Needed Renovations and the Purchase Price
Located on a well-shaded corner lot just a few blocks from the neighborhood elementary school, the 100-year-old Victorian home had the space and charm that the young couple sought, with a list price that was within their buying range. More importantly, it also needed a lot of renovation work -- a new kitchen, updated bathrooms, and restoration work to its interior.
In short, the couple quickly realized it would take more than the cost of the mortgage to get into the home. They would also have to spend thousands on renovations.
Armed with that information, the couple went back to the seller with a lower than expected offer. They pointed out which parts of the home were dilapidated and which parts were out of date. The seller agreed to lower the price for some but not all of the needed renovations.
The lesson: needed renovations can affect the purchase price.
Since the cost of major renovations will be difficult to recoup in a short period of time, sellers are generally warned to stick with repainting and replacing carpet just before selling. Major renovations usually become the buyer's responsibility.
To determine the cost of needed renovations, bring a home inspector and perhaps an architect to the property. They can help determine what type of work the house needs. Once that project list is in hand, you can start adjusting the list price downward.
For example, a minor kitchen remodel starts at about $20,000. It's about half that to renovate a bathroom. If the home needs a new kitchen and bathroom, and the list price is $350,000, you can subtract the cost of the future repairs and mentally revise the list price downward to $320,000.
You'll also need to determine which of the renovation projects costs can realistically lower the purchase price. If a roof is leaking, the repair of that should affect the sales price. On the other hand, if the kitchen is functional but is dated slightly it's unlikely that the seller will consider lowering the cost to appease the buyer.
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