With the Cash Crunch, should I remodel to sell?

I have come across sellers who feel that with a sluggish market right now, an overstock of inventory and an inevitable economic cash crunch staring us in the face, they shouldn't have to remodel or stage their homes for sale...

I think that's silly and a poor decision. Real estate, much like a sport, is a competition. A sluggish market means buyers can take their time making their decision. An overstock of inventory means you are in fierce competition. Competition? Against who? You are competing your home against another one on the same block. on the next block, in the next town over that has grade A schools, lower taxes, more amenities, etc... Or you can easily be competing with the person across the street.

I had a seller once who refused to update the wallpaper in her kitchen that was there since 1982. Believe it -1982 and she had the stains to prove it! You know what I am talking, you've seen homes like this.

Just because it doesn't bother you, doesn't mean it doesn't bother a stranger - a stranger who is fistful of cash ready, and able to buy your much-needed-to-be-sold home. But the question is if you aren't willing to put the right foot forward, why should they be willing to put theirs?

Unfortunately, what winds up happening is you allow buyers to have negotiation rights. They negotiate you down because of simple upgrades. A coat of paint and one weekend worth of work might equal thousands of dollars out of your pocket. Why give someone a reason to take hard-earned equity out of your pocket?

Once your home is on the market, it is like anything else for sale; it's a commodity. You wouldn't purchase penny stocks for a hundred dollars. No! You would want to purchase stocks and commodities as close to value as possible. So why would real estate be any different?

This doesn't necessarily mean that your house won't sell, because it will eventually. But truth be told, the longer a home stays on the market the less likely it will sell for its original asking price. If your agent isn't giving you, the absorption rate for your area or doesn't understand it - they are doing you a disservice.

Check out Brett Carmen's blog on Trump University's online school of real estate for his opinion on updating before selling....

Should I Update Before Trying to Sell?

Posted by Brett Carman on 3/12/2008 at 11:03 AM
Posted in Real Estate

When deciding to sell a home in today's market, investors and homeowners alike often ask me to tell them what they should do about updating their home and what will give them the most "return on investment". According to the National Association of Realtors' "Cost vs. Value" Report, the average returns for most updates/ remodels yields between 65%-95% nationwide. The trouble with using these figures is that in any given area of the country, there could be more or less demand for the type of updates needed. DO refer to the Cost vs. Value Report to see the average demand for particular types of updates, however. 

There are a few reasons why you should take these statistics with a "grain of salt" and not as an absolute truth. For instance, the quality of the work could have a lot to do with how much profit or loss is yielded. We all have seen homes that people have "claimed" to be updated only to find ourselves wondering how bad it must have been before the work was done! If you have a competency for knowing what appeals to the masses in terms of potential updates, then there is a good likelihood you can still make money in real estate on your remodeling efforts. 

Next, your proficiency at obtaining quality but inexpensive labor and materials can attribute to your profits/losses when it comes to measuring your "R.O.I." If you are handy and take advantage of local surplus inventory stores to get your materials, your base investment will obviously lower than someone who hires an expensive contractor to do the work. Taking this type of cost reducing strategy can definitely assist you in being more successful with a fix and flip business model.

Finally, the localized competition in the area could dictate whether or not you should spend the money to remodel before selling. If there are several like properties in the area for sale that need updating and you can differentiate yours by spending a little to make yours move-in ready for someone, then do it! However, if doing this would make yours exceed the highest sale price in the neighborhood, then maybe you should just "stage" the home to be the most appealingly decorated of the group. This will avoid you having problems getting the home to appraise once you do get a contract from a buyer.