We
are currently in the midst of a very hot “sellers’ market” in the Charlotte metropolitan
area. Like many other regions of the
country, inventories of homes for sale remain low and buyers find themselves
competing to find good values. A
question frequently asked by sellers in this market is: “Should I spend the
money to update my home prior to marketing it for sale? Won’t this maximize my final contract price?” The answer to the second question is probably
“yes.” But whether it is advisable to
spend money on updates, how much money to spend, and whether those expenditures
will increase the final contract price sufficiently to make those expenditures
worthwhile are more complicated questions.
The
answers depend on a lot of variables, such as: Where is the home located? Is it an older “original” home located in a
neighborhood that is seeing a lot of revitalization? If so, more extensive renovations may be
advisable. The seller would really be
taking his or her own home of many years and doing what many flippers do—transforming
an “old original” into a desirable modern turnkey property. But larger renovations only make sense if
they are very carefully managed and
the home is otherwise positioned to take advantage of a revitalization trend in
the particular neighborhood or area. It
doesn’t make a lot of sense to take a home that is worth $250,000 “as is” and
spend $50,000 to give it a market value of $300,000. You would obviously just be breaking
even. But if you are capable of managing
the work—using contractors you trust and whose estimates and work you can rely
on—and you can take that $250,000 home and transform it into a home you can
realistically expect to get $300,000 for after spending $25,000 on updates, the
money may be well spent and the aggravation may be worth the reward roughly
$25,000 reward.
However,
if you have a relatively new track home that has seen ordinary wear and tear
over five or six years but has otherwise been reasonably well maintained, it
probably does not make sense to tear out the kitchen or renovate
bathrooms. You might make the home look “flashier,”
and it will probably sell faster at its market value, but it is very unlikely—even
in this sellers’ market—to sell significantly above its market value. In this case, refreshing interior paint may
be advisable and carpet cleaning or carpet replacement might be a good idea,
but larger expenditures are not likely to move the final sale price up enough
to make them worthwhile.
As
in most other undertakings in life and in business, the key to making a truly
wise decision on how much to renovate a home for resale is correct, complete
and current information about the particular home and recent surrounding comparable
sales. If there is such a demand for homes in the same neighborhood or area, it
may make little difference to the pool of interested buyers whether the home
has been significantly updated. In fact,
it might even be advisable in this market to take a home that the data
indicates should have a fair market value of $250,000 “as is” and list it for
$260,000 or so without spending any money on updates. The amount of interest received may help the
seller make a decision on whether they want to go through the time, expense and
stress of managing contractors and renovations.
The seller might well find that he or she receives multiple offers on
that $260,000 listing price in this market, and perhaps even gets an offer
above the listing price.
So
the honest answer to the question of whether and how much to update a home
prior to resale in this hot sellers’ market is “it depends.” It depends on the facts and recent sales data
surrounding the particular home. The
best advice I can give the seller is to partner with a competent professional
to gather the information you need to make an informed decision. Doing so will enable the seller to maximize
his or her return on this very large investment.
