How to custom renovate

Question

I am mid-way into a reno flip when a buyer states they want to purchase the property at asking but they want to pick the finishes? I did lower the purchase for them to take the house As-Is and they could finish it but they didn't take that.

How do you structure this?

What do I need to do to protect myself?

I am not even sure this is a good idea. This my first flip and I do not have a lot of cushion in my budget.

Thanks

Joe Cummings · Answer

Unless what they want is pretty much generic, and what sells well in your area, you need to get their custom specifications down in a written contract, and get non refundable money from them.

Rob Young · Answer

@Damien Buchanan, if I get to the point where I'm doing significant customization for the buyer, I'm less concerned with providing outs for the buyer. I'd be very concerned about getting stuck with a highly customized property that does not have general market appeal.

I think this all relates to the level of customization. If the buyer is asking me to use things (paint colors, fixtures) that are highly customized but can easily be changed, I would include something in the addendum making the buyer responsible for paying to change those things if he backs out. I would also include something to cover the extra time the property will sit on the market while making those changes. That would be a relatively easy out for the buyer. (And I think that is the level of customization related to the original post in this thread.)

If the buyer is asking me to do things that cannot be reversed easily, quickly, or inexpensively, I would not give the buyer much room to back out. (This is beyond the level of customization in this thread.)

The bigger issue is determining why I would be willing to customize things at all. Will I make more money by selling a highly customized property? If not, I don't know that it's worth the risk of offering to do significant customization. It all comes down to a risk/reward balance.

Damien Buchanan · Answer

@Rob YoungI have a follow up question about how to protect "a custom rehab".  From a contractual standpoint what would you include in an addendum to protect the investor, but also provide fair and reasonable "outs" to a buyer.

Rob Young · Answer

The real danger is that you customize the house for these buyers and then they back out of the deal or fail to qualify for a mortgage. If you customize it for them and they do not complete the purchase, you may be stuck trying to sell a house that does not have broad appeal to a larger pool of potential buyers.

To protect yourself, I recommend doing two things. First, make sure they are pre-approved for a mortgage (or verify that they have the funds if they are cash buyers). A mortgage pre-approval is a conditional commitment from a lender that they will lend to the buyer. It is stronger than a pre-qualification and reduces your risk that they will fail to qualify for a mortgage. Make them get pre-approved (not just pre-qualified) before putting the house under contract. Second, as Joe recommended, get a non-refundable deposit from them. I would make sure that the deposit is large enough to cover the extra expense of the custom finishes they are requesting. In fact, I would make sure it is large enough to cover the cost of changing out the custom work/finishes they are requesting in the event they back out of the deal. Why should you take on all the risk? If they are serious about buying the property and want you to customize it for them, they should understand that you need to protect yourself in the process. Since the deposit will apply toward the purchase price, they have minimal risk.

Congratulations on having an interested buyer even before you finish the project.

Dylan Long · Answer

How are you purchasing the finishes right now? I like the idea of the allowance that fits within the budget you have, and whatever is above they pay for. When we last built our contractor at the time required 50% payment on options/finishes above the allotted budget, and the rest due upon closing. That way if we backed out it helped protect them from building a home that was customized enough so as to limit the resale market more than a standard build.

Lizina Green · Answer

I would set up account at store? or what?

David Niles · Answer

Yes, unless the finishes they pick are more expensive then what you had budgeted.  If so, then you need to renegotiate that FIRST.

Lizina Green · Answer

So the Non-refundable $ would be deducted from the purchase price?

How to custom renovate

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