How to sell an un-livable house

July 25, 2024 Brandon Nelson

When you plan to sell a car, or trade it in, what’s the ONE THING you always do first?

You wash it.

You might even detail it.

Why? Because it presents the car in its best light and probably gets you a higher trade-in value versus bringing it in all dirty, muddy, smelly or whatever.

Am I wrong?

There’s how we use, drive, keep, and live in our cars… and there’s how we sell them.

Houses are the same.

We live in and maintain them in such and such a way that our homes, our landscapes, our interiors, their condition, it all fits our personalities, our schedules, our lives.

For about 3% of us, the natural way we keep our homes and properties would also work for the way we (ideally want to) sell.

For the other 97% of us, there is a stark distinction between “how we live, and how we (ideally) sell.”

But let’s ask the question:

Is optimizing a home prior to listing it ALWAYS the approach?

Is it required?

Is it even possible in some cases?

Heck, does a home have to be habitable in order to sell it?

Let’s answer those questions today, and share a couple of recent case studies.

Grab your cleaning supplies, a paint brush, and your imagination… and let’s explore these juicy questions right now!

An Un-Livable Probate Sale

I’ve shared that handling probate, estate, trust, and inherited home sales is a particular passion of mine.

I like helping those in charge of these properties, often during a difficult and confusing time, often while they reside out of the area, and often as one of many significant things they are handling after a loss or during a senior transition.

This year, most of my business has been in this category of properties.

I am frequently referred by the non-profit organization Support Officer Community Care.

By the very nature of their work, their involvement means there has been a recent death or severe trauma.

When I am called, it's by a family member or related party looking in (often) in earnest for help, guidance, and a level of ownership of the situation around the real estate.

This property in the Puget Neighborhood of Bellingham was a good example.

The owner had struggled to maintain the house during the final years of his life, and it fell into a rough state.

The surviving family members weren’t local, and didn’t have the capacity to handle the probate process, much less securing or cleaning out the house.

We started by recommending a professional estate administrator, a 3rd party who would be granted Letters of Administration from the court to act as Personal Representative of the estate.

That professional “Admin” was then able to sign all the legal paperwork to list the property, accept an offer, and sign closing documents – among many other fiduciary duties.

The Admin and I agreed that this house was likely a tear-down, and we would forgo any repairs or cleaning beyond sorting through the decedent's things to ensure there were no valuables or heirlooms to salvage.

Once that task was completed, we simply photographed it, priced it at “lot value”, and hit the market.

It was not the pleasant "emotional experience" we strive for in a normal sale situation.

But there's a saying in real estate: Price cures all.

Even uninhabitability... not that this was conclusively that.

You could argue that the "condition" of the structure was still salvageable, but I saw the general quality of its original construction, materials, layout, and opportunity cost of not putting more units on the lot, all as pointing towards a likely tear-down situation.

A tear-down has the advantage of already being connected to utilities, which saves a builder money, if not on the actual pipe and cable, at least in regards to impact and connection fees owed to the City.

Plus, with House Bill 1110 being signed into law which eliminates Bellingham’s single family zoning by 2026, this conveniently located City-lot could host multiple units – potentially as many as six.

That fact was included prominently in the marketing.

Sure enough, no sooner had we gone live on the MLS, than the frenzy was underway.

We left it live on the MLS for a week and collected 5 or 6 offers, while turning at least that many away for various financing, feasibility, or similar reasons.

All the offers had come in extremely close in price and terms – all over list price – and we eventually settled with an experienced house-flipper whose plan was to (I believe) remodel the existing structure.

We had listed it for $278K, and it closed for $287K.

(Hey, that’s $10,000 more than Bellingham’s median home price just 12 years ago. True stat.)

Score a point, then, for “Yes, you can sell a totally uninhabitable house.”

A Motivated Divorce-Sale

The Puget Neighborhood tear-down was an extreme example.

Closer to the “habitable-but-requires-a-full-remodel” end of the spectrum was this one in Cordata.

This was not a probate sale, but a similarly difficult life situation.

The house was still lived in, but had only one functioning toilet, destroyed carpets, multiple areas of damage, plus a fair bit of sketchy electrical work and the like.

Looking past the surface and the basic mechanicals, though, it was clear that all this really needed was a cosmetic and light mechanical remodel, and it would be right back up with the nicest homes in its neighborhood.

Cleaning and fixing weren’t on the table – which, again, is fine in Bellingham – as long as you factor for it in the price.

In a situation like this I look at the home’s “ARV” or “after repaired value.”

If this home were in great shape, it would be identical to one that had closed recently for $600K.

So from that price, we then back off the retail cost of the work it needs:

Areas of sheetrock repair
Repaint inside and out
New carpeting throughout most of the house
Refinishing the hardwood floors
Several new doors
Plumbing and Electrical repair
Landscape make-over

Once those are basically budgeted, you back off that amount plus at least a 50% (of the repair expenses) margin to leave some “meat on the bone” for the buyer or investor.

I figured a full cosmetic and light-repair makeover could be achieved with a budget of about $40K to $45K

Add the margin, and you’re at $65K-ish backed off the $600K ARV – so $535K “as is” value.

The sellers were highly motivated to close on a sale and free up the significant equity so they could split it and move on in life.

Since the neighborhood sold quickly in general, pointing to strong demand, and since there were no other homes on the market there, we put a “come to the auction” price of $499K and a review date 6 days later.

Again, it was a frenzy, and we ended up with half a dozen offers, all of them over list price, all “as is”.

We chose a cash buyer who waived inspection, and the sale closed a month later for $552K – right in the range of ARV minus rehab costs minus a margin – albeit a smaller one than I had factored for since this buyer would actually owner-occupy the property.

(Investors intending to flip the property would have no margin left at that price, and it would therefore not pencil as a flip.)

All "Before" and No "After"

You know me well enough by now to know that I LOVE my pre-listing fix-ups.

I'm always excited to add to my "Before and After" file.

I get plenty of opportunities for those too, thankfully.

This newsletter hopefully gives you some insight into the “as is” major fixer or tear-down side of the Bellingham market.

The "After" aspect of these sales will be achieved by the buyer, not as part of the initial listing and sale process.

EVERYTHING is salable – as long as you price for the condition, and practice honest, transparent marketing.

The Results of Last Weekend's Wood Sale

Before I sign off, let me share a note of Thanks for everyone who spread the word and/or attended last weekend's Estate Wood / Tool Sale.

What a SUCCESS!!!

Many, many dozens of passionate woodworkers and lovers-of-wood came by the sale on Kelly Rd. to buy some of the incredible collection of wood my client's estate had assembled over the years.

It was incredible enjoyable for me to get to "talk shop" with multiple professional furniture-makers and lathe-turners.

There was a common thread that ran throughout the day: Everyone was in awe of the incredible shop space, and the incredibly vast collection of wood from around the world that we offered up for sale.

i would guess that about 70% of the wood sold that day, and the remaining 30% will be donated to a couple different local schools' woodworking programs -- including the Whatcom Hills Waldorf School.

Thank you to everyone who inquired, expressed fascination, attended, and helped us liquidate the incredible collection.

Does any part of today's newsletter inspire a question or thought to share?

Reach out, and let's chat about it.

Thanks for taking your time with me today.

Enjoy the end of the month and start of July, and I’ll see you again in a couple weeks!