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Should I Repair/Renovate Before I Sell My Home?

image-3I get this question often from clients listing their property and my answer is almost always the same, repairs yes and renovations no.   There are a few exceptions, but let’s start with the general rule.

Let’s assume we are talking about a house that should have a Market Value of $150,000, but it has foundation problems.  Let’s also assume that we have three bids to fix the foundation with a lifetime transferable warranty and they average $10,000.  Many Sellers start with the logic that pricing the home at $140,000 ($150,000 Market Value minus $10,000 foundation repair) is the same as fixing the foundation and pricing the home at $150,000.  In my experience, they couldn’t be more wrong.

If I represent the Buyer, the first thing I am going to advise them if they are interested in this property is that about 75% of prospective Buyers in this price range are going to skip right over this house because they don’t want to deal with the foundation problem and there are plenty of similar homes out there, so the pool of Buyers for this property is considerably reduced.  Less competition for a property (less demand) results in a lower market value.  The second thing that I am going to advise my Buyer is that, while the bids came out at $10,000 to fix the foundation, the actual cost of the repair will not be certain until the repair is completed.  Anyone who has been involved with real estate repairs knows that they can, and often do, run over budget very quickly for a number of reasons.  If they purchase the property for $140,000 and the foundation repair ends up costing $15,000 instead of $10,000, they have just overpaid for the property by $5,000 AND they had to go through the hassle of repairing the foundation.  Even without cost overruns, why buy a house for $140,000 and spend $10,000 to get essentially the same house you could buy now at $150,000 without the hassle?  In this situation I would advise my Buyers to offer significantly less than asking price if they are interested, starting somewhere around $125,000.

If however, we are looking at the same house and it notes on the Seller’s Disclosure that it has had foundation repair in the past, that’s a different story.  In San Antonio, many homes have had foundation repair at some point in the past.  A recently repaired foundation with a lifetime transferable warranty from a company still doing business is much less of an obstacle and will turn off fewer potential Buyers.  Many potential Buyers will not make an issue of it, and you are much more likely to sell your home at a higher price.

The above scenario goes for most repairs, but renovations are different.  Unless you are a professional who renovates homes to resell, it is best to stay away from upgrading a kitchen or bathroom just to ask a higher sales price.  While new flooring or new paint is very likely to help your home sell faster, you are not likely to recover all of what you spent.  Again this is a general rule and there are some exceptions (for example, if your walls are checkerboard red and green because you love Christmas, you probably want to paint them a neutral color when you decide to sell).  I have also seen Sellers with dated bathroom tile or wood panel on the walls that decided to upgrade them home themselves and in the end it is obvious that the work was not professionally done.  From a financial standpoint, it is best to let the new owners update or change the aspects of the property that are important to them.  New paint or new carpet will likely help your home appeal to a broader range of Buyers, and thus make it more likely to sell faster (which is why many Realtors will advise you to “freshen” up the look of your house before you list it), but you should consider the costs as marketing expenses instead of planning to recover them by raising the price.

Note:  A great way to determine if something is a repair or a renovation is to ask yourself, “Would I live in the house with _____ the way it is now?”  Most people wouldn’t live with roof or foundation problems, most would live with laminate counter tops or a dated tile.  Many issues can be both a repair and a renovation, depending on the circumstances.  For example: If your walls have extensive smudges, marks, peeling paint, cracks, separating trim, etc I would consider painting a repair.  If you just don’t like the color in a room, I would consider painting a renovation.

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