A house that has sat on the market for months is usually telling buyers something. In many markets a long listing hints that the place needs work, and that is where fixer-upper hunters begin.
Some go looking for distress on purpose. A short sale means the owner is selling for less than the mortgage balance. An REO property is one the bank has taken back through foreclosure. Both types are typically priced below market value. The catch is that some of these sales come with no inspection.
The auction gamble
Foreclosure auctions are the long shot. A buyer can land a fine property for very little money, a bit like winning a lottery. But you rarely get to see the house beforehand, and auctions usually accept only cash. Anyone who tries it is advised to hire an agent who specializes in foreclosures.
Paying for the work
What if the down payment eats the savings and nothing is left for repairs? Some lenders offer fixer-upper mortgages that roll the renovation and the purchase into one payment. The renovation money sits in an escrow account and is released as the work goes on, and there are usually allowances for overruns. Extra fees may apply, so they belong in the sums before anyone commits.
Living in the mess
Moving in during construction looks sensible on paper. You are on hand for questions, you avoid paying rent or a second mortgage, and you can get on with your own DIY jobs without commuting. In practice it can be miserable. Depending on the scale of the project, there can be days without water, power, heat or air conditioning.
A second place to stay is worth lining up. Few things sour a new home faster than resenting it before you have enjoyed it.
For major work, ask the contractor whether a builder’s home warranty is on offer, in case something fails after the job is finished, and insist on a written estimate.
