Which is better: buying or selling a home in “fixer upper” condition, or aiming at “turnkey”?   In Silicon Valley today we are experiencing a shortage of good inventory. Home sellers may be tempted to market their home without preparing it well.  Buyers may feel that they will get a better deal if they purchase something that needs some work. What is really in your best interests?

Silicon Valley home buyers decide: bargain price and do the work, or turnkey and pay a premium?

Often it’s not a black and white choice of extremes between a “total fixer” and a “completely remodeled” home, but often there’s a basic stance that Silicon Valley home buyers must take: am I searching for turnkey or something that needs work? And if it needs work, how much am I willing to do?

A deep discount will be had on properties which are “all original”.  The question, though, is whether or not it will be worth the effort and cost to go through the trouble of extensive repairs and thorough remodeling.  Often the biggest projects are more profitably taken over by contractors – and even then it may not be profitable in the long run. Last summer I sold an original condition home to a contractor who remodeled and sold it.  The contractor did a lot of remodeling and sold the property a few months later for about 18% more than he paid for it.  When you consider the costs of buying and selling (8-10%), the cost of the remodeling (probably another 8-10% of the purchase price if you include the value of his labor), I’m not sure he really make much money.  For his sake I hope so.  For consumers, though, not contractors, it’s even harder to break even with huge remodels if you want to sell anytime soon.  What you do, do for the long run and for yourself – not because it will make you money!

At the same time, buyers need to be careful of homes which have been flipped by investors for a quick profit: they may have simply done the most visible work, leaving undone items which still need addressing, such as pipes, foundations, or structural items.

A few questions to ask yourself if you want to do a massive remodeling job (and buy a fixer upper):

• Do I have the time to oversee the work?
• Am I knowledgeable about construction? Or do I have time to research and learn prior to doing it?
• Can I do what I need and still put aside an allowance of 20% for non budgeted surprises?

For most buyers, changing paint, carpet, windows, appliances or counter tops is a big enough assignment. Rearranging floor plans and expanding a house is going to be too much work, cost, liability and stress for most.

Repair and staging advice for Silicon Valley home sellers

For most people who are selling Silicon Valley real estate, the house, townhouse or condo they are about to put on the market is the single largest asset they own. For this reason, maximizing the return on investment is extremely important. Most sellers avow that they want top dollar for their home.  Many, in the next breath, say “I want to sell As Is and I don’t want to fix anything.” Those two, unfortunately, are mutually exclusive. (more…)

In most of California, the purchase agreement form used when writing an offer to buy residential real estate is the California Association of Realtors (CAR) form, the Residential Purchase Agreement (CAR-RPA).  Along the San Francisco Peninsula and in Silicon Valley, though, often we use another form, the Peninsula Regional Data Service purchase agreement (PRDS contract).  Few consumers know that there is a choice of forms to use when buying Silicon Valley real estate.  And too many real estate sales people do not understand the difference between them.

Does it matter which one you use?  It certainly does!

While anything in the boilerplate can be modified (deleted or added to), the basic text is not identical from one to the next, and neither are the ramifications to buyer and seller.  Here are a few examples:

- Property condition: one is an “as is” contract and the other requires that the property be delivered with a warranty of condition (no leaks, no cracked glass, no structural defects in chimneys, all systems operational, etc.)

- Repairs in escrow: one says that repairs must be by a licensed contractor, the other that repairs must be done in workmanlike manner (can be done by anyone)

- Defaulting: one contract has more ”teeth” with buyer or seller defaults than the other

There are pros and cons to each of these two forms. A skilled agent is “bilingual” in both, understands the strengths and weaknesses of each one, and can modify as needed the form to benefit the client. What is tricky, even for Realtors who work with both sets of realty forms, is that they keep changing.  So there can be confusion on what is and isn’t covered, or the way in which various aspects of the contract are addressed.  Let’s look at some examples of why it matters which real estate contract you use in the San Jose area.

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In addition to the financial part of your offer and your contingencies and timeframes, there are other terms that may help you to be more competitive when writing an offer in a multiple offer bidding situation in Silicon Valley.

What other terms could matter, beyond price and contingencies? Lots – they will matter to the seller and they’ll matter to you. 

As Is Offers

Sellers always want to sell “As Is” if possible. They don’t want to have to do repairs, to spend the time or the money to fix what may not be perfect.  This is an extremely important area to research, weigh, and understand prior to drafing your real estate purchase agreement, particularly if you are not the only one trying to buy that real estate.  When it’s a seller’s marker (and with multiple offers, it IS a seller’s market), the seller can request and will usually be able to sell As Is.

Buyers always want every imaginable repair done, if at all possible.  Buyers don’t want to have to do termite, roof, electrical or other work on the home. They want a “red ribbon deal” where the home’s been or will be in very good to excellent shape.  They want a section one clearance from the termite & pest company.  They want a leak free roof warranty. When it’s a buyer’s market, and you’re the only one attempting to buy the house or condo, you can usually request and get the seller to do all the basic repairs.

The important point is to understand which of these two markets you’re dealing with – buyer’s or seller’s - if it’s a seller’s market and you’re behaving as though it’s a buyer’s market, you will hurt your odds of getting the property if you request repairs or if your contract provides a seller’s warantee.
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