I have no delusions of becoming Joanna Gaines. She is lovely. And brilliant.
And very, very wealthy.
Our hunt for a fixer-upper is nothing like what she and Chip do.
I will confess, however, I have always secretly dreamed of renovating a house.
I have a bone-deep love for old buildings. The architecture. The history. All of it.
Carpentry was (and still is) my family’s business, and though I have zero skills myself, these things do tend to stay in your blood.
It’s true. I love to get my hands dirty with some hard-core DIY, now and then.
ANYWAY. Last week, Mr. G and I made an offer on a house that would be considered a “fixer-upper”. I was so excited! Finally a chance to smash pink bathroom tile!
Ultimately, this particular deal did not work out the way we had hoped.
But do not despair!
All is not lost!
I’m going to share how things went down.
We found a 1958 ranch home with 3 bedrooms and 2 bathrooms. It was listed for sale by owner, just a few blocks from where we are living now. This home was sorely outdated, but in excellent structural condition, with loads of potential.
This is the ideal scenario for us.
So, the first thing we did was crunch the numbers. The listing price was more than we figured the house was worth in its current condition. But since it was exactly what we’re looking for, we decided to pursue it.
Before making an offer, we sent a “letter of intent”.
I was unfamiliar with this. But apparently, it’s a thing.
There’s no sense in making a formal offer on a property if the seller and the buyer aren’t even in the same ballpark. So, the purpose is to get a sense of whether the seller would be willing to negotiate with us.
Primarily, a letter of intent helps to minimize any misunderstanding between the buyer and seller.
It is not a binding contract.
We would not be using a real estate agent. We would instead hire an attorney to guide us through the process. So we didn’t want to be on the hook for the attorney’s fee if we knew our offer was a long shot.
In our short personal letter, we simply stated the price we would be offering and a general outline of the other terms.
The seller’s response helped us to decide that yes, we would make a formal offer. So our attorney then prepared the necessary documents. We sent the offer and gave the seller four days to counter-offer.
Then we waited.
(I will confess that I was not waiting patiently. There may have been some nail-biting.)
On the day our offer was due to expire, the seller finally contacted us.
They could not accept our offer.
The seller stated their lowest price and this number is still well above what we feel the property is worth. It was clear they were not willing to negotiate further at that time.
I was bummed.
But I did not want this house badly enough to compromise.
Mr. G and I have clearly defined our path forward, and over-paying for our home is not part of that plan. To make progress toward our goals, it’s imperative we stay the course.
We are willing to wait and see if the seller lowers their price after some time. And more homes will likely be put on the market after the holidays.
So we wait.
Meanwhile, we are confident we’re making the right decision, because….math!
If you’re curious, here is how we determined our top dollar for this property.
Really, it all comes down to numbers. And I gotta say, this is kind of freeing for me!
(I tend to make decisions based on how I feel. That isn’t always the best course of action, people, when there are large sums of money at stake. Understanding the numbers gives me something else to lean on. I like that.)
So first, we evaluated the house itself to see what needs to be done.
Here is a list of the minimum updates and repairs that would be necessary:
- complete kitchen renovation, with all cabinetry, flooring, and appliances, including the partial removal of an unnecessary wall
- complete renovation of both bathrooms, with all fixtures and flooring
- remove carpeting in main living area and refinish under-lying oak hardwood
- painting all interior walls
- water-heater/boiler replacement
- central air-conditioning unit replacement
- upgrade the electrical panel to 200 amp
(Ultimately, we would want to finish the large basement and add a fourth bedroom. We didn’t add this cost to our estimate, but considered it when making our offer.)
We figured the above renovations would cost, conservatively, at least $40,000.
Adding a 20 percent cushion to this estimate puts us at close to $50k.
We then thoroughly researched what a similar home in fully renovated condition, in the same neighborhood is currently worth.
A good rule of thumb is to pay no more than 70% of the home’s estimated After Repair Value. How much could it reasonably be appraised for if all necessary repairs and updates were complete?
(The numbers I use here are purely theoretical for the sake of easy math.)
So, let’s say a similar home down the street sold last year for $250,000. This house was built about the same time and has comparable square footage, with 3 bedrooms and 2 baths.
We can assume the fixer-upper we want to purchase could also be worth $250,000, fully renovated.
Seventy percent of $250,000 is $175,000.
All told, a $175,000 house, plus $50,000 worth of repairs, is $225,000. That leaves you with $25,000 worth of equity in your home!
The seller of the house we made an offer on is hoping to get a higher price than what it is worth to us.
And that’ s ok. Our offer was more than fair.
Being willing to walk away, (even when you reeeeallllly want something) is an adult skill, you guys.
I will continue to entertain my fantasy of sledge-hammering out-dated bathroom tile for a while longer.
In the meantime, we are home free. 😉