Longhorn Diaries - Diary Forty
Selling this fall: Do I have to make repairs before I list my home?
Well, it depends… The answer to this question is so individual and subjective that (spoiler alert) I won’t be telling you exactly what to do. Instead, I will describe the factors to consider in detail, and the three most common options sellers choose when it comes to repairs.
3 Options to Sell
As stated, there are many factors to consider when deciding if you should make repairs to your home or not. After the factors are narrowed down for your unique situation, you will most likely end up at one out of these three options to present your home to the market.
To sell a home as-is means that you are selling the property in its current state, with an understanding that no repairs will be made and that the home will come with all its current faults and issues. One may opt to sell “as is” if they are in financial distress, think the return on investment will be slim to none, need to sell quickly, or simply can’t handle the stress of renovating. Keep in mind if you go this route in a buyer’s market, you may prolong your home’s time on the market, repel serious buyers or receive low-ball offers. Buyers may feel that something must be seriously wrong with the home and, in turn, view it negatively. In a seller’s market, you may have the luxury of making minimal improvements and still have offers rolling in. They just may not be as high as you had anticipated, and there may not be a bidding war. Depending on the market's temperature, many buyers don’t want to get into a bidding war, knowing they will need to also contribute a lot of sweat equity. There is an opportunity cost for everything!
Go For Turnkey to Sell at a Premium
A turnkey property is a move-in-ready home that doesn’t require any major repairs. A turnkey property is likely to sell for significantly more than a fixer-upper because it accounts for all the work that has gone into it. This kind of property would attract buyers willing to pay a premium in exchange for not doing any work or an investor. A seller could consider this option if the location is in high demand, but the homes nearby are older and run down, or if they enjoy a good project and are confident they could recoup their investment. In a seller’s market, this could feel unnecessary depending on the other factors involved, but the seller may ignite a bidding war if the homes nearby aren’t as nice. On the contrary, in a buyer’s market, it could be a gamble with all of the options and leverage buyers have. But, the right buyer may really appreciate the investment and detail and be willing to pay a premium.
Make Select Small Upgrades
Making small upgrades can mean anything from replacing fixtures to a fresh coat of paint. Many DIY projects such as painting cabinets, creating textured accent walls, or installing your own backsplash fall under this option as well. Amid the Coronavirus pandemic, 76% of real estate agents say that home renovation activity is on the rise, regardless of homeowners are planning a move or not. Depending on your circumstance, this is likely the safest route to take in any market. Most buyers aren’t expecting perfection, but on the other hand, many don’t want to end up in a sea of contractor issues with an uninhabitable home.
Factors to Consider
The State of the Market
The state of the market has a substantial impact on how much leverage a seller has with a buyer regarding making repairs and vice versa. In the traditional North American real estate market, the pendulum swings back and forth every few years between a buyer’s, seller’s, or even a normal/ neutral market. Let’s dive deeper into what these market names truly mean for each party.
Simply put, a buyer’s market occurs when supply exceeds demand. This means that there are plenty of homes for sale but also a shortage of eager buyers. Homes linger on the market longer, and it’s more likely that prices will decrease due to lack of interest. These conditions give buyers leverage over sellers, especially when it comes to repairs. Since sellers are now literally competing against each other, they are much more willing to negotiate and make necessary repairs to prevent buyers from walking away. In a buyer’s market, you may need to make a few repairs to stand out amongst other homes for sale.
A seller’s market arises when demand exceeds supply. The 2021 market is a great example of this on an extreme level! There are many interested buyers in this type of market, but there aren’t enough homes for sale. Homes typically sell faster, buyers must compete with each other, and they often spend more than they usually would. What does all this mean for you in terms of making repairs? Well, increased interest means that buyers rarely have the power to negotiate and are more willing to accept properties as-is. Buyers will often engage in bidding wars and, on occasion, waive inspections which is an advantage to you as the seller. In this type of market and without any additional factors considered, it’s safe to assume you may need to complete little to no repairs on your home.
Neutral or Normal Market
Typically, when the market is normal or neutral, there's a fairly large number of homes available and an average number of buyers. A neutral market doesn't necessarily favor buyers or sellers. But, the chances to negotiate are higher for a buyer during these times than they are in a hot seller’s market. Buyers can submit offers at or lower than the asking price, ask for the seller to make repairs, or even ask to split the cost of repairs. At that point, the seller can choose to accept the terms set by the buyer, or they can pass and see if a better offer comes along. Without additional context about your specific situation, you may want to make some minor repairs and upgrades in a neutral market since you only have an average amount of leverage.
The Condition of Your Home & Competing Homes For Sale
Keeping up with maintaining your home never ends. Most people won’t see how much TLC their home actually needs until they start the moving process. From old flooring to a weathered roof, some huge ticket items will determine the condition of your home and how well maintained it is, which will factor into what kind of repairs you should do before listing your home for sale. There are 3 categories homes can fall under maintenance-wise: Excellent, fair, and poor.
A home in excellent condition is well maintained and built with quality materials. These homes tend to have a well-kept yard, new appliances, and major upgrades or renovations within the past few years. Homes in excellent condition usually don’t require any last-minute repairs before listing them, as they are already top-notch.
A home in a fair or average condition is typically somewhat maintained with normal wear and tear. These homes are functional, but if you’re looking to make a higher sale on your home, you may want to consider putting some TLC into your home. Making small select upgrades like new appliances, a fresh coat of paint, or even making some bigger renovations like a kitchen, bathroom remodels, replacing an older HVAC or roof to make your home turnkey could help you sell your home for a premium.
A home in poor condition is essentially uninhabitable in the eyes of a buyer. Some characteristics include missing shingles from the roof or missing siding, an unmaintained yard, old appliances, electrical issues, plumbing issues, or even possible water or fire damage. If your home is in poor condition and you are looking to sell, you have a few options. If you don’t have time or money to put into your home, you could sell as-is. Just know you are legally required to disclose any problems, and you won’t make as much money from the sale. If you do have some time and money, making small cosmetic repairs can make your home more appealing to buyers. It won’t put your home at market value but will make your home more appealing than selling as-is. If you want to get your home as close as it can be to market value, investing in major repairs could help you in the long run. Replacing the roof, HVAC, flooring, or appliances can bring your home immediate value. A kitchen or bathroom remodel can also go a long way, especially if your home overall feels dated.
Condition of Competing Homes
After looking at the condition of your home, you should also consider the condition of the homes in your neighborhood. If every home in your neighborhood is in excellent condition and you want to sell for top-dollar, you may want to lean toward turnkey in your repairs. If the homes in your neighborhood are a mix of poor, fair, and excellent condition, you have a higher chance of making a reasonable sale on your home if it is at least fair condition.
Likelihood of an ROI
Making repairs or renovations to your home is no easy task. If you’re considering listing your home soon, you probably already have a lot on your plate, and not every repair may be worth the hassle, especially if it doesn’t provide a return on your investment. There are 3 different outcomes of completing repairs: high ROI, you breakeven, or you may even lose ROI.
Likelihood of a High ROI
Repairs that either make your home feel bigger or add square footage, increase your curb appeal, add style, or reduce the amount of maintenance the new homeowners will have to do have a higher likelihood of an ROI. These repairs include opening up the floor plan, finishing the basement, replacing your garage door, painting the exterior, replacing fixtures in the kitchen and bathrooms, installing hardwood flooring, and replacing the roof or HVAC.
Likelihood of Breaking Even
Repairs that will help you break even do not require too much time or energy but still add enough value to your home to pay off. Painting your home a neutral color will either cost you a few thousand dollars or your weekend, but it is worth it in the end. According to HomeGain’s 2012 “Top DIY Home Improvements for Sellers,” painting the interior of your home can yield $2001 of value, maybe even more in today’s market. Updated kitchen or bathroom fixtures like knobs, handles, and light fixtures won’t break the bank or your back but add some overall value back into your home.
Likelihood of a Low ROI
Some repairs or enhancements may sound appealing to you but aren’t necessarily to the buyer. Although you may think having a pool is a huge plus to a buyer, it can be a huge turn-off to some as they require routine maintenance and could take up a good portion of your backyard. Adding an in-ground swimming pool could add at most 7% back into the value of your home, according to Homelogic. Other repairs like high-end landscaping, built-in electronics, or extravagant cosmetic enhancements may not pay off in the end.
As you can see, the answer here isn’t black and white. Making repairs to your home before you list it is something you’ll have to think about. Hopefully, I've helped you clarify whether or not making repairs is worth it for your situation. If you still have questions or would like to chat more in-depth about your personal situation, schedule a call with me here.