Dear Heather,

I have looked at a house, but it needs work. Should I discount the price by the amount it will cost me to renovate?

Buyer

Dear Buyer,

Perceptions vary widely as to whether a house needs work, ask any homebuyer. Many buyers believe a house needs work if the house is not updated. Take a home built in, say, the 1990s, back when kitchen counters were often covered with Formica and not trendy stone or granite. Maybe the cabinets are painted wood and the floors are a loudly-coloured tile. A millennial buyer will say a home in that condition would need work. A purist who loves the character of older homes might prefer its original condition.

Whether a house really needs work is based on opinion. Not everybody agrees on the condition of a home. Sometimes sellers will ask if they should fix up a home or sell as is, and while certain repairs will bring more money, some types of improvements are better left as an option for the buyer. For example, if the wall-to-wall carpeting is worn and stained, it is generally a good idea to replace the flooring before selling. However if you are planning on re-tiling, that selection may be better left to the buyer. Since work is often in the eye of the beholder, let’s talk about the types of houses that could use work. How you would pursue a purchase offer will most likely depend on the category.

FIXER-UPPER HOUSE:

The fixer-upper property is generally priced for a sale in their AS IS condition. Indeed, many of these properties have been officially appraised before they come on the market. These homes often show deferred maintenance because the sellers were unable or unwilling to properly care for the home.

Maybe there has been a death of an owner, or it passed through probate to heirs who don’t want it. In some cases, particularly if they live overseas, the exact condition might be unknown.

To compute a price on the fixer-upper house, sellers will generally choose a sales price based on comparable sales and then they further reduce the price by the estimate for repairs. They might deduct a little bit more from the price for a fast sale.

If the home has been on the market for a while with longer days on market (DOM) than the average sale time of other homes, it could be the work that is needed exceeds the seller’s expectations or it could be that the home appeals to a smaller pool of buyers.

MINT CONDITION VINTAGE HOUSE:

This type of home could actually sell at a premium, even though it is neither necessarily modernised nor trendy. These type of homes sometimes feature Wil Onions architecture, waterfront, cedar beams, broad cedar plank floors, fireplaces, character, premium position (ie southern facing for summer breezes; they could choose where they placed their homes back then). Often they also sit on large acreage.

To price these types of homes, a seller would probably add a premium on top of the comparable sales. The owners might receive multiple offers simply due to the attractiveness of the design and well-maintained interior and exterior. If the fixtures are original, the sales price could go even higher.

If a perfect condition vintage home is on the market for longer than others around it, it is possible the home could be overpriced. Not every seller is eager to part with a home of such calibre. Some will price it high enough to make it worthwhile for the seller to relocate. The sellers may or may not budge on price. If a buyer wants the home badly enough and the home is unique enough, buyers will typically pay the asking price.

NEWER BUT OUTDATED HOUSE: There are a lot of these! Houses built in the last 20/30 years or so, in areas that were once thriving before becoming depressed. Maybe the area was overbuilt and supply exceeded demand, perhaps they were at the extremities of the Island and with the exodus of ex-pat workers they are no longer considered attractive rental units. Whatever the reason, owners often have little interest in remodelling a home just because trends change. After all, they figure the home was fine when they bought it, and it’s fine to sell it now.

What they don’t realise is buyers don’t want homes without updates. Buyers, particularly younger or older buyers, want turnkey homes, that don’t require any work. If they have to put work into a home by tackling a home improvement project they expect a discount. Remember the 1990s trend of hunter green …! Bathrooms …?

A few changes such as replacing the fixtures, choosing modern paint colours and installing newer appliances are often enough to generate interest at a better sales price. Otherwise, buyers will not pay top-of-market price for an outdated home, even if it does not require major work.

FORECLOSURE HOUSE: I often hear buyers say they want to buy a foreclosure, probably assuming they can get it at bottom of the market price. Firstly, in Bermuda, real estate agents are bound by law not to disclose if a house is a bank-owned property. Almost invariably they are sold in AS IS condition. Banks are not held responsible for disclosing facts they do not know (and often don’t know). It is quite possible that a defect is discovered later, which turns out to be a major repair cost. It is always wise to have a structural survey done on any property that you suspect might be a foreclosure.

PACK RAT HOUSE: Not every messy house is a pack rat house but the pack rat houses are the worst. These are the homes where you might need to navigate through on tight paths woven around stacks of personal belongings throughout the house. Sometimes the bedrooms are so full of furniture and boxes that you can’t get the door open. Pack rats collect and save stuff, and sometimes are attracted to odd things such as balls of lint or shredded newspapers.

Combine a pack rat house with years of neglect, and you could find piles of dead rodents, moisture problems or a pest invasion. If you’re lucky, renting a couple of 30-ton waste containers will serve to get rid of the debris, but underlying problems that develop could be more extensive. Often, the sale prices of these homes are low, as it is hard for buyers to actually see what the house looks like!

As with any purchase offer, a homebuyer’s best bet is to rely on the comparable sales and then deduct for the work that is needed, based on actual estimates from licenced contractors. If that price lines up with the listed price, you might need to pay list price in order to buy a home that needs work.

•Heather Chilvers is among Coldwell Banker Bermuda Realty’s leading sales representatives. She has been working in real estate for over 26 years. If you have a question for Heather, please contact her at hchilvers@brcl.bm or 332 1793. All questions will be treated confidentially.