Selling a House That Needs Repairs: How to Do It | The Sundae Blog

Contents of this guide

• Hire an agent and list your house on the market
  • Pros and cons of hiring a real estate agent to sell a house
• Sell your house off market to a cash buyer
  • Pros and cons of selling off-market
• Is there an option 3?
  • Pros and cons of selling for cash via the Sundae Referral Network
• Which sell option is better?
• How to calculate your potential net proceeds (the money you’ll walk away with)
• “Soft costs” to consider
• Fixer upper next steps

Option 1: Hire an agent and list a house that needs repairs on the market

Pros of hiring a traditional real estate agent:

• Reach more potential buyers
• Potentially end up with higher net proceeds vs. selling to an off-market cash buyer

Cons of hiring a traditional real estate agent:

• Traditional agents may not reach the right buyers for your property if it requires a lot of repair work
• You have to spend time cleaning up, improving your home’s curb appeal, and dealing with the hassle of repairs
• You need to prepare for showings and vacate the property for open houses for prospective buyers
• Signing a listing agreement gives the agent the exclusive right to sell your house for six months
• You will need 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 often have to pay closing costs, which are typically 1-2% of the sale price
• You’ll pay holding costs (see below) while waiting to sell, typically for two months or more
• Dealing with a range of buyers and price haggling creates an unpredictable outcome

Option 2: Find a cash buyer and sell your house off market

Most real estate investors, including individual house flippers, rental landlords, and house-buying companies, purchase fixer uppers with the intention of doing repairs, renovating, and reselling them. These investment buyers often buy properties to sell as is, without cleanings, showings, or renovations. The entire transaction can close quickly with no hassles. Here’s what you should know before hand. In a cash transaction, the owner can seek out multiple comparison offers and negotiate terms. In fact, as the owner, you work directly with the buyer on all aspects of the transaction such as escrow, title, and closing.

Pros of working with a cash buyer:

• Pay zero fees to sell your home
• Avoid cleanup, repairs, and showings
• Complete the closing in just 10 days if you need to move quickly
• Ask for a cash advance before closing (Sundae offers up to $10,000 for eligible sellers)

Cons of working with a cash buyer:

• You do the work to shop around for multiple offers, vet buyers, and compare offers
• Potentially lower net proceeds vs. listing and selling on the market

Is there an option 3?

Perhaps you’ve already listed your home with a traditional real estate agent because you wanted hands-on help or just wanted to explore how well your house could do on the open real estate market. If you’re now finding that you aren’t up for the expense and labor of getting it market ready—but are contractually obligated—another option is to work with your agent to find a cash, as-is deal.

Some real estate agents have existing relationships with cash investors whom they can reach out to in order to get you an offer or two. These may not, however, reflect the most competitive prices available. In that case your agent may want to consider the Sundae Referral Network. Through this program, agents can refer properties to the Sundae Marketplace. From there, Sundae will take over the transaction, market your house to our community of trusted, local investors who will compete to offer the best price. Sundae will also handle the contract and closing, all in as little as ten days. Your agent will earn a commission for the referral, and you’ll have the peace of mind of knowing you’ve gotten the best cash price available.

Pros of selling for cash via the Sundae Referral Network

• You will pay only the sale price commission to your agent, as outlined in your listing agreement; usually 2-3% of the sale price (vs. 6% with a traditional sale)
• You won’t pay closing costs
• You can receive multiple offers from cash buyers to consider
• You won’t have to deal with any price haggling or contingencies on the sale
• You can close on your time — in as little as 10 days or within 60 days
• You may be eligible for a cash advance of up to $10,000

Cons of selling for cash via the Sundae Referral Network

• Just as with any cash, as-is sale, you will likely receive a lower selling price than you might on the open market

Best sell option for houses in need of major repairs

1. How much repair work does your house need?

If your house needs significant repair work or a complete renovation, it’s possible that it won’t sell on the market to another family. Instead, you’ll likely attract cash buyers or property investors. These companies want to buy your house for the purpose of investing in renovations and reselling it for a profit (Tip: Be careful for We Buy Houses scams. Consider this option if you want to sell your house faster.

If you suspect your house is not likely to sell on the market due to its condition, your agent may have to find cash buyers or developers 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 to avoid paying agent commissions and other fees (see below). Most off-market buyers will also pay for closing costs. However, if you think you could attract some buyers who’d like to move in and handle renovations and repairs themselves, then keep reading.

2. What are your estimated net proceeds in each scenario?

The key to seeing how much you might make selling on the market with a traditional agent is to look at both the potential sale price and the cost of the sale. Real estate agents will argue they can get you a much higher sale price if you list your house, which is often true. However, there are many more costs associated with selling the traditional way, whereas there are usually zero costs subtracted from a cash buyer.

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 over afterward is the net profitor net proceeds. Doing a net proceeds calculation gives you a better apples to apples comparison of the two offers.

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

First, look at other comparable houses in your area for sale in terms of square footage, bedrooms and bathrooms. How does the condition of your house compare? Unless your house requires no repairs and has up-to-date fixtures, appliances, and design, the price you get for your house will not be in the same ballpark as the ones that do.

According to publicly available data from 2019 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 [1].

Price based on comparables in good condition	$300,000
Price reduction based on condition (-17%)	$51,000
Realistic asking price	$249,000

2. Calculate seller concessions due to repairs

Next, look at the inspection. Are there items that a buyer would need to have fixed before moving in? Buyers will often require that the seller reduce their price to accommodate the costs associated with these repairs. For example, if the roof needs to be replaced, or there’s a foundation issue, you’ll likely need to come down another 1-2% from that realistic price to sell your house.

Realistic asking price	$249,000
Seller concessions (1-2%)	$3,775
Actual sale price	$245,265

3. Calculate transaction costs.

When you sell on the market through the traditional sales process with an agent, you are likely giving up between 7% – 9% of the sale price to pay commissions to your agent and the closing costs, which are paid to the companies handling all the finances (escrow) and paperwork (titles).

Actual sale price	$245.265
Agent commission (6%)	$14,716
Closing costs (1-2%)	$3,679
Total transaction costs	$18,395

4. Calculate your holding costs.

Consider the out of pocket costs of owning the house while waiting to find a buyer and sell it. These holding costs include mortgage, taxes, utilities, and any other monthly fees you owe such as solar panel bill, HOA fees, and maintenance costs you pay before you sell the house. The average time to sell a house in California is about 60 days.

Monthly holding costs (~0.7%)	$1,716
Months on the market	2
Total holding costs	$3,432

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 have after you’ve sold your house as-is using a real estate agent. Keep in mind that if it takes longer than the average 60 days to sell, you’ll be profiting less and less as you continue to pay holding costs.

Realistic asking price	$249,000
Seller concession (1-2%)	$3,775
Transaction costs (7-9%)	$18,395
Holding costs	$3,432
Total net proceeds	$223,438

Consider soft costs

These price and cost calculations will help you estimate the profits you get when you sell the house. But you also need to factor in the many soft costs associated with the traditional sales process. These costs include:

• Time – a traditional sale requires hours of managing the process
• Uncertainty – there is no guarantee of a sale, much less at your desired price
• Stress – the mental strain of dealing with a demanding challenge
• Work – the hassle of cleanings and showings

At this point you may want to ask yourself, what is it worth to NOT deal with these hassles? What would it be worth to be able to walk away quickly from all the repairs and possible bottomless money pit? Comparing your estimated net proceeds to a cash offer from a property investor will help you answer that question.

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 a property investor. An off-market buyer probably won’t give you as much as a traditional sale. But based on your net proceeds calculation, they may come closer than you think. And they can sweeten the offer by offering a fast closing and short escrow period.

Off-market buyers will take the repair work off your hands and buy your house for cash. This means you don’t need to wait for a mortgage to be approved to sell it nor risk having the sale fall through. Some homebuyers even offer a cash advance to help alleviate any needs during your transition.

Next steps for a fixer upper house