?Reader Question: We currently live in an area that has a hot real estate market. We want to downsize and buy something more manageable. Our house needs some work, and we are trying to decide if we're going to put the work into it or sell as is and maybe give someone the opportunity to add their touches. What are the pros and cons and what should we consider when making this decision.
?Monty's Answer: Be aware the hot market may also affect your downsizing purchase in the same fashion. Sometimes a premium in a hot market is according to price range. Certain neighborhoods may also be hot. It is also true some home buyers in a hot market will accept a home that requires work as a part of their negotiating strategy. If the home's price recognizes the value of their work, some buyers will prefer to contract and supervise the work themselves.
Lots of paint and elbow grease
The term "needs some work" requires definition, as the answer varies depending on the effort and cost required to "add the touches" you reference. If the work is numerous smaller items that you can self-perform or with the assistance of a handyman or specific sub-contractors, such as an HVAC contractor to balance the air flow or replace the old furnace, it would likely be in the cleanup, paint-up, fix up, category. This Dear Monty link at http://bit.ly/2lAKhIm describes how to handle this level of home preparation.
Major updates by contractors
If the work you are contemplating is major, such as a total kitchen remodel, there is but one question to answer. Can you recover your capital investment plus a premium for your efforts in orchestrating the job at the time of sale?
Let us assume the contemplated improvements are equal to or greater than 10 percent of the value of your home. Also that "some work" means to update the kitchen with new windows, cupboards, sinks, flooring, appliances, and lighting. Consider the following strategy; project what your home will sell for in its current state, and what it will sell for if you invest to create the as-improved condition.
Here are four tasks to complete
— Ask two contractors to give you a price for the kitchen remodel. Like real estate agents, they will have different pricing for the job. There are multiple reasons this will happen. Each contractor will have various techniques and experiences which will result in different calculations on the cost of time and materials for the job. A kitchen can vary significantly in material price and labor to install. For example, a solid cherry wood floor could be several times more expensive than an imitation wood vinyl floor. Furnishing specifications will improve estimate quality.
— Simultaneously, invite two or three real estate agents to tell you what your home is currently worth. Because each will have their own opinion and there will likely be differences, it pays to talk with several good agents. Request comparable sales are close to square footage and features, and that they are the same style as your home (ranch, two-story, etc.) and without containing a remodeled kitchen. Ask each agent their opinion about your improvement plans. Then ask the agents to bring entirely renovated kitchens in the comparable sales. Use your best judgment to decide which views on both the home’s value and the remodeling idea are the most compelling. The best answers may come from different agents.
— Now, find a few open houses that are similar to your home where the remodeled kitchen is a feature. While there is considerable effort to put forth in deciding your path, it is not unusual for the results to be positive or negative. Every home, neighborhood, marketplace and owner circumstances vary. The more accurate information you have at your disposal, the more likely you will make the best decision.
— If you go ahead with the project, you need to assure yourself that your choices in colors, style, and quality fit what most potential buyers seek. Some retailers may include a designer to help, or you can attend model open homes to see what the builders are featuring in their homes. Here are additional Dear Monty remodeling tips at http://bit.ly/2ClGlXf.
The pros and cons of your decision will be challenging to be validated because the unchosen option becomes pure speculation. Utilizing the method above should bring additional clarity.
— Richard Montgomery is the author of "House Money - An Insider’s Secrets to Saving Thousands When You Buy or Sell a Home." He is a real estate industry veteran who advocates industry reform and offers readers unbiased real estate advice. Ask him questions at DearMonty.com.