A Perspective on the Standard Sale vs the 203K Rehab Sale

I’ve been debating whether to write about the following examples for some time and recently shared my thoughts with a few of my real estate agent friends, FHA officials and 203K Consultant colleagues.

Gary Smith - 203K Consultant Central Mississippi
203K Rehab

I see firsthand the potential savings that lie just below the surface of the FHA 203K Loan program. The value appreciation and subsequent positive karma derived from wise investing creates joy in those who benefit; the money isn’t bad either.

As I travel about the city working as 203K consultant I’m constantly reminded of the need for neighborhood pride and I often find myself in conversation with area leaders discussing how to help  slow the migration of both inner city neighborhoods and rural developments marred by the recession. But we can do more, and we should.

Let’s compare two sales and in theory, compare two worlds. One world is still hanging on. Hanging on to a time when profits were flowing and value was runaway. Sales were quick, easy and often.

The other world is reality; the reality that those times are history and most likely not going to repeat itself for quite a while.

Let’s compare the standard sale (yesterday’s reality) vs. the renovation sale (pure reality) and look at where the money flow is concentrated. Keep in mind that there are assuptions being made about value and cost. But I’m not out the ballpark here in my numbers (it’s my job to know them well). I’ve seen much more profit being taken by buyers than my example shows.

Standard Sale

  • Agent works with a buyer who has the ability to purchase a $200,000 home.
  • The buyer’s payment is amortized on $200,000.
  • The home needs no work and is move-in ready.
  • $200,000 X 6% commission = $12,000.

The sale usually happens within 30 days or less (usually). The agent sends the buyer a house warming gift and a Christmas card. 4 years later the buyer is now a seller and the agent gets the call (hopefully) to list his/her home and the buyer is lucky to make 6-8% increase in value in the four year period.

  • The sale nets the client (now the seller), $14,000 profit (7% increase in value)
  • The agent gets a 6% commission, $12,720.
  • Total sales commissions in the 4 year scenario = $24,720.

203K Sale

  • Agent works with a buyer who has the ability to purchase a $200,000 home, but chooses to look for a foreclosure for $120,000 and with the Standard 203K loan adds $45,000 in repairs at the time of purchase.
  • The buyer’s payment is amortized on $165,000, the home is [because of the improvements] also valued at $200,000.
  • The home is not move-in ready and may take longer than 30 days to close.
  • $120,000 X 6% commission = $7,200.

The sale usually happens within 45 days or less (usually), some take up to 60 days or more to close. The agent sends the buyer a house warming gift and a Christmas card. 4 years later the buyer is now a seller and the agent gets the call to list his/her home. The buyer is lucky to make 6-8% increase in value in the four year period.

  • The sale nets the client (now the seller), $43,800 (7% increase in value + the added value of the foreclosure + difference in the payment)
  • The agent gets a 6% commission, $12,720.

Here’s a graphical breakdown:


Standard Sale

203K Sale



Purchase Price $200,000 $120,000



Rehab $0.0 $45,000
Investment $200,000 $165,000 $35,000
Value – Time to closing $200,000 $200,000   + two weeks
Payment (4 years) $57,600 $47,520 $10,080  
Sales Commission $12,000 $7,200   $4,800



Sales Price (+7% Value Increase)

$214,000 $214,000 $14,000
Sales Commission $12,720 $12,720   $0.0


Buyer $14,000 $43,800 $29,800
Sales Agent $24,720 $19,920   $4,800

The Tale of the Tape

In our scenario the real estate agent’s sales commission is $4,800 less and the two projects take an extra 2-3 weeks to close when handling the 203K Loan.

The buyers potential rehab profit, value appreciation and payment savings is $29,800 by purchasing and later selling a 203K Loan.

NAR Image

The neighborhood value is improved and pride of ownership is beginning to be restored. The end result of the above scenario is that agents work harder and longer for less money and buyers have the potential for substantial profits being taken from a very negative housing market.

Real estate agents have a choice to make and judging from a most recent letter by NAR they’re seeing the potential, especially as it relates to investors purchasing with the FHA 203K Loan, we’ll talk about that later.

There are literally millions of homes on the market that fit the above scenario. Today’s real estate market has the potential to create the same level of wealth for buyers that it was creating before the financial meltdown. Both parties, buyers and agents, have the potential to cash in on the opportunity.

The question remains, will agents put on their gloves and help buyers take advantage of the potential.

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12 thoughts on “A Perspective on the Standard Sale vs the 203K Rehab Sale

  1. Hi Gary. Great article… From the buyers perspective.
    But I would like to see that same concept directed toward the realtor. I still believe there is great opportunity for realtors to nudge out their competition by selling 203k homes.
    If they choose to market foreclosure homes to buyers, it opens a larger pool of homes available for sale.
    A foreclosure no longer has to be an all cash sale for investors only. Any buy can turn it into their dream home with the 203k. Its better for the seller, the buyer, the neighborhood, the agent, the asset manager, etc. it’s a win-win for everybody.

  2. I’m curious about the motivation as it relates to real estate participation. I believe the lower tier listings could use a % increase on the listing side to help incentivize the sales process.

  3. Brian, the buyers are WINNING here in Mississippi. I’ve seen three buyers move in with “substantial” equity build in…it’s the best deal going in today’s market.

  4. This is true scenario. Although Most Real Estate agents really do not know or understand how the 203K works. If the agent does not understand how the process works or has a different perception of the loan process and it’s benefits they will never share this with their customers or discourage them from doing a 203K.

    Real estate agents main function is to sell. Many will look at the 203k as another objection to overcome in order to sell the home. Several agents that I have talked to may have had a bad experience, i.e. deal did not happen and therefore they do not want to “spin their wheels” on this process again.

    EDUCATION of the real agent is key. Until agents understand the process – they will not engage their clients to buy homes that need rehab. The 203k is not for everyone – home buyers that do not want smelly, dilapidated, or deferred maintenance problems will not opt for the 203k. MANY home buyers want move in ready homes.

    The K opens up a lot of options for a real estate agent – not just selling move in ready single family homes. Most agents are really only “order takers” and do not have the vision to explore the expanding facets that the K offers.

    NAR needs to emphasis this to it’s members! 203K Consultants can provide a pivotal role to NAR for Realtor Education.

  5. As a Real Estate Agent and a 203k Consultant I have a good perspective being on both sides of the fence. I have sent countless hours showing short sale properties. I am at the point where I don’t want to encourage buyers to consider then because of the unlikelihood of purchasing within a reasonable time. Why would you want to put anyone through that! Lenders take forever deciding on an offer because of the layers of approvals, not to mention the stacks of paper processing…. Sad but true, sellers agents often stack offers giving the lender more options, good for the lender, bad for the buyer. A buyer has a much better chance purchasing a 203k project even though some pain is involved, there is also a great deal of satisfaction, on the buyers side and those who helped!

  6. Thomas, yes that is definitely a good perspective…thanks for that testimonial. It’s a no brain-r for the buyers. I can’t find a better value in this marketplace.

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