Patrick, a 25-year old tech worker, had his heart set on buying a home in the Reading, Massachusetts area, where he grew up. He wasn’t looking for a fixer-upper.
That turned out to be nearly impossible as home prices in the small town north of Boston accelerated.
The first house he submitted in an offer for fetched $70,000 more than the asking price, only to be flipped for another $60,000.
“They got their lunch handed to them — it was lose, lose, lose, lose,” said David Snover, the mortgage originator Patrick worked with.
Patrick, a first-time homebuyer, was competing with buyers who were waiving basic contingency requirements and/or putting in offers that far exceeded the seller’s asking price. After months of slogging through a string of disappointments, Patrick turned to a renovation loan and started looking at fixer-uppers. He got his house, albeit with cabinets that hadn’t been updated in 25 years.
Snover said that few real estate agents suggest that buyers purchase a home with a renovation loan, sometimes because they are unfamiliar with the process — which has its complexities. Most sellers, if given the choice, would seldom choose a lengthy construction financing process to a cash offer on a dilapidated house.
Most buyers want a move-in ready home, and few want to put up with the hassle of hiring a contractor. But being willing to buy a fixer-upper home with cosmetic deficiencies could allow savvy buyers to skip the bidding wars altogether.