We
are currently seeing a continuation of the 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 $300,000 “as is” and
spend $50,000 to give it a market value of $350,000. 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 $300,000 home and transform it into a home you can
realistically expect to get $350,000 for after spending $25,000 on updates, the
money may be well spent and the aggravation may be worth the roughly $25,000
reward.
However, if you
have a relatively new tract 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 $275,000 “as is” and list it for $285,000 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 $285,000
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.
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