It’s often said that in business you have to spend money to make money, and I believe spending money to sell your home can be equally beneficial. By spending strategically to improve a home’s value before it goes on the market, sellers can increase the number of offers they receive and sell for a higher price. Let’s look at a simple approach to creating a budget that could make spending money to sell your home a good investment.
Let’s assume the home is already valuable before we invest to make it more valuable. We’ll begin by assessing the home’s current market value in its present condition. We’ll set a specific value, not a range, so we have a starting point from which to measure the potential change in market value resulting from each project we consider.
Since we may have limited time and budget available to implement our investments, we’ll prioritize them based the impact they have in attracting good offers and how much they contribute to improving the final sale price in excess of each project’s cost. We might require a minimum rate of return on each investment on our list, perhaps 120% of the project cost added to our asking price. We’ll weigh project risk, time available and other factors. We’ll assign each of our projects to at least one of five classifications: basic repairs, curb appeal, functionality, space and cosmetics.
1. Basic Repairs
Homes that have been inspected, repaired and provide a clean inspection report in the marketing disclosure package attract more attention from buyers than homes that don’t. They also receive stronger offers, since many buyers will add a risk factor to the estimated cost of repairs they would have to make after the purchase. Rather than reducing their offer by $5,000, the amount quoted by a repair contractor, they might reduce their offer by $7,500. Homes needing repair could also cause delays in closing escrow if buyers demand that repairs noted in an inspection report be completed before they take possession.
2. Curb Appeal
Buyers often conduct drive-by viewings before making an appointment to see the interior of a home or attending an open house. Curb appeal motivates buyers to take a closer look. A healthy lawn, attractive paint, good roof and unstained driveway usually imply the interior may also be in good condition and worth a look.
Most sellers don’t think about adding functionality to their home prior to selling. After all, they’re leaving and won’t be around to enjoy the improvements. In our example below, we decided to charge out solid panel sliding closet doors and replace them with mirrored doors. This is a simple change that many home owners can make themselves.
We also added replacing a worn out lawn sprinkler system that frequently clogged and was manually controlled. The new system will have an automatic timer the new owners can set and forget each season. We also decided to have an electrician run cables into two of the bedrooms that were not wired for cable TV or Internet data.
Sellers can add space by making unusable space usable, converting space, or expanding space. In our budget example, we made unusable space in the garage usable by simply moving yard equipment to a shed. Unused space in the laundry room was made usable for storage by installing cabinets on an empty wall. Those are easy improvements that can have a moderate impact on buyer interest and our sale price.
If market conditions and budget allow, remodeling to convert or add space can have a more significant impact on our sale price.
Converting space from a use with a lower market value per square foot to a use with a higher market value is another way to increase our asking price. If a home has a second hallway closet on the main floor, converting that closet to a powder room can provide a return on investment over 50%.
Major remodeling projects that add a bedroom or bath, enlarge the kitchen and increase the overall square footage of a home’s inhabitable space can also increase value significantly. Obtain reliable quotes from qualified contractors, consider the cost/benefit and risks carefully. Plan to begin such projects well before the home will be offered for sale.
Note: All space conversions and additions must be completed with permits issued by the proper local authority. Failing to obtain permits can potentially reduce the value of a remodeled homes.
Most REALTORS® are skilled in staging or work with staging professionals who can recommend cosmetic improvements that make a home more attractive to potential buyers. The most common cosmetic projects are de-cluttering and painting. De-cluttering is not just removal of items stacked in corners or stored in boxes in the garage, it can also involve removing excess furniture, wall coverings, floor coverings and items often left on kitchen and bathroom counters for convenience.
Below is an example of a seller’s budget with cost and benefit estimates. Every home is different, see how many projects you can come up with to improve the value of your home.
Have questions about spending money to sell your home or other real estate issues? Drop me a line.