The $50,000 Selling blunder: Why you should never renovate a distressed house prior to listing your house.
When planning to sell a piece of property, particularly one requiring extensive repairs, most homeowners immediately want to fix all things prior to putting their house on the market. Budgets are allocated for kitchen updates, panicking ensues when they see that the bathroom is still unfinished and many homeowners write huge checks to contractors before listing the home.
This instinctively leads to waste of precious time, depletes liquid funds and ultimately results in tens of thousands of dollars left on the table.
In focusing solely on making your house appealing to every possible buyer, you miss the simple fact of real estate market dynamics: it’s not what shape your house is in, but rather who will be willing to purchase it as-is.
The “Turnkey” illusion
According to data collected by the National Association of Realtors, well over 70 percent of home sellers complete some type of pre-listing improvement, based on their assumption that nearly every single buyer out there wants a perfectly clean, move-in ready property. While turn-key home buyers undoubtedly represent a considerable percentage of the overall market, catering strictly to these buyers while your home remains deficient in major areas creates two very costly pitfalls:
ROI Pitfall:
Most full scale renovations made to prepare a house for sale do not provide a 100% ROI at closing. For example, spending $40,000 on renovations may increase the appraised value of your home by just $25,000, thus resulting in an immediate net loss.
Buyer Misalignment:
Traditional homebuyers obtain financing through conventional means. Any serious structural or functionality problems with your home (i.e., an unfinished bathroom or a deteriorating roof) could result in red flag warnings during an appraisal which would ultimately kill the loan application process, regardless of how great the other aspects of the home appear.
There are four categories of buyer that will evaluate property conditions based on a different set of criteria than you.
Rather than attempting to force your fixer upper into the exact same model as the traditional seller’s perfect home, consider each category of buyer separately and examine how they view your house’s unfinished condition.
The $50,000 Selling blunder: why you should never renovate prior to listing your house
When planning to sell a piece of property—particularly one requiring extensive repairs—most homeowners immediately want to fix all things prior to putting their house on the market. Budgets are allocated for kitchen updates, panicking ensues when they see that the bathroom is still unfinished and many homeowners write huge checks to contractors before listing the home.
This instinctively leads to waste of precious time, depletes liquid funds and ultimately results in tens of thousands of dollars left on the table.
In focusing solely on making your house appealing to every possible buyer, you miss the simple fact of real estate market dynamics: it’s not what shape your house is in, but rather who will be willing to purchase it as-is.
The “Turnkey” illusion
According to data collected by the National Association of Realtors, well over 70 percent of home sellers complete some type of pre-listing improvement, based on their assumption that nearly every single buyer out there wants a perfectly clean, move-in ready property. While turn-key buyers undoubtedly represent a considerable percentage of the overall market, catering strictly to these buyers while your home remains deficient in major areas creates two very costly pitfalls:
Roi pitfall: most full scale renovations made to prepare a house for sale do not provide a 100% roi at closing. For example, spending $40,000 on renovations may increase the appraised value of your home by just $25,000, thus resulting in an immediate net loss.
Buyer misalignment: traditional homebuyers obtain financing through conventional means. Any serious structural or functionality problems with your home (i.e., an unfinished bathroom or a deteriorating roof) could result in red flag warnings during an appraisal which would ultimately kill the loan application process, regardless of how great the other aspects of the home appear.
There are four categories of buyer that will evaluate property conditions based on a different set of criteria than you.
Rather than attempting to force your fixer upper into the exact same model as the traditional seller’s perfect home, consider each category of buyer separately and examine how they view your house’s unfinished condition.
Evaluating a property in its true current state allows you to target marketing directly toward buyers equipped to handle its specific condition, whether through cash offers, 203(k) renovation loans, or investor capital.
EN
RU