Sellers often ask how much they should they spend to improve their home to get top dollar when they sell. In most cases, my response is, as little as possible. I am all for cosmetic updates, like painting, cleaning, flooring, staging, and deferred maintenance items, but not major remodeling. This week I met a seller that did just the opposite, based on the advice of a stager and contractor. Of course it was in the stager and contractor’s best interest to do the remodeling for the seller.
Before you do any remodeling you need to know what your home would sell for “as is”. In this case, it was easy to determine, as it was a rambler with 3 bedrooms, 2 baths, and a 1 car garage. There were 4 identical homes that sold in the neighborhood in the past few months. They ranged in price from $210,000-$217,000 and they were all in similar condition to the subject property. The average sale price of the 4 homes was $216,000 so I would assume the subject property is worth at least $216,000.
The seller spent $28,000 on the kitchen, 2 bathrooms, painting, and flooring. It took 3 months to complete the work and the seller did a lot of the labor himself, which is not reflected in the $25,000. They bought furniture to stage it, and the property looked great!
To break even they needed to sell it for $244,000. They put it on the market for $249,900 and sold quickly for $249,900 with the seller agreeing to pay 3% towards the buyer’s closing costs, which means the net sale price to the seller is $242,403, less the seller’s closing costs.
The seller felt really good about getting such a high price, and didn’t understand that he actually lost, $1597 plus his own labor. Another problem is the appraisal. The property has to appraise for the purchase price of $249,900 in order for the buyer to get financing. No doubt the appraiser will give some credit for the beautiful remodeling, but probably not $34,000 more than the average price of the comparable sold properties, which means the seller will end up losing even more, as he will have to drop the price to match the appraisal price in order for the buyer to get the loan.
An experienced agent can provide you with staging and remodeling advice to help you get the highest return for your home.
Ask the Real Estate Agent is a weekly column by Cheryl Kempenich of Coldwell Banker Burnet, who lives and offices in the Chisago Lakes Area. Submit your questions to firstname.lastname@example.org. All information is deemed reliable but not guaranteed. For legal assistance consult an attorney.