DO YOU RECOUP YOUR HOME IMPROVEMENT COSTS WHEN YOU SELL YOUR HOME?
Be realistic about the value of home improvements
We have all heard of home “flippers”. These are real estate investors who purchase worn down properties, make improvements and sell the home for a profit a short time later. But, before you too excited about getting rich quickly, remember that it’s usually only professionals who make a consistent living flipping homes. They purchase materials in bulk, have contractors on staff and a proven method of how to get the highest return for the lowest project costs. This isn’t an exact science and even these pros sometimes miss the mark.
Home sellers naturally seek out information about which upgrades will return the most value to their property. Many times these sellers end up using free Return On Investment (ROI) calculators on various websites.
Home improvement ROI calculators on the Internet can be misleading. They do not consider local data – only national, and operate on the assumption that the upgrades will be in place long-term, before the “return” on the original cash comes back. This typically is not the case with a potential seller getting ready to put their home on the market. These sellers want to know what can they do right now to increase the selling price of their home.
Part of the problem with the long-term ROI is that many home improvements begin to show their age, become obsolete, or have obvious dated finishes that are no longer being used. This is not the case with improvements that a home seller is doing to increase the selling price of their home.
Home Improvements Perspective from a Realtor®
Few home sellers think farther than the higher price to be gained from the sale of their home. From a Realtor’s® perspective what is equally if not more important, is the added marketability of the home with the new improvement. This increased marketability is what will facilitate demand for the home. Increased demand can translate to offers coming more quickly, possibly for higher prices and possibly competing against each other.
If your kitchen has 4″ white tile or Formica counter-tops and a linoleum floor, it is obviously out of sync from what the other competing homes in the neighborhood already have in place – and out of sync from what a buyer expects when paying top dollar for a home. The same can be said of a bathroom with pink or green sinks and toilets and brass fixtures.
There are a lot of great homes out there that will be competing with yours and home buyers will be looking at many of these, comparing and contrasting them until they make the decision to buy the one that works best for them.
If you decide to take on improvements before listing your home for sale, it will certainly raise the selling price of the home in comparison to not doing the upgrades.
But, if these improvements are only bringing the home up to current standards already existing in most of the competing homes in the neighborhood, they will not cause your home to sell for a higher price than those same homes.
Where to spend your home improvement dollars: kitchen and bathrooms
That being said, if you’re going to spend money on improvements before you list your home for sale, focus on your kitchen and bathrooms. But, do not go overboard. Choose standard grade materials in neutral tones and if you’re getting new appliances for the kitchen, don’t purchase top of the line manufacturers.
Another one of the best places to spend pre-selling improvement dollars is by having a new steel front door installed, and beautifying your entrance.
Repairs vs home improvement
But remember, if the roof leaks or other areas of the home have obvious defects, buyers will walk away from your home no matter how gorgeous your new entryway, kitchen or bathroom is.
Should you decide to not make improvements before listing your home for sale, then just be sure that the home is uncluttered and immaculately clean, and expect that your listing and eventual sales price will be lower than the improved and upgraded competing homes.
If you are thinking about selling your home, we offer a free, no obligation initial consultation to help you identify which areas of the house to focus your improvement dollars on.
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Q & A FOR SAN DIEGO HOME SELLERS
Learn more about our real estate services for home sellers here.
What is the best time of year to sell my home?
Homes are sold every day, all year long in San Diego. However, San Diego home sales activity does fluctuate throughout the year. The location of your home and the quality of the local school district can have an affect on seasonal activity levels as well. Generally late spring is an optimum time to list a home for sale. Activity is usually high through the spring season into early summer. If you live in a desirable school district, many families are looking to relocate in the summer months while their children are on summer break in neighborhoods with great schools. Remember though, since spring might be (and not always) the most active time for buyers, you will also have more competition because of more homes actively for sale on the market during that time. In many years, our most active and busiest season was in autumn. There are still some buyers active through the holiday season of Thanksgiving, Christmas and New Year. Granted, there are less of them but some consider these the most serious of buyers since the holidays are not distracting them from their quest.
What are the most important items to consider when selling my home?
Real estate is about three things: 1. Location, 2.) Price and 3.) Condition. Obviously nothing can be done about the location of your home. But certainly it is crucial that the home is priced in line with the other recently sold homes in your neighborhood. When it comes to condition: a successful agent has experienced this time and time again, and will direct you as to what to improve and what not to.
How do I find out about the market conditions near my home?
Any agent worth earning your business will be able to provide you the latest local statistics to answer this question. You may also view the latest housing market trend in San Diego county here.
What is my home’s value?
Home valuations are computed in numerous ways. Real estate agents use the Comparative Market Analysis (CMA) method to arrive at a home’s value. A CMA will compare and contrast similar homes located near yours that have most recently sold. Additional factors such as outstanding features and amenities may also be considered to adjust a home’s value moderately. An agent worth earning your business will provide a CMA without cost or obligation. Real Estate Appraisers, who will be hired by the buyer and the buyer’s lender, may arrive at your home’s value by a different methods, and for the sale to end successfully, the home must appraise for at least the contractual selling price. Watch our video on appraisal here to understand what appraisers used as comps.
How do San Diego real estate commissions work?
California real estate commissions are negotiable by law. Read much more about San Diego real estate commissions here.
How do I choose the right agent to sell my home?
First, research the agent’s potential on-line presence and reach. Since over 92% of home buyers begin their search on-line, your agent needs to be able to market your property effectively on the Internet. Look for reviews or testimonials from previous clients. Evaluate the quality of the agent’s website and marketing materials. Then meet face-to-face with your potential agent to be able to determine if this is an individual that you believe can provide the level of service you expect and deserve. Do not hire an agent just because they suggested the highest listing price. Hire the agent who supplied you with the most comprehensive Comparative Market Analysis, understood it, and explained it in a way that made sense in supporting their recommended listing price for your home. This is likely to be the agent who will sell your home most effectively.
How to best prepare my home for sale?
Have you ever visited and been impressed with a home builder’s model home? You’ll want your home to look like this, as best you can. While being marketed for sale, your home will need to be fresh, depersonalized, impeccably clean and have zero clutter, both inside and out. The agent who you hire should be able to clearly direct you as to what to do to prepare all areas of your home most effectively.
Should I make repairs?
There may be two types of repairs that you’ll consider during the selling period of your property – repairs before the home is marketed – and later, repairs requested by your home’s buyer, based upon the home inspection results. If repairs are obviously needed now, do them. These will readily be noticed by potential buyers as they view your home, making them believe that the home hasn’t been maintained well. This could cause them to retract their offer. When your home’s potential buyer sends you a formal Repairs Request, you will have to decide what makes the most sense to see the deal go through to a good conclusion.
Should I make upgrades to my home?
In some cases, yes. In most cases the improvement will not sufficiently increase the selling price to recoup the dollars invested. However home buyers willing to pay top dollar for a move-in-ready home have the expectation that no additional money will needed to upgrade the home. In this case the upgrades may not have increased the selling price of the home, but they have certainly improved the marketability of your home, which should enable a quicker sale. In many cases what home sellers consider as upgrades are really only bringing the home up to current standards available in most of the competing neighborhood homes. Read the article we wrote here – Do you recoup your home improvements costs before selling your home?
What am I obliged to disclose to my agent and potential home buyers?
In short – everything. By law, as a home seller you are required to disclose everything that may be a material fact about your home that could cause a buyer to not want to consider going through with the purchase. You must also disclose information about work performed on the home during your ownership, the reasons for the work and whether the work was done to building codes or not. You must also disclose if there are items on the property that are not functioning correctly. In addition, you must disclose information regarding neighborhood nuisances and information about your HOA, if applicable. While disclosing this type of information may seem counter intuitive, these disclosures are extremely important in protecting you and your family from future lawsuits.