May 19, 2016 by Jeff Lowen
I get asked all the time about adding a deck or remodeling the bathroom in an attempt of increasing the features of a home to fetch more money on the market. It’s a sticky question that requires knowledge of not only the market but other factors as well.
Although it does take a bit of preparation to ready a home for sale, subject to the state of the market, I tend to side with the idea that when it comes to major purchases, you should want to do it for your own enjoyment and not just for the hopes of procuring a buyer that will pay your price for the home.
Rarely will you get dollar for dollar out of your project when it comes to the sale of your home. But, if you’re still reading, let’s explore the strategy to maximize your chances of the type of sale you’re looking for. Hanley Wood Media (Remodel Magazine, Builder Magazine), puts out the Cost vs. Value report each year for the nation; comparing the average cost for 30 popular remodeling projects with the value those projects retain at resale in 100 U.S. markets. So far this year, attic insulation is topping the list and the only project you’ll get what you put into it or more. See below:
These are national averages and you can see what’s in your market by going to their site.
Not to burst your bubble on that deck addition you thought would be great for the sale of your home, but you’re likely to only recoup .60 to .70 cents on every dollar you spend. However, you may still want to do this, anyway. More on that later.
In my experience, it is rare that someone who is selling their primary residence is looking to only to make the most amount of money on the sale of their home. Sure, it’s up there on the priority list, however there is always a reason behind the move. Unless you’re an investor and your goal is ROI (Return On Investment), you’ve grown out of your existing home, a new baby is on the way, dad got a new job, etc. Money is secondary.
Yet when it comes to advertising, I see agents continually market their ability to get you “Top dollar” for your home. Why? Because money is quantifiable. From the agents’ perspective, it’s hard to pinpoint the main reasons you’re making the move, and different for everyone, anyway. So they jump on the money train. Something we all can understand.
So let’s stay with the money for now. Selling for more money is better, right?
First of all, one must always realize that any market, whether real estate, stock, construction, retail, jewelry, etc. is fluid. Moving all the time. So determining value is primarily historical, else it’s speculation. When a Realtor presents you with a “CMA,” or Comparative Market Analysis, you’re looking at historical data. “What the market was then.” How you interpret that data with respect to your market and then speculate where it will go, is why you hire a real estate agent in the first place. Among other reasons, of course.
As you read this, you know that a) the market is moving, b) although money is important, it’s most likely not first on the priority list and c) whatever you do to the home is only going to cost me more money! Wait! There is good news…
Providing you’re working with an agent that can interpret market data realistically, has a working knowledge of construction projects, their cost and time to completion, and has the ability to position your home in the top 20% of available homes for sale to garner mondo attention, you are in great hands! Let’s take each segment and dissect it.
1- Interpret market data realistically. Personally, I dislike the term “realistic,” but you don’t need to be in fantasy land when it comes to getting your home sold. Market data comes from many sources and just doing a CMA is not enough. If that’s all ya got, you’re walking into a minefield with a blindfold on. There are so many variables that a CMA does not cover, it’s downright dangerous if you are relying solely on one. Interpreting the market data means to gather it first. Yes, sold properties are important, but what about properties that are under contract? How long it took to get that contract? How did the property compare with the market when it first went on? How did it stand out? Were the owners under any time pressure? Why were they selling? What did they do to the property to get it ready for the market? What are the outside threats? Absorption, any distressed property, economic indicators, loan program availability, rental market, current market cycles… The list goes on.
Now that we’ve gathered as much data as we can, always keeping our eyes and ears open, we’re ready to interpret it. Remember, market data has a shelf life. How long is usually up to the cycle of the market itself. We plug everything into a neatly packaged algorithmic equation, and viola’! We now have information that will tell us what we need to progress to the next segment…
2- A working knowledge of construction projects, their cost and time to completion. When I say ‘construction projects, I’m talking about everything from paint, carpet, replacing a roof all the way down to a light switch plate replacement. The Cost vs. Value Report only deal with 3o large home remodel projects, but as a savvy agent, we’ll need to perform a “Quality of life upgrade analysis.” Using the market data we gathered, if the homes that the buyers would look at in comparison to yours all have granite counter tops and you’re sporting Formica (Laminate) or some other composite imitation, does it make sense to replace it? Does your front door yell, “I’m ugly!” when someone walks up to it? What do other sold, pending and active homes look like? “Ugly” just may be in style.
After you compile this ‘list’ of candidates for improvement, then you’ll have to create a time line to completion. After all, for every month your home doesn’t sell, your mortgage company still expects your payment, don’t they? Not to mention taxes, insurance, maintenance, etc. It’s best to take everything into consideration.
What you’re doing here is beginning to determine things that bring your home into focus with buyers that have looked at an average of 12 to 18 homes. And, when you grab that focus, you can then begin to draw their attention by using the data you’ve acquired to elevate your home into their (buyers) primary field of vision by doing the things that make your home stand out in its own market. With respect to each dollar you spend that will help you make more than a dollar.
Note: With the current market across the country in somewhat of a sellers’ market, why does this matter you ask? Just remember that any market is fluid. Things may change and always do. Time is the only constant.
3- Now, let’s position your home in the top 20% of available homes. We have a list of the work we’ll do, it’s impact on the sale (for priority), we know what the market is offering and where it’s going and we have the data to support all of it. Positioning is all about timing and appearance.You must know where the market is going and how the appearance of yours for sale will affect the local market and thereby itself.For example: If the local area is moving in 4 to 8 week cycles, then positioning yours at a top cycle price coming down into the low part of the cycle will just add days on the market. Oh, did I mention you still have to pay the mortgage? Conversely, if you position your home at a low cycle price when the rest of the market is gaining momentum. This almost guarantees your home will not only be looked at first, but buyers eager to write you an offer. Finding the ‘sweet spot’ in your market is where your agent will do your home best.
Let me say that this isn’t the ‘end all be all’ for the task at hand. There are other considerations to address like, the emotional factor. Every seller believes their home is the best one on the market. And so should they! It’s a familiarity thing. Fending off the desire to price high for negotiation room, or offer a ‘credit’ for needed work undone, will only complicate things and inevitably cost you money. Also, keeping in mind the appraisal. If you’re in a sea of cash buyers this may not be that important. Alas, most markets are not and buyers will have to get a loan.
You know this because you interpreted your market data realistically, didn’t you? If you do find yourself in a multiple offer situation, or even just one energetic buyer that has to have your house, there is always a ceiling on what they can pay that isn’t necessarily determined by their desire to have the home. The bank that’s doing the financing won’t want to over pay, will they? However, in this article, we’re just getting it on the market for optimum results. The money you make back (or lose) through negotiation and concessions, is entirely another discussion.
Armed with the sharpened tools of the trade and the masterful skills to use them beautifully, you should never, never, never hear the words, “I don’t know why your home isn’t selling…” Of course, being able to successfully answer the question, “How do you know you got the best price and terms for your particular situation?” is really the most important one, isn’t it?