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Property Condition and Listing "As-Is"

Because I’ve been seeing more of my divorcing clients wishing to list their homes “as is,” no matter the condition of the property, I wanted to make you aware of a few consequences of that decision —  so that you may be armed with more information when advising your clients. 

 

In high-conflict situations, listing a property as-is may sound like a great idea — quicker to list, less hassle for both parties, less cash or credit to tap. However, this decision may result in tens of thousands of dollars (or more) in lost equity. 

 

Here’s why: A property must qualify for a mortgage loan, just as a buyer must. And certain “health and safety” characteristics of property condition will disqualify mortgage approval, including:

 

  • No flooring (absence of tile, carpet, wood, etc.)
  • Empty or inoperable swimming pool
  • Roof in poor condition
  • House in various stages of construction, from gutted to studs, or in some cases, simply hanging wire / exposed electrical
  • The list goes on

 

Here’s how that works: When a buyer and seller agree on an offer, and the buyer needs a loan, the underwriter will send an appraiser to vet and appraise the property. There are certain property conditions that the appraiser is required to call out. The underwriter looks at these “callouts" and will not approve the loan until these callouts have been proven to be rectified. (This requires another visit from an appraiser, which takes more time and more money, most likely from the sellers). 

 

If the sellers are unwilling – or can’t afford — to make the required repairs to get the property “financeable,” then their only option is to sell to cash-only buyers. In spring of 2023, buyers who did not require a mortgage made up roughly a quarter to a third of all buyers. That means, sellers who rely on this segment are losing 66% - 75% of their available pool of buyers.

 

This limited pool can result in more days on market, decreased home value, and zero negotiating power for the sellers. And of course, these factors impact the amount of equity available to them upon closing.

 

Making the minimal repairs mandated by the lender could yield tens of thousands of dollars in additional profit —anywhere up to a $10 profit for every dollar spent on repairs. 

 

There are remedies for this situation. Please feel free to reach out to me to discuss strategies to get the property in financeable condition to maximize home value and the equity available to parties upon closing. Hope this is helpful to you and your clients.

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