Buyers Love A Project, Right? [FrankenHouse]

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Buyers love to roll up their sleeves and put in a little sweat equity    Why else would agents extol the potential of their listings, right?

Wrong.

Houses that need significant work should sell at a discount to well maintained, updated, and remodeled property.  Even buyers who think they want a project expect their Buyer's Agent to negotiate a hefty discount. And they're right.  Here's why.    Construction - even remodeling - entails risk.  To borrow a concept from my days as an investment analyst, risk is related to the potential financial return, and smart buyers know that risk has to be evaluated and priced appropriately.   

House Buying 101:  Risk and Return
Are you thinking about buying a FrankenHouse?  Here are a few risks to think about.

First, the City of Boulder will extort you for daring to improve your property.   Just like the Mob thinks you could use a little protection, Boulder's Ministry of Excessive Taxation would like you to pull building permits.   Of course, they have your safety (and carbon emissions) in mind but trust me, when you find out what the permits cost, you'll think it was denominated in rupees.

Don't forget, you'll also need to hire one of Boulder's many fine architects, preferably one familiar with the dense code of overlapping regulations that govern home improvement in our fair city.  Don't even think about hiring one from outside Boulder, it'll cost you more in the long-run because you'll be paying for their education.

Boulder has some of the most intense restrictions in the country;  solar access, sustainable, compatible, and in-line with current zoning.  If the house you're remodeling is old, you'll might also have to pass historical and perhaps landmarks review.   In short, you'll tell your architect what you want, and they in turn will tell you about all the things you can't do unless you're on City Council or drink beer with the Planning Board.   Eventually, you'll work up some drawings and settle on a modest reconstruction of your home.Still with me?    Great.  
Once construction begins, your contractor will most likely find unexpected problems that will need to be corrected.   I also hope you don't change your mind on the finishes or the layout, because change orders won't come cheap.   The project will run late and vastly over budget, but eventually you'll be able to move into your remodeled/expanded house.   About a year later, you'll finally stop cleaning up the lead/asbestos dust and you can invite your neighbor over for drinks.   You know, that guy who resents you because you blocked his view and made his house look undersized.
Of course, you'll LOVE it and all your friends will LOVE it, too.    Just like there are no ugly babies, nobody will tell you that your remodel is plain awful, but maybe you'll get lucky and it'll turn out gorgeous in the end.   Or maybe not, that's your gamble.   Of course, you could have skipped all this and bought an already completed, buttoned-up house - and paid a discount to the cost - and taken no construction/remodeling risk - but that's water under the bridge.
Irrespective of how it looks, guess who pays for all the over-budget expense?    It's not the seller, they're already in Vegas gambling their windfall.   It's you, the buyer. 
Still thinking of paying top dollar for FrankenHouse?      Don't say I didn't warn you.  

Here's an example...

Exhibit A:   FrankenHouse

Look close.   The FrankenHouse pictured above features three different types of siding.   The one in the middle (looks like dark brick in the photograph) is actually leftover shingles probably scavenged (stolen?) from someone's roof job twenty years ago.   Better come with cash, it also lacks a heat source, which means no Certificate of Occupancy and therefore no mortgage possibility.    
As for the sellers, don't worry.   They wised up.   They bought this FrankenHouse, lived in it for a few years, and then started working on improving it.   Then they gave up.   Maybe they realized they were in over their head.  Or maybe they ran into the wall of code they needed to understand before getting their permits.   They moved out a year ago and bought a home that was already remodeled, buttoned-up, and turn-key.   Smart move.

Feeling Lucky?   
If you're not ready to gamble on your house purchase or sale, call me.   As your agent,  I'll help point out the pros and cons of the houses we view.    I can show you any house listed by any agent, including all the Re/Banker and Coldwell Max houses on the market.   

---Our goal is to provide exceptional service to our clients. The ideas and strategies in this blog post are the opinion of the writer at the time of publication. Silver Fern Homes recommends careful and complete due diligence before buying or selling real estate or other investments. Consult with your professional advisers before making financial decisions. This article is not intended as legal, tax, or investment advice. Silver Fern Homes will not be held liable for investment choices derived from this article.