OfflineI've spent a lot of time and money doing exterior remodeling of my home, plus a sizable remodel of the master bath. However, the rest of my 22-year-old home needs attention inside. The bath upstairs has dry rot and is dated. The kitchen, likewise, is dated. We have fairly new appliances, but the counters and cabinets probably need replacing. Should I fix up my home or try to sell it as is?
Answer: This is one of those questions where the answer depends on variables such as condition of competing inventory, whether it's a hot, cold or neutral real estate market and the likelihood of return on investment.
Selling a Home in As Is Condition
For example, a few years ago, a past client called to say her next-door neighbors needed to immediately sell their home. To say it needed work was an understatement.
The home appeared inhabitable. It had holes in the walls all the way to the exterior and urine-soaked wood floors; most of the electrical didn't work and the bathroom tub had fallen through the joists. All the faucets leaked and, in one bedroom, I found a pile of dead rats swept into a pile in the center of the floor.
This was not a home that could be easily fixed up. Not even a coat of paint would have helped sell this place. We priced it low enough that it attracted multiple offers and sold with zero days on market. Only contractors and flippers made offers on this home.
Do Home Buyers Want Fixers or Fixed Up Homes?
Some home buyers want to buy a fixer upper home, but generally these buyers want a home that will require light cosmetic repairs. Buyers who gravitate toward fixers are those who either don't qualify to buy a more expensive home or those who want to make a profit by fixing the home themselves.
I've yet to meet a novice first-time home buyer who says, "Give me a home I can tear down to the studs." Most fixer buyers are willing to do simple repairs such as paint the walls, put in new carpeting or replace light fixtures. They typically don't want to rebuild a foundation or move walls.
Fixer-upper buyers will discount the price of the home to allow for the repairs and, for the inconvenience, a bit more. Say, a home is worth $100,000 fixed up, but it needs a new roof. A new roof might cost $10,000. A buyer most likely will not offer $90,000 for this home. Otherwise, they could buy an identical home with a new roof for $100,000 and not have the hassle.
A buyer for this type of home might offer $75,000, or even less. In this scenario, a seller would be smarter to pay for a new roof and sell the home for $100,000.
Moreover, many buyers will not buy a home that needs a new roof. They will worry the work involved will cost more than what they anticipated. Perhaps replacing the roof would involve tearing off the sheathing and repairing rafters, which could add to the cost. Most buyers want a home that is in move-in condition. By not making repairs, you will limit the number of buyers who may be attracted to your home.
Before Fixing Up Your Home
Smart sellers will weigh the cost of proposed improvements against the home's market value after the repairs or upgrades are completed. If an upgrade won't return the investment, such an improvement might not be warranted. Before you decide to lift the roof and install skylights in the master suite, realize that kitchens and baths carry the highest return.
Before deciding to make specific repairs before resale, take an afternoon off to tour other homes in the neighborhood. Note the condition and amenities in those homes. Compare these homes to yours. If, for example, most of the homes on the market have upgraded kitchens, you should concentrate on fixing the kitchen.
This doesn't mean you need to buy designer appliances and tear out the cabinets. But a minor kitchen remodel might be a good investment. Sometimes, a fresh coat of paint on the cabinets and new hardware can give your kitchen an all-new look.
Make a list of everything that is defective, broken or worn out. If buyers spot problems or malfunctioning systems, they might wonder what else in the home has been neglected. Buyers to whom I showed a $1.5 million-dollar home in the Fab 40s in Sacramento passed on that home due to the sellers' slight oversight. The entry way rug had a big rip down the center of its seam, and it was ragged. That rug made a bad impression on the buyers to such an extent that they were convinced the sellers didn't care about selling their home.
Here are 10 minimum improvements to make before selling your home:
Patch all holes and cracks in walls and ceilings.
Fix all broken appliances and HVAC systems.
Repair leaky faucets.
Replace worn carpeting.
Repaint dark or marred walls with neutral paint (not white).
Replace broken windows.
Repair the roof.
Change out dated light fixtures / ceiling fans.
Replace old linens / window coverings.
Fix code violations.
If your real estate market is extremely hot -- a seller's market -- you can get away with fewer fix-ups before selling; however, a home that needs repairs will still deliver a lower price. In slow markets -- a buyer's market -- buyers might not even look at a home that needs work, unless it's an REO. wWeintraub
Randy makes some valuable points above, as always. People who buy fixer-uppers are not usually interested in a property that needs a lot of work. Most of them are married, and don't want to subject their family to living in a property that is effectually "under construction."
It is not my intent to try to sway this opinion, but I do want to make sure that everyone at least realizes that your personal residence is the place where it is actually the easiest to make a large sum of money if you are willing to deal with some discomfort.
The biggest gift that the government has provided is called the personal residence tax exemption that states that if you have lived in your home for two out of the past five years, any profit that you make when you sell it is tax exempt, up to $250k for a single individual, or $500k for a married couple. So if you can buy a property dirt-cheap, fix it up, and sell it in two years for a huge profit, there will be no taxes on the income that you earned.
That may be worth some consideration for some people.
Dallin Wall
Real Estate Training Team
Forum Blog Location--A collection of my
"Best of" posts:
http://www.deangraziosi.com/blogs/dwall
I like these articles and agree that there is a difference between fixing up your own home and rehabbing a house to make a profit. If you want to make money then look at the neighborhood and bring the house up to par without over improving it or adding things that won't increase the value. If you are going to live somewhere for a long time, it is your environment, so make it what you love, but remember, in the long run you will eventual want to sell and if you have over improved too much you may lose money in the process. So to be wise, improve your home with upgrades that add value, but if you really want sometime for personal reasons then look at it as a consumer good that will simply bring you joy, but not make you any profit. That can be okay. Just know what your goals are...
and thank you Coach Wall as that is really worth taking into consideration.
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First, thanks Jan and Tammy for your additional comments, I agree with Jan that being clear on your objectives can change what you are willing or able to do with a home.
The key to selling a property is based on knowing your strengths and creating a competitive advantage. If you are dealing with the property that is the worst in the neighborhood, then your clearest way to make money is to bring it up to neighborhood standards.
If you have a property that is average for the area, then you can either create your competitive advantage by offering a lower price, some seller finance terms, or by adding something physically to the house that raises it above the competition in appearance or utilization.
If you have a property that is overbuilt for the area, you really only have price and terms to work with to create your competitive advantage. Lowering the price is usually not the best arrangement if you want to be profitable, but you could offer the property as a lease option, which will make it attractive to people who are unable to qualify for the best loans available, but want to get into home ownership.
Here's a rule of thumb when buying an investment property--know what you plan to create as your competitive advantage, and also what your backup plan will be if this doesn't work.
Dallin Wall
Real Estate Training Team
Forum Blog Location--A collection of my
"Best of" posts:
http://www.deangraziosi.com/blogs/dwall