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<\/a>Will a little cosmetic facelift do the trick?<\/h2>\n
Various online sources warn buyers that \u201cneeds TLC\u201d is a nice way of saying \u201cfixer upper\u201d or total teardown. What we found in our research and by talking to top agents in the field is that it’s all a little more nuanced.<\/p>\n
In that sense, \u201cTLC in real estate is totally an issue of perspective,\u201d said Sue Strope<\/a>, a top-selling agent in Florida\u2019s Port Charlotte<\/a> and Punta Gorda<\/a> areas with 30 years of experience. \u201cEveryone has a different idea of what that means.\u201d<\/p>\n In some cases \u201cTLC\u201d means \u201cquick fixer-upper<\/a>\u201d\u2014in other words, a house that needs cosmetic changes such as paint, carpeting, or refinished floors but is otherwise structurally sound. A buyer could improve the house with upgrades to outdated touches such as kitchen cabinets and lighting fixtures, but they wouldn\u2019t have a total gut job on their hands.<\/p>\n \u201cFor some people in a luxury market, TLC might mean that they need to scrub down the walls because there are fingerprints,\u201d Strope says. (Talk about \u201clight\u201d repairs!)<\/p>\n Some people may be selling a relative\u2019s home and don\u2019t have the time or financial capability to handle any repairs.<\/p>\n Others have taken care of the maintenance but haven\u2019t upgraded outdated design features or appliances. They want to give buyers a heads-up that the home isn\u2019t perfect, but \u201cit\u2019s not that there\u2019s anything particularly wrong with the house,\u201d explains Strope.<\/p>\n For example, a listing for a two-bedroom, two-bath condo in the prestigious Toluca Lake section of Los Angeles notes that the property \u201cneeds some TLC\/modernization.\u201d The photos indicate that the condo could benefit from new kitchen appliances while offering other perks: It\u2019s located away from the street, offers an open floor plan, and comes with access to a garden patio.<\/p>\n Depending on market conditions and a home\u2019s age, some agents will recommend that sellers avoid spending money on a total overhaul of their property as long as there are no structural or safety issues<\/a>. In this case, they may highlight the floor plan and other features while noting that the place needs a bit of work\u2014or TLC.<\/p>\n Some sellers and agents, out of an abundance of caution, will note that a house needs TLC when its troubles are mild so as not to mislead potential buyers.<\/p>\n So, even if you\u2019re not exactly handy, don\u2019t cross a \u201cTLC\u201d home off your list until you\u2019ve at least browsed the photos and done a little more research to find out how much work it would be.<\/p>\n A home that \u201cneeds TLC\u201d could be a great opportunity to save money upfront while infusing a property with your own personal tastes and preferences as you make cosmetic improvements.<\/p>\n Fixer-upper homes typically list for 8% below market value<\/a>, according to the financial website MarketWatch. A lower sale price reduces your home\u2019s assessed value for property tax calculations<\/a> (so you could get an affordable house in a great neighborhood) and you can make the home worth more than you paid, netting a nice profit when you decide to sell.<\/p>\n Depending on where you live, you also may be eligible for a tax abatement<\/a>, which is a tax credit for homeowners who improve their property\u2019s value, according to Northwestern Mutual.<\/p>\n The drawback of such a purchase is the cost of any repairs. If the TLC that the property needs is cosmetic, you likely won\u2019t blow your budget. But making structural changes requires checking local zoning laws and obtaining building permits<\/a> (which cost about $1,091 on average nationally<\/a>), or hiring a contractor<\/a>\u2014to say nothing of any surprises from the project not going according to plan.<\/p>\n You can calculate whether you\u2019re able to afford a home that needs TLC with a quick formula:<\/p>\n 1. <\/b>Figure out its value if it were up to speed<\/b><\/a> with homes in the neighborhood that are already move-in-ready. <\/b> Visit sites such as HomeAdvisor.com<\/a> (a network of professionals in over 500 home-related services and 70+ accumulated years in the industry) or Thumbtack<\/a> (a company that offers skilled professionals in over 1,000 home-related services) for cost estimates of various home improvement projects you\u2019d need to complete. Search by your ZIP code to get local estimates.<\/p>\n 3. Subtract the estimated cost of repairs from comparable move-in ready values.<\/b><\/p>\n Let\u2019s say homes in turnkey<\/a> condition in the surrounding area are going for $275,000. You\u2019ve estimated that you\u2019d need to spend $25,000 to fix up the home to neighborhood standards with some light repairs. In that case, you cap your budget for the home at $250,000 and make the call that if you have to spend more, you\u2019re out.<\/p>\n Just remember: Homeowners in general should expect to spend<\/a> at least 2% to 5% of their home price on annual maintenance and repair, while major renovation costs can increase that to about 10% of the home\u2019s value. Talk to your real estate agent<\/a> about what you realistically can afford and what\u2019s a fair price.<\/p>\n In addition, there is financial help available for buyers interested in single-family homes that need TLC.<\/p>\n Homebuyers who anticipate they\u2019ll need to make repairs on their new home may be able to finance the cost of those improvements through their mortgage.<\/p>\n Let\u2019s review a couple of programs of interest to buyers taking on homes that need some work:<\/p>\n The FHA (Federal Housing Administration) Section 203(k) program enables homebuyers to \u201cfinance up to $35,000 into their mortgage<\/a> to upgrade, improve, or repair their home,\u201d according to HUD.gov.<\/p>\n With a 203(k) mortgage, the funds allocated for home repairs get placed in a designated escrow account<\/a> (the rest go toward paying for the home). An approved 203(k) consultant<\/a> comes in to help you prioritize and manage repairs on your new home.<\/p>\n The types of projects borrowers of 203(k) loans take on run the gamut to include major structural work, cosmetic improvements, elimination of health and safety hazards, landscaping work, and changes to a home\u2019s core functions such as plumbing (HUD has a full list of the acceptable kinds of projects<\/a> on its website).<\/p>\n Fannie Mae offers HomeStyle<\/a>, a comparable program that tacks home rehab financing onto a buyer\u2019s conventional mortgage. Funds from HomeStyle \u201ccan be used for any renovation,\u201d Fannie Mae says, whether you plan to add a mudroom or replace the roof.<\/p>\n Fannie Mae caps its approved HomeStyle renovation costs at 75% of the home\u2019s purchase price or 75% of the after-completed appraised value (whichever is lower), according to the website.<\/p>\n A home inspection<\/a> is essential for any home of any condition. A buyer needs to know just what they\u2019re getting into.<\/p>\n But some buyers become so enamored with a home\u2019s \u201cpotential\u201d that they gloss over warning signs, even from their agent. Strope recalls one couple who opted to skip the home inspection on a property where the kitchen\u2019s built-in griddle was loaded with baking grease and children had smeared Jell-O on the walls.<\/p>\n The buyers were so excited to roll up their sleeves and fix up the place themselves that they were willing to ignore these red flags.<\/p>\n They later learned that someone had oddly stuffed clothes into the laundry room piping, among other bizarre issues. \u201cEverything was such a disaster, and they kept coming back to me for months and telling me stories about all the horrible things in the house,\u201d Strope said.<\/p>\n After conversing with top agents in the business and consulting various definitions of \u201cneeds TLC,\u201d it\u2019s safe to say that those three letters typically indicate that a home needs some level of work. The question is how much\u2014and the answer to that can vary dramatically. But you can expect a TLC home\u2019s condition to fall somewhere between gut job and move-in ready.<\/p>\n Essentially, you might have a home seller who\u2019d like to give buyers a heads-up that a bit of work is involved with a house, but not to the extent of the unlivable \u201cfixer uppers\u201d you see transformed on TV. This widens the buyer pool from flippers to budget-conscious buyers. It also communicates to buyers who want a place that\u2019s move-in ready and (and will find even minor fixes too much) that the house probably isn\u2019t for them.<\/p>\nOwner doesn\u2019t have the funds or time for repairs<\/h3>\n
Coming from a place of caution<\/h3>\n
<\/a>A chance to personalize and profit later<\/h2>\n
Use this quick calculation to set your bid for a \u2018TLC\u2019 home<\/h3>\n
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\n<\/b>Do a comparative market analysis<\/a> to look at nearby recently sold homes similar to the one you\u2019re looking at in size and number of beds and baths, etc. Only include those homes that wouldn\u2019t<\/i> be classified as \u201cneeding TLC\u201d in your analysis.
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\n<\/b>2. Estimate the cost of necessary repairs. <\/b>
\n<\/b><\/p>\n<\/a>Funding the purchase of a \u2018TLC\u2019 home: You\u2019ve got options<\/b><\/h2>\n
FHA 203(k) loan<\/h4>\n
Fannie Mae HomeStyle Renovation<\/h4>\n
No matter what, inspect before you buy!<\/h3>\n
<\/a>How much TLC are you willing to give a home?<\/b><\/h3>\n