Property owners contemplating selling are often faced with important dilemmas: (a). Should we renovate or sell as-is? (b). If yes to (a), then exactly what scopes should we renovate and how? Below is Kelly Grant's series of important steps, considerations, and advice to help Sellers navigate successful and rewarding renovating decisions:
(1). If considering renovating for the purpose of selling, one should first consult their REALTOR® for advice (i.e. via analysis of actives and past sales) on a potential renovation’s predicted market value effects. This key information at the outset will indicate whether the desired renovation is even feasible.
(2). If a property is worth very near or at ‘lot value’, there may be no amount of renovations that are likely to improve the value for builders who are only looking to purchase at the lowest possible price to eventually knock down anyway and rebuild. In these situations, ‘lot value’ Sellers are advised not to undertake cost to complete any renovations whatsoever but rather to list lower and sell 'as is'. Watch out for the 'bottomless money pit' which describes houses that cannot be improved.
(3). For those properties in quite rough shape and may be knocked down, on the surface it may be a tough decision for Sellers about whether to renovate or not. The reason: because in these situations, perhaps 30% of the Buyers may be builders planning to immediately knock it down and rebuild; 20% of the Buyers may be renovators who value the structure and want to fix it up; 30% of the Buyers may buy as an investment to rent out; and 20% of the Buyers may be families looking to buy and move in immediately without any repairs. The Seller must make a choice: is it preferable to not waste any time, effort, and expense, selling to a lower-purchase Buyer to knock it down or renovate; or is it preferable to gamble spending valuable time, effort, expense, and opportunity with renovations in hopes (i.e. to recoup costs) of maybe selling to a higher-purchase investment or family Buyer? If the market (and property values) are sharply rising, then renovating can yield a good selling bonus. If however a market is stagnant or dropping, not spending on renovations and instead listing and selling for less in most cases may be wisest.
(4). The next important consideration is time: in real estate, time is always of the essence. This is most particularly true in stagnant or falling markets where every month a property stays on the market the property value and eventual purchase price is likely to drop. How does this affect renovations? Kelly Grant's answer: if it takes a Seller two or three months (or more) to perform kitchen or washroom or exterior or functional renovations, the price of their home may drop over that period almost as much or more as the cost of renovating! Had the same owner sold immediately for a lower price without paying costly renovations, a ‘drop in value’ over a period of a few months is removed from the equation (i.e. wise investors strive to ‘cash in’ at market peak).
(5). For properties with functional issues (i.e. furnace that needs replacing, electrical that needs upgrading, windows in very bad shape, etc.) but the home is not a knockdown, then the new Buyer will very likely see the value in functional upgrades and often appreciates the time and effort the Seller makes to complete upgrades vs. the Buyer fixing upon possession. In these scenarios, performing upgrades of functional items (within reason) would be a sound Seller decision. Furthermore, using new shingles as an example, important functional upgrades may actually prevent future water or structural damage (and costs to repair).
(6). For special properties / luxury homes in high-end neighborhoods (i.e. worth about $1M to $3M+), often renovations must be performed in order to obtain a decent and timely sale. The reason: because high-end Buyers, who will be paying a lot of money for their home, are not often prepared to immediately risk gutting a large house to perform substantial renovations. The key is for any renovations to match the quality of the rest of the home so they do not stand out either as being ‘overdone’ or else ‘needing to be redone’, both of which waste money and are unlikely to yield the market result high-end Sellers desire.
(7). In cases where a homeowner is not planning to sell for 5 to 10 years or longer, then the decision to do renovations should be primarily to satisfy the homeowner (i.e. whose family will have to live with the renovations for the period of ownership) and the renovation’s impact on property value in these scenarios may be a factor but resale should only become a secondary factor. It is too difficult to predict market trends for an extended length in the future, and plans change: owners who plan to sell in 5 to 10 years may decide not to move out for 20 or 30 years so 'being able to live with the renovations' should be of utmost importance.
(8). When doing renovations specifically for a sale (and not for oneself or one's family), it is critical for the colours and finishes to be (a). neutral; and (b). consistent throughout in efforts to appeal to as many Buyers as possible (i.e. avoid colours such as pink; bright blue; red; orange; yellow; bright green; black; etc. and instead try to select earthy tones and finishes). In this regard, Sellers are advised to consider the professional opinions and ideas of an expert interior designer.
(9). When renovating for a likely investment Buyer (e.g. up and down or side-by-side duplex, four-plex, apartment building, etc.) it is important for the renovations not only to have a clean look with neutral colours and finishes, but also focus on inexpensive yet sturdy (commercial-grade) finishes that are easy to maintain and cannot be easily damaged by incoming tenants. In this regard, it is usually wisest not to overspend on fancy finishes for which are not likely to yield much higher rent for the investor Buyer.
(10). When deciding to undertake renovations for selling, all renovations should be completed by qualified (i.e. certified and / or licensed) contractors - period. The failure of doing work unprofessionally includes a property either not selling or else for much less than otherwise. This includes applying for the proper permits as may be required by the City or municipality. [For important advice on selecting qualified contractors, suppliers, and undertaking home renovations, visit Kelly Grant's web article link to review: < Tips for a Successful Shower Renovation Project > and review the book "Make It Right" by Mike Holmes, ©2006 Restovate Ltd.]
In summary, the decision by Sellers to renovate for sale is an important one and should not be taken lightly without considering the various 'market impact' ramifications. Renovating in many cases does have its advantages, but only under certain conditions and in specific markets to outweigh the inherent advantages of sitting back and ‘doing nothing’ to sell. In general, for most Sellers without professional renovation experience combined with extensive real estate investment experience, it is wisest to list and sell lower ‘as is’ than to spend a lot of money renovating with the specific intention of gambling to sell for higher.
[Article written and ©2016, ©2020 by Kelly Grant, M.Eng., ABR, NCSO, P.Eng. - REALTOR® at MaxWell POLARIS in Edmonton, AB]
Disclaimer: for those readers not currently represented by another licensed REALTOR®, to obtain more information on this topic and / or if you will be selling or buying in the Greater Edmonton Area, call Kelly at 780-414-6100 (pager); text Kelly at 780-717-9290; or send Kelly an email to SOLD@KellyGrant.ca to schedule a confidential appointment.