In this guide, we're going to take a look at how to sell a house that may not be in marketable condition and needs a few repairs. By weighing the pros and cons of listing the house on the market with an agent vs. selling the property as-is to a cash buyer, hopefully we can shed some light on the best path forward.

Looking to sell a house that needs repairs but don’t have money to fix it up? This guide is for you! Let's take a look at three great options:

1) List the property on the market with the help of a real estate agent in its current condition

2) Find an investor or cash buyer who’s happy to purchase the property as is

3) Employ the services of a renovation crew who will differ payment on the cost of the repairs until the sale is complete

Like with everything, there are pros and cons to consider with each choice. Let's dive right in.

Option 1: Select an agent and list the property on the market as-is.

The traditional way of selling a house is to enlist the help of a licensed real estate agent who will market and promote the house to their network of buyers. Agents are typically available to assist with recommendations on how best to get the property spruced up and ready to elicit the interest of buyers. In the event renovation is not an option, your agent is an excellent resource to price the property, given its current condition, to ensure a timely sale. The last thing you want to do is list the property on the market and allow it to sit indefinitely with no hope in sight.

Anther benefit of working with an agent, is this person will take care of posting the properties information and photos on the Multiple Listing Service (MLS) which will allow websites like Zillow, Trulia and Redfin to solicit the property to an even wider pool of interested buyers. Once buyers start reaching out with interest, the agent orchestrates all viewings and necessary communication. Once the right buyer submits an acceptable offer, it's the agent’s responsibility to ensure everything pertaining to money and documentation is in order. In exchange for their effort, real estate agents charge a commission of around 6% of the sale price.

Pros of hiring an agent:

• Reach greatest number of potential buyers
• Minimal effort is required from the seller

Cons of hiring an agent:

• Agents may not reach the right buyers who are looking for distressed properties that require a lot of work.
• The property will need to be cleaning up and you may be encouraged to make a few repairs
• You will need to prepare for showings and may need to vacate the property during open houses
• Signing a listing agreement gives the agent the exclusive right to sell your house for six months
• You will be required to pay 6% of the sale price in commissions, even if the agent is not the one who finds the buyer or helps you sell the house
• As the seller, you will likely pay closing costs, which are typically 1-2% of the sale price
• While the house is on the market, you will pay holding costs

Option 2: Find an investor or cash buyer and sell your house direct

Most cash buyers are happy to purchase houses in need of repairs. Investors purchase the house as is, without cleanings, showings, or any required renovations. From an accepted offer to closing, the entire transaction is seamless and quick. In a cash transaction, the owner can seek out multiple competitive offers and negotiate the best terms.

Pros of working with an investor or cash buyer:

• Pay zero closing fees
• Avoid cleanup, repairs, and showings
• Closing in as little as 2 weeks or at a time that's convenient for you
• Cash advances may be available to help cover moving expenses. Brogue Properties offers up to $10,000 to assist with moving expenses with a signed purchase agreement, after the property passes inspection.

Cons of working with an investor or cash buyer:

• You have to accept multiple offers, vet the buyers and compare their offers
• Potentially lower net proceeds compared to listing and selling on the market

Option 3: Pre-sale renovations with no upfront cost

Some real estate agencies, like Keller Williams, Compass Concierge and Coldwell Banker, offer renovation services with no upfront costs to their clients. The firms then recoup the cost of the renovation from the price of the home after it sells. If you're interested and able to get top dollar for your property and want to sell at market value, consider partnering with one of these companies to make it work. Another great resource called Improvio, is a company based in Columbus Ohio that provides high-impact, turnkey repairs and renovations and defers payments until the home is sold. Properties that receive this attention, sell quicker and at a higher price compared to unrenovated properties.

Pros of working with a renovation crew:

• After repairs, properties will likely sell faster and for top dollar

Cons of working with a renovation crew:

• You will be responsible for selecting a provider and overseeing the renovation process
• Renovations will extend the timeline before the property is ready to sell
• In addition to paying holding costs during construction, and traditional real estate fees to the agent, you will also need to pay for the cost of the repairs with the proceeds from the sale

Best bet to sell a house as is

So how do you make sense of all this madness? A great place to start is to ask yourself how much time and effort you are willing to invest to sell your house. If you don’t have much time and aren't keen on renovation projects, selling to a investor may be your best bet; It's certainly the most convenient. If time is on your side and you have some flexibility to sell at a later date, you might try to maximize your returns, and explore options 1 or 3.

When considering listing with an agent on the open market, ask yourself:

1. How much repair work does the property need?

If your house needs structural and cosmetic renovation, it’s possible that it won’t sell on the market to another family. Instead, you’ll likely attract cash buyers and investors. These companies are interested to buy your house for the purpose of renovating them and selling or renting the property for a profit.

If you suspect your house is not likely to sell on the market due to its condition, your agent may look for cash buyers or investors to help you sell your house. If this is the reality of your current situation, you’re probably better off going straight to a cash buyer or investor to avoid paying agent commissions, holding costs and closing fees.

If your house only needs cosmetic renovations and you think you can attract buyers who’d like to move in and handle renovations and repairs themselves, consider the following:

2. What are the estimated net proceeds from selling the property as-is on the market?

The key to seeing how much you pocket when selling on the market with an agent is to look at both the potential sale price, the time it will take to find the right buyer and the cost of the sale. Real estate agents often contend they will get you a much higher sale price if you list your house, which is often true. However, there are many costs associated with selling the traditional way, whereas there are zero costs subtracted from a cash buyer.

We've got a great resource for calculating net proceeds from a traditional sale here, How to Calculate Net Proceeds From a Home Sale and a calculator for generating net proceeds here, Net Proceeds Calculator.

When you list your house to sell, in particular if the house needs a lot of repair work, the sale price is the starting point from which all costs are deducted. What’s left afterward is the net profit or net proceeds. Understanding your net proceeds gives you a better apples to apples comparison when considering selling to an investor compared to selling as-is on the market.

How to calculate your net proceeds:

When listing with an agent to sell your house, follow these steps to calculate net proceeds:

1. Estimate a realistic sale price

Your agent is going to be a great resource when attempting to identify the right sales price to peak the interest of buyers. It's a good idea to reach out to an experienced agent if you haven't already.

To make a go at estimating a realistic sales price on your own, start by looking at other comparable houses in your area that have recently sold with similar square footage, bedrooms and bathrooms.

How does the condition of your house compare?

If your home has a similar aesthetic and condition compared to the recently sold properties in your area, you're in great shape to rest assured that your property will likely sell for a similar price. Pay special attention to how long the property sat on the market to achieve this price, as homes that are not fully renovated may take longer to sell if they're not priced to move.

If the condition of your property is drastically different then the comparable properties that have recently sold in your area, the price you'll likely get for your house will not be in the same ballpark as the renovated spaces.

According to publicly available data from 2020 home sales, homes that haven’t had updates to kitchens, bathrooms, appliances, and flooring within ten years of listing on the MLS will sell for 17% less than comparable houses that have been recently updated.

Example:

Lets say your house is in structurally sound condition and in need of cosmetic repairs. Comparable houses in good condition within half a mile from your property recently sold for $250,000. Reduce that price by 17% based on the as-is condition of your house that needs work ($42,500), and you get a realistic asking price of $207,500.00

Comparable homes in good condition $250,000.00

Concession for dated appearance (17%) $42,500.00

Ballpark listing price $207,500.00

2. Calculate seller concessions

Are there items that a buyer would need to have fixed before moving in? Big ticket items that will likely need to be replaced in the next 10 years are going to be at the forefront of a buyers mind. These items include a new roof, new HVAC or a new furnace, kitchen updates, bathroom updates, layout updates and necessary improvement of landscaping and decking materials. Buyers will often require that the seller reduce their price to accommodate costs associated with repairs that come up during inspection. For example, if the roof needs to be replaced, or there’s a foundation issue, you’ll likely need to come down on price to accommodate these repairs.

Example:

Sellers may negotiate a $5,000 concession on price for a roof that needs replacement and a possible $4,500 for a new furnace. Asking price $207,500.00

Seller concessions $9,500.00

Actual sale price $198,000.00

3. Calculate transaction costs.

When you sell on the market through the traditional sales process, you are likely giving up between 6% – 12% of the sale price to pay commissions, holding costs and closing costs associated with the home sale.

Example:

From your actual sale price, subtract 6% for agent commissions ($11,880) and 1-2% for closing costs ($2,970) -- a total of $14,850.

Actual sale price $198,000.00

Agent commission (6%) $11,880.00

Closing costs (1.5%) $2,970.00

Total transaction costs $14,850.00

4. Calculate your holding costs.

Consider the out of pocket expenses of maintaining the property while the house is on the market. Holding costs can vary greatly depending on the time of year, market conditions and the condition of your property and may include mortgage payment, taxes, utilities, and any other monthly fees that are your responsibility like HOA fees and maintenance costs.

Example:

For the sake of example, let's subtract the average time it takes to sell a property in two months.

Monthly holding costs (~0.8%) $1,584.00

Months on the market 2

Total holding costs $3,168.00

5. Calculate your net proceeds.

Subtract the amounts you’ve calculated for seller concessions, transaction costs, and holding costs from your realistic sale price – this is your estimated net proceeds, the amount of money that you might expect after you’ve sold your house as-is on the market. Keep in mind that if it takes longer than the average 60 days to sell your property, you can expect higher holding costs.

Realistic asking price $207,500.00

Seller concession (1-2%) $9,500.00

Transaction costs (7-9%) $14,850.00

Holding costs $3,168.00

Total net proceeds $179,982.00

At this point you may not want to think about this any further; Perhaps we've reached information overload. So long as you have the leisure to consider all your options, take the process in small doses to avoid feeling overwhelmed and rest assured that you've made a sound decision.

If you’re willing to accept lower net proceeds in exchange for being able to sell your house without doing any work, then it might be worth exploring an off-market sale to an investor. An off-market buyer probably won’t give you as much as a traditional sale, but based on your net proceeds calculation above, they may come closer than you may think. And they can sweeten the offer by closing on a date that's convenient for you.

For a no-obligation offer for your property, visit coremarkhomes.com and complete a short questionnaire. We look forward to speaking with you.