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Sunday, December 26, 1993 - Page updated at 12:00 AM

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Bob Bruss

Be Ready For Cost Overruns When Restoring Fixer-Uppers

Tribune Media Services Inc.

Q: I know you recommend buying fixer-upper houses to make profits. With that in mind, my wife and I told our real-estate agent to show us fixer-uppers.

Through the local multiple-listing service, she found us a boarded-up, condemned house owned by a savings and loan. It has a sign posted that reads, "Unfit for human occupancy. Do not enter."

We probably broke the law, but we inspected it and learned it really isn't so bad. It's in a decent neighborhood with good schools. A friend who is a contractor estimated it would cost about $20,000 to fix it up.

I asked a city building inspector to give me a list of what was needed to be done to bring the house up to code, but he refused to help. My bank would give me an improvement loan of up to $25,000, but I don't want to get stuck if the city required additional work. How could we guard against this problem?

A: The best you could do is make your purchase offer contingent upon your satisfactory, complete inspection and approval of the property, have the building carefully checked by a professional inspector and a contractor experienced in rehab work, and pray they discovered all of the necessary repairs.

Most city building inspectors will not inspect a property needing rehabilitation before a building permit is requested because they realize doing so might be a waste of time. But after your permit application is submitted, at the first inspection, such as for new wiring, the inspector will usually point out any additional necessary work to bring the house up to current building-code requirements.

Smart remodelers always expect cost overruns. I recommend you do so, too. A few years ago I bought a house similar to the one you are considering. Instead of just repairing the walls, all of the drywall had to be removed because it was so moldy.

Q: We plan to sell our home next summer because of a job transfer. But we realize our home needs some updating. We are considering remodeling the kitchen and bathrooms. Also, many of the homes in our neighborhood have swimming pools. Do you think we should make these improvements to add to the value of our home and make it more salable?

A: No. Your goal should be only to make your home a red-ribbon deal. That means it should be in excellent move-in condition. Paint, wallpaper, landscaping, repairs and cleanup are the most profitable cosmetic improvements you can make.

Remodeling the kitchen and bathrooms are usually not profitable. For example, if you spend $20,000 remodeling your kitchen, you will be lucky if that work adds $20,000 of market value to your home.

As for adding a swimming pool, I would avoid that major expense because pools generally do not add more market value than their cost. Except in very hot climates, pools are often considered a detriment because of the maintenance cost and danger for small children.

Today is a good time to invite several realty agents who sell homes near yours to evaluate it for sale next summer. Write down their suggestions. Unless your home is hopelessly outdated, they will probably recommend avoiding major renovation and making cosmetic improvements.

Q: Several weeks ago, my wife and I attended an evening "How to Buy a Home" seminar at a local hotel. It was sponsored by a bank, an insurance agent, a title insurance company, a real estate lawyer and a real estate broker who represents only home buyers.

She doesn't accept listings from home sellers. We felt the modest $10 seminar fee was well worthwhile because we learned so much.

The only part of the seminar that turned us off was when the real estate agent talked about why every home buyer needs a "buyer's agent" to exclusively represent the buyer.

She passed out samples of her firm's agreement for a 180-day exclusive representation of the home buyer.

That wasn't so bad, but she wants a $300 up-front fee which is refundable only if the buyer purchases a home from that agent, who then gets paid a sales commission by the seller.

If we sign up and pay the $300 but don't find a home we like in six months, we lose our $300. What do you think of this arrangement?

A: I like the concept of a real estate agent representing the buyer exclusively. In my opinion, home buyers need their own agent, not one who might also be representing the home seller as a listing agent.

However, the idea of being tied to an agent for six months and paying a $300 up-front advance fee to the agent turns me off.

I realize buyer's agents feel they need a commitment from the prospective home buyer. But before a home buyer starts working with a buyer's agent, it's hard to tell if the buyer and the agent will get along and if the agent will do a top quality job.

Instead of a formal written contract with an up-front fee paid to a buyer's agent, I recommend working informally with an agent who will represent your best interests.

As long as that agent does a good job and keeps you informed at least weekly of new listings meeting your needs, stick with that agent.

But if he or she doesn't do a good job, if you didn't sign a formal contract with that agent you are free to work with another buyer's agent.

To find a good buyer's agent, interview several agents. Recommendations of friends and business associates are the best references. Now there are several new nationwide franchises of realty firms which specialize in representing buyers exclusively.

Talk with them and ask for references of satisfied home buyers. However, I would avoid paying an up-front advance fee to a buyer's agent or signing a long-term formal contract obligating you to buy a home only through that buyer's agent.

(COPYRIGHT 1993, TRIBUNE MEDIA SERVICES INC.)

Bob Bruss' column appears Sundays in the Home/Real Estate section. His mailing address is Bob Bruss, Seattle Times newsroom, P.O. Box 70, Seattle, WA 98111.

Copyright (c) 1993 Seattle Times Company, All Rights Reserved.

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