A lot of buyers are looking for "fixer uppers" in the Beach Cities. Many buyers believe they can purchase these homes at a low price, put a little money and work into them and wind up with a great deal. Sometimes it works out better then expected. However as with all aspects of the real estate market the more you think you know the more you really need to know.
Last year I closed escrow on a home in East Manhattan Beach that was marketed and sold for land value. The house was small and had a lot of deferred maintenance. The lot was huge, 14,000 square feet, and sat at the crest of a hill.
The home sold within 2 days of being on the MLS. The price accepted by the sellers was close to the list price and the buyers were exceptionally well qualified. The home was sold as is which was acceptable to the buyer as they are going to build their dream home.
The home sold within 2 days of being on the MLS. The price accepted by the sellers was close to the list price and the buyers were exceptionally well qualified. The home was sold as is which was acceptable to the buyer as they are going to build their dream home.
All was going well until the appraisal. The appraiser knew that the home was being sold for land value and even noted this on her report. She also noted that the buyers planned to build a new home. She indicated that the value of the property was at the agreed price.
Unfortunately she didn't stop there....she noted something else... the home was not in great condition. She went on about what a great neighborhood it was and how lovely all the homes were and how expensive the property was in the area. Finally she made a list of all the things that needed to be done to the property to bring it to "average" condition and put a price tag on the list of $140,000.
Bells went off, whistles blew, lights blinked while buzzers buzzed..... and the lender who a few days before was ready to fund immediately said no. So what changed this deal... 4 words.. not in average condition. Now remember everyone knew this was a land deal... the house had no value and the appraiser said it was worth what the buyer had agreed to pay but because the appraiser said it needed lots of work to be average the deal was off.
In today's market, lenders don't want to loan on property that is not in average condition. There are a few who will make a loan on these properties but they are so overwhelmed with applications it takes forever to get an approval.
The problem comes down to what it average. The appraiser thought the house needed at least $140,000 to make it average which was silly. The house was solid and really only needed paint, new carpet, minor repairs and a good cleaning for the appraiser to decide it was now average. What was so senseless was that the seller had to spend money to fix up a house that was going to be torn down immediately.
Most of the time appraisers are at or very near the value that buyers and sellers agree on as fair market . It's not always about price... sometimes, even though the appraisal comes in at market value, it is not enough to make the lender agree to make the loan.
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