clear, we’re not talking about homes that will look relatively presentable to potential buyers if you give them a nice paint job, deep cleaning and power washing. The houses we’re discussing need major work.
Anyone who’s watched a few of the ubiquitous home flipping TV shows knows that just about any house can be rehabilitated – with enough knowledge, time and money. But there are several questions you have to ask yourself before spending hours at building supply outlets, renting power tools and strapping on safety equipment.
- Do I really know what I’m doing? It may look easy on TV, but home renovation isn’t anywhere near as easy as it seems on HGTV. And some issues, like asbestos or lead paint removal, should always be left to professionals.
- Are the renovations I’m planning going to make the house desirable? Some repairs, like fixing the electrical and plumbing systems and repairing the roof may be 100% necessary. Others won’t. And if there’s a major foundation crack, or black mold in the home, it won’t really matter whether the lights and toilets work. Potential buyers will walk away.
- Can I afford the necessary materials? Sure, upgrading a kitchen usually pays for itself and makes a home more saleable – but it also costs an average of $20,000-30,000. Do you have that kind of money available to pay upfront? Replacing a bad roof may not be “optional,” but it will still set most homeowners back at least $10,000. Have you got that kind of money?
And most importantly:
- Do I have the time necessary to do the work?
That doesn’t just refer to the amount of time you’d have to spend on the repairs, which will usually be considerable. It also refers to whether you can take your time to fix up the house – or if you have to get out quickly.
Very often, the reason that a house falls into disrepair is that it’s been occupied by elderly owners who can’t keep up with the maintenance, or who have left it vacant after moving in with relatives or to a long-term care facility. After they pass away, the home is inherited by family members who don’t have the time to mess with a home in bad condition. They simply want someone to take it off their hands as quickly as possible.
Also very often, people simply don’t have the money to properly take care of their home – and when they reach the point when they can no longer afford to live there, there’s no time for them to try and fix up the house before selling it. They just want to get rid of it and move on.
A third common issue crops up when home owners have to move quickly. Perhaps it’s because of family illness, perhaps it’s due to divorce, perhaps it’s to take a new job in another city. They don’t have time to worry about repairs, renovations, makeovers, realtors and open houses. They have somewhere else to be, in a hurry.
Those three groups have one thing in common, other than wanting to sell their house. Their top concern isn’t how much they’ll be able to get for their home; it’s finding a buyer, fast.
These folks know they’re not going to get as much for their house as the family down the street did last month. They’ll take a lower offer in return for quick cash and a quick exit – and perhaps just as importantly, in return for avoiding the huge realtor commissions they’d otherwise have to pay.
Fortunately for them, there are several types of businesses that specialize in buying houses in bad condition – for immediate cash.
Bottom Line: If you have the desire, time and money to fix up a home in bad condition before selling it, you can certainly increase the amount that buyers will pay for it. If you make the right choices, you might even make most or all of your investment back. Some people, however, don’t have those three key ingredients (desire, time, money) to spare – particularly if they have to be out of the home in a hurry or simply don’t want it at all. There are businesses that will buy those less-desirable homes, for cash.
Who Will Pay Cash For Your Home In Bad Condition?
Chances are good that you’ve seen signs in your neighborhood proclaiming “We Buy Houses for Cash! Any Condition!”
With rare exceptions, those aren’t scams in the making; there really are people who are looking to purchase homes in fair or poor condition. But their business models aren’t all the same.
Individual Home Flippers
You may have watched those home-flipping TV shows we’ve mentioned for their entertainment value, or maybe to glean some home fix-up ideas. Some people, however, have taken the next step and started flipping houses on their own.
They’ll search for distressed sellers who want to get rid of their homes; usually, they will make very low offers. There’s a simple reason why: as individuals, they normally don’t have much excess capital to work with. They’re looking for the cheapest options they can find.
There’s nothing wrong with selling your home to one of these individual flippers, but chances are that they’ll pay less than other “immediate cash” buyers. The transactions don’t always go smoothly, either.
You’re better off dealing with buyers in the categories that follow.
Home Flipping Companies
If you answer a “Cash for your House” ad you may not even realize, at least at first, that you’re dealing with a house-flipping company and not an individual. Many of these firms deliberately make their signs and other advertisements look amateurish, so they don’t scare away potential sellers wary of being scammed.
In reality, there are very large and very well-funded companies behind the ads. The biggest one is HomeVestors, whose local franchisees operate under the brand name “We Buy Ugly Houses.” They focus exclusively on buying homes in bad condition for cash, fixing them up quickly, and reselling them.
A few franchisees (they all operate independently) may make a ridiculously low purchase offer. The rest will make what seems like an insulting offer, but is actually based on an established formula used in the home flipping industry to ensure a reasonable profit.
It’s called the 70% rule, and it’s pretty easy to understand. They start with how much the home would fetch on the open market if it was in good condition. They deduct the amount they estimate they’ll have to spend on repairs – and then offer the homeowner 70% of that figure.
For example, if a house in bad condition could theoretically sell for $300,000, and they’d have to put $50,000 into it to fix it up, that leaves $250,000. Their offer to purchase would then be around $175,000.
Is $175,000 a lot less than the homeowner would want – especially when their neighbor’s house just sold for $300K? Of course. But look at it this way. If they went the conventional route they’d already have spent $50,000 of that $300,000 on repairs. Realtor commissions and closing costs would eat up another $30,000 or so. So the $300K number is really a mirage; if they fixed up their house and sold it conventionally, they’d end up clearing $220,000.
No doubt about it, $220,000 is much less attractive than $175,000. But that $175,000 is in immediate cash, the seller can often be out of the house for good in a week or less, and there’s no hassle, no muss and no fuss.
For the distressed groups we mentioned earlier, that can be an awfully attractive way to get out of a house in bad condition.
iBuyers
This is the latest type of company that will buy homes for quick cash. Some of the biggest names in real estate, including Redfin, Zillow and Opendoor are now operating in this segment of the industry. Unlike flippers, they don’t visit your house to inspect it and see if they want it. They just rely on automated tools and publicly-available information to determine how much they’ll pay for a home.
There’s a catch, though; iBuyers don’t want homes in bad condition. They want houses they can immediately resell to online “shoppers” without investing any extra money or work.
For that reason, they won’t even talk to people whose houses are in poor condition. And those who own homes in fair condition will have to put some work and money into them before iBuyers would be interested.
If you’re in the latter category, though, and don’t have to be out of your home right away, it’s an option worth considering. These companies work on volume, so their cash offers will be much higher than those from home flippers. In fact, one expert crunched the numbers and found that iBuyer offers, paid almost immediately in cash without any hassle, are typically just 1-2% below market value.
Oops – there’s one other catch. iBuyers don’t charge commissions, but they usually charge big “transaction fees” that can be substantially higher than realtors’ normal commission rates.
“New Age” Cash Buyers
How about the best of both worlds?
A few companies have put together a new business model that works for just about anyone with a house in bad condition.
These buyers make offers on all homes, regardless of condition. They have an existing network of clients who purchase all types of houses. They start with automated systems that estimate a home’s value, but then actual people adjust the value with on-the-ground property evaluations. If the house needs repairs – as all homes in bad condition do – they’ll be happy to have their contractors do the work at cost, with no markup, before purchasing the house.
And here’s the key: there are no commissions or transaction fees. The amount they offer is the cash the seller receives.
It’s not surprising that these “new age” cash buyers are quickly growing in popularity. One of the best is SellYourHome.com, which promises an offer within about 24 hours, closing at the seller’s convenience (as soon as two days after the offer is accepted), no hassles and no hidden fees.
Offers from these companies won’t miraculously be as high as the amount a seller could get on the open market for a home in excellent condition; anyone buying a house in bad condition for cash will pay less.
“New age” buyers come pretty close, though, without any secret “70% rules,” without any transaction fees or commissions to be paid, and with cash delivered as soon as a few days after an initial inquiry.
Bottom Line: Those selling a house in bad condition can make a deal with individual home flippers, home-flipping companies or “New Age” cash buyers. If they have the time and money to first make necessary repairs, they may also be able to deal with large iBuyers. “New Age” buyers like SellYourHome.com offer the fastest transactions and respectable offers, and can take the house off the sellers’ hands in as few as 3-4 days.
Selling a House in Bad Condition FAQ
Q: Am I going to take a financial bath by selling a house in bad condition?
A: You’ll always end up getting less than you would if it was in good condition, of course. But by choosing the right type of cash buyer, and perhaps first doing some of the necessary cosmetic work on your own, you may end up with an offer relatively close to the home’s value on the open market.
Q: How do all these “we pay cash” buyers actually have the cash to pay hundreds of thousands of dollars for houses? Should I trust them?
A: Individual house flippers might be a concern; you should probably do some investigating on your own to see if they really do have the money they promise. Big home-flipping companies, iBuyers and “New Age” buyers, however, are either large operations with deep pockets, or backed by major companies, financial institutions or banks.
Q: If I don’t have to be out of my house right away, am I better off trying to renovate and fix up my house on my own?
A: Sure, if you have the necessary funds. The average home remodeling cost in 2021 was estimated to be between $20,000 and $75,000. Chances are good that if you let your home fall into disrepair in the first place, you can’t come up with that kind of money to fix up your house just because you want to sell it.
Q: Is there any alternative to dealing with a cash buyer?
A: Sure, you can try to sell your house in bad condition on the open market. Unfortunately, unless it’s an incredibly tight market or you get incredibly lucky, you’ll find it nearly impossible to find a buyer who wants to pay good money for a “bad house.” You’ll also find it extremely difficult to find a realtor who will work with you, since there’s little chance they’ll earn a commission on a distressed home; you’ll probably have to do a FSBO (For Sale By Owner).
Of course, you could just walk away and let the bank repossess your home – but then you’d get nothing at all in return.