A few months ago I posted about some of the issues I'd had with the appraisal on a fixer property I sold in Manhattan Beach. Lenders and appraisers have tightened guidelines on property standards to the point that "fixer homes" may be a thing of the past. I'm not talking about homes that need kitchens and baths updated with granite counters or wainscot on the dining room wall. I'm talking fixers... where everything needs help.
For years one of the basic tenents of real estate was that buying the worst property in the best neighborhood was a smart thing to do. Sweat equity would bring major benefits to those who were handy with a saw and hammer. Those days may be gone.
I have a home that will soon be on the market in East Manhattan. It is a trust sale so there will not be any major updates to the property. However new paint, carpet and landscaping along with minor repairs will not be inexpensive. Through the grapevine a number of folks have heard about the home and have expressed interest in buying before we start work. The kicker is that as the owners tore out the old carpet and started some termite work on the exterior, so it may not appraise unless they paint and put in new carpet... even though a new buyer will likely rip out the carpet and repaint the interior and exterior.
I understand the issues involved from the bank and appraiser's viewpoint. What happens if the lender makes a loan and the owners do nothing? The bank made a large investment on a home that is not in good shape and if the loan goes sour they will have to try and sell a "fixer". The lender will need someone to blame and that means pointing fingers at the appraiser if they don't call out the condition of the home.
There are still a number of homes that are headed to foreclosure where the owners have not made payments for many months or in some cases years. It is not uncommon for these owners to take out as much as they can from the home including doors, windows, floor coverings and even light switch plates. Most banks don't want to be in the business of fixing up properties in order to get them on the market. But that is what they may have to have to do with these places if no one can get a loan on them in their "as is " condition.
The only folks who will be able to purchase "fixers" will be those with a lot of cash who can purchase without obtaining a loan. That means more homes will be going to investors who want to flip the property rather then to buyers who want to occupy the home. The banks are again creating a situation that may not be in anyone's best interests over the long run. Sometimes the things banks do just don't make much sense.
If you are thinking about selling your home and were going to list it as a fixer you might have to rethink that plan or be prepared to wait for someone with all cash... and that could be a long wait.
