Kari McCoy commentary: What to consider when buying a fixer-upper?

Question: Dear Kari, The only way I can buy a home is to buy a fixer-upper. Any advice you could provide would be greatly appreciated. Answer: A fixer-upper is a property that will require repair, redecoration, reconstruction or redesign and is typically offered at a discounted sales price. There usually is less competition for these types of properties because not everyone is in the mood to roll up their sleeves and do some changes to a home. Most home buyers want to simply move their furniture in and start their life in their new home. In the event you are the kind person who has the ability and time to perform the work yourself or can afford to pay a contractor to make your changes or upgrades, then you could make this process worthwhile. Now is the time to be honest and realistic with the option of buying a fixer-upper. When searching for a fixer-upper, you would be wise to select the best location, best schools, with a well laid-out floor plan. The optimal fixer-upper home would have fundamentally good bones (being sound structurally) and is only in need of cosmetic improvements: new paint, flooring, light fixtures, kitchen cabinets, replacing doors, changing out vanities in bathrooms, sprucing up the yard and so on. Educate yourself with the high-ticket repair items such as roof repair, plumbing, sewer lines, windows, rebuilding garages, driveways, heating and central air, replacing exterior siding and so on. It is a known fact when it is time to sell your home, these are items that rarely increase a home's value in terms of dollars. For instance, a buyer may be pleased to have a new roof but would not offer you an extra $30,000 for said roof. Once you have found a fixer-upper you like, ask your Realtor to provide a comparative market analysis on that home. This will provide hard data displaying the value of similar homes in the area. Do not buy a fixer-upper unless you are a contractor or if there are contingency clauses in your purchase contract. These contingencies will allow you to have any and all inspections and obtain bids of any needed repairs or upgrades. This way, the costs of repairs and wanted changes, along with the price of the home, will be known before committing to the finalization of the contract. I would recommend a home inspection and pest control/termite inspection to be performed on the home. Make sure to be present when these inspections take place. Ask as many questions as possible. It is good to know the pest control/termite report is laid out in two sections. The first section consists of items that must be completed before a clearance can be issued on the home. Section two items, if left alone for a period of time, may turn into section one items. It is also good to know the section two items do not have to be completed to obtain a clearance report. Use caution if you see anywhere on the report labeled "Further Inspection." These two little words could mean thousands of dollars of hidden damages. The further inspection items are drawing your attention to an area in which the inspector may have a concern but could not gain access to the area. In the event this does occur, you would be wise to request the seller allow you further inspection access. This could be as simple as moving a few boxes away from the garage wall and having the inspector take a fast peek or it could also mean the inspector may need to drill holes on the outside of the property or cut open a wall to make sure there are not any unforeseen problems such as termites or other issues. If you are satisfied with both inspections, then next I would advise you to get specific bids on each repair or replacement item you desire. At this point, with all the estimates of money you will be shelling out, do the math. This should be a clear-cut decision at this point. If the price of the home with the additional moneys you will pay add up in your favor, it is a job well done and you can then continue with the purchase of the home. If the home requires too much money, work and/or significant structural improvements, I would suggest you walk away and move on to another fixer-upper. Taking on a fixer-upper home project can be extremely exciting, rewarding and profitable. Folks have been known to make instant equity just by making the right offer. Happy home hunting!