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I'm looking at purchasing a property that might require somewhat extensive repairs to one of the buildings on the lot (charred timbers in the ceiling of the detached garage/barn from an old fire). I've read as much as I can about short-sales online so I'm aware that:

  • Short-sales are almost always "as-is"
  • Lenders will not accept price reductions based on repairs needed

Given these two likelihoods, what are my options as a potential buyer when looking at a property that may need $10-20k worth of repairs to pass an occupancy inspection?

I plan on submitting an offer with a large reduction in price regardless since it really can't hurt to try but am curious if there are other tactics available. I don't necessarily have the cash to both buy the property at full list price and perform the needed repairs to obtain a Certificate of Occupancy.

  • Every home sale is "as-is" unless it is new home construction which usually comes with a builder's warranty. – Brian Jul 2 '14 at 12:14
  • @staticx - "as-is" refers to the inability to negotiate for repairs from the seller as a condition of a purchase, not any implied warranty after the purchase. – Jeff Swensen Jul 2 '14 at 12:21
  • Most homes are sold as-is, but that doesn't mean you can't negotiate. On inspection, if a home is found to have a problem you can negotiate with seller for a lower asking price in return for them not having to fix it. Some sellers won't negotiate at all but many times sellers will take a lower asking price for not having to fix a problem that was found – Brian Jul 2 '14 at 12:26
  • In the context of a short-sale (what this question is about) "as-is" is not at all negotiable. – Jeff Swensen Jul 7 '14 at 21:04
  • I did a short sale a year and half ago. It is between the buyer and seller who fixes problems. It is typical for buyer to fix problems on a short sale because the property may already be in distress. However, the seller can opt to fix problems. – Brian Jul 7 '14 at 21:06
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You need to have sufficient funds to cover such repairs. If you at your borrowing limits for a particular property that needs work, you're not a good candidate for the property. If the property doesn't have a CO, you should be prepared to spend at least $20k and perhaps more. New code requirements may result in unpleasant surprises in terms of cost.

Also keep in mind that people who go deadbeat on mortgages generally don't pay their other bills as well. An as-is title may subject you to additional risk. So you should make sure that an in-depth title search is done and look into whether title insurance makes sense for you.

Do some homework on your own too. Are the water, sewer and HOA bills paid? Are there outstanding fees for lawn mowing, snow removal or emergency repairs done by the City that will be rolled to your taxes? In many places, these debts are associated with the property, so when you buy the thing, you get stuck with the bill.

EDIT: One other thing to consider is grant programs. There may be funding sources from local governments or organizations to make homes habitable. Generally there are strings attached, and these programs are generally setup to benefit people with experience rehabilitating homes.

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  • Short-sales are almost always "as-is"
  • Lenders will not accept price reductions based on repairs needed

Probably true, that's also what I learned as well.

I plan on submitting an offer with a large reduction in price regardless since it really can't hurt to try but am curious if there are other tactics available. I don't necessarily have the cash to both buy the property at full list price and perform the needed repairs to obtain a CO.

Offers on short sales may take some time to get evaluated by the lenders, so it actually can hurt you: by the time you get their decision to reject your offer, a better offer might have already been submitted by someone else and you won't have a chance to improve yours to meet the demands.

Talk to your agent/realtor that represents you (not the seller's agent, get your own). The agent might be able to help you with some crucial intelligence, and get you the real numbers which the lenders will accept when offered. My agent got that for me when I was buying a short-sale property a couple of years ago, and my offer was accepted with lower than asking price number.

But keep in mind that the lenders don't really have an incentive to sell. The prices are very low now, and they may want to insist and wait for the prices to rise. That depends on their interests, cash flows, and projections of the market.

You didn't mention the price, so $10-$20K may be peanuts, and may be crucial. Not knowing how much it is of the overall price, makes it hard to guess the chances. Assuming it's ~10% (i.e.: the property is +/- $200K) I would say (bet) that your chances to reduce the price by such an amount are pretty low.

  • I appreciate reinforcing what I've read about but do you have any ideas in response to the actual question? Given these two likelihoods, what are my options as a potential buyer when looking at a property that may need $10-20k worth of repairs to pass an occupancy inspection? – Jeff Swensen Jul 25 '11 at 12:34
  • @Jeff - to buy or not to buy. I told you what to do if you want to buy. I assumed that you can guess what to if you don't. – littleadv Jul 25 '11 at 17:36
  • Lenders typically don't want to hold property, they make money from interest not by owning property and paying taxes and other expenses while they hold property. – Andy Dec 29 '14 at 2:46
  • @Andy true, but during the last real-estate crash I've seen a lot of cases where they preferred to hold on to property until the prices rebound rather than taking a irrecoverable loss. – littleadv Dec 29 '14 at 6:08

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