Imagine this:
• You need to sell your house but you can’t because you have let it run down over the years and it needs lots of Tender Loving Care.
• You can’t fix it up because you don’t have the cash.
• You are behind on the Mortgage Payments.
If this sounds like the house you have right now then read on. The solution to selling these difficult houses is surprisingly simple, and incredibly effective. The easiest way to explain a House Selling Strategy (or a House Buying Strategy for that matter) is through an example.
Here goes:
The Handyman Special
• The Situation – You are a seller with a house in a bad state of repair. It is currently worth $200 000. All the other houses in your area are worth $300 000.
• The neighbours are on your back to Renovate Your House because it is bringing down the value of their homes.
• You have had professional tradespeople in to give you quotes on the repairs. You cannot afford to pay the $30 000 for the repairs and you couldn’t possibly find the time to DIY. You’re too busy working to try and pay the mortgage payments for that!
Here is what you do – “Make Your House Easy to Buy, so it Will Be Easy To Sell”. With the Handyman Special strategy here are the steps to follow:
1. Let’s assume that if your house was in good condition it would be worth $300 000.
2. Also let’s assume (conservatively) that the bank would be happy to lend on an 80% Loan to Value ratio. This means they will lend a buyer $240 000 to buy a $300 000 home.
3. Next thing to do is put your home up for sale at say $270 000. In your marketing, ask for people who are Good With Their Hands. Yes you will get a lot of interest because it is well below the area value of $300 000. However when a buyer comes to inspect you should expect them (if they have eyes in their head) to baulk at the price when they see the poor condition of your house.
4. Now explain to the buyer that you were going to fix it up at a cost of $30 000 but if the buyer would be happy to do the work themselves instead you would be happy to knock off $30 000 and sell it to them for $240 000 instead. This means you will be accepting a $30 000 deposit in the form of “Sweat Equity”. The buyer needs NO CASH DEPOSIT. The buyer does $30 000 of work instead.
So – What’s in it for the seller? The seller no longer needs to pay $30 000 for repairs and renovations. The seller will get $40 000 more than expected ($240 000 instead of current value of $200 000). The property title will remain in the seller’s name until the renovations are completed to their satisfaction. The seller doesn’t have to spend precious time doing DIY Renovations.
So – What’s In It For The Buyer? The value of the house will be $300 000 when it is fixed up. The buyer only pays $240 000 to the seller. The buyer knows that DIY is much cheaper than the $30 000 quoted to the seller – say $4000 to $8000, using their own skills and network (relatives, friends, professional contacts).
The buyer will end up with a house worth $300 000 for which he paid only $240 000 (plus costs of fixing up). He/she has $60 000 of “Equity” in the house before they even move in (this is 20% of the house value).
Conclusion: How does this all end?
• The Bank sees a house worth $300 000 and a buyer who has a contract-for-sale for $240 000. They are delighted to lend 80% of the valuation to the buyer ($240 000). Happy Bank!
• The Seller gets $40 000 more than he/she ever believed possible and didn’t have to spend a penny or lift a hammer to get it. Happy Seller!
• The Buyer gets a beautiful home decorated and renovated to THEIR Tastes and the only money spent is about $8000. NO DEPOSIT needed. The bank gave them ALL the money they needed to buy the house at the seller’s price of $240 000. Wow – a beautiful $300 000 home for only $8000 cash. Happy Buyer!
So the “Handyman Special” Strategy for Selling a House has in this case resulted in Happy Seller, Happy Buyer, and Happy Banker. Now that is a WIN – WIN – WIN situation.
