A construction company manager in his 50s bought a ranch-style house in a desirable neighborhood with the intention of renovating the place to flip it – meaning he hoped to quickly sell for a profit.
Full of bluster and self-assurance, he embarked on a massive renovation program that involved gutting rooms and moving walls. The end product was good, but the whole renovation took vastly more time and funds than expected. Consequently, he lost money when he sold the place.
“By the time the house was ready for sale, the owner had spent nearly three months on the work and gone $25,000 over budget,” recalls Ashley Richardson, the agent who eventually handled the listing.
Richardson, who’s affiliated with the Council of Residential Specialists ( www.crs.com), agreed that the construction manager’s property needed updating. But he says the owner would have been well-advised to limit the remodeling work to minor projects to improve the home’s appeal without costing a fortune. For example, he could simply have repainted the interior walls and replaced worn carpet rather than doing massive renovations.
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This true story illustrates the risks of “over-improving” any home above neighborhood standards, says Mark Nash, author of “1001 Tips for Buying and Selling a Home.”
“If you get into renovations involving too many bells and whistles, you never get a dollar-for-dollar payback when you sell,” Nash says.
While many real estate markets are now strong, others are still sputtering. Because of that, Nash emphasizes the need for forethought and guidance from local experts before embarking on pre-sale remodeling.
However, Nash cautions that would-be sellers who are too stingy to pay for essential improvements, such as a shabby roof, face their own set of difficulties.
A dated-looking kitchen is also a huge negative for buyers, says Nash, noting that it’s essential to replace countertops that are worn or scratched. In addition, he says sellers should replace an old kitchen floor. But in most cases, he argues against large-scale kitchen renovations that involve tearing out cabinets or installing professional-grade appliances.
Here are a few tips for sellers on how to avoid excessive pre-sale work:
• Seek the counsel of local real estate experts before you renovate.
“It’s always unwise for sellers to commit to remodeling before they discuss the work with real estate people who know their area. They’re the ones who can tell you what your market will bear and what it won’t,” Nash says.
He recommends you contact three local agents for advice on which home-improvement projects are truly necessary. Most well-established agents will visit your house and advise you even if you don’t intend to sell for another three to five years.
As an added benefit, he notes that many agents maintain a database of reliable contractors.
• Limit your renovation projects to neighborhood norms.
Tom Early, a real estate broker who was twice president of the National Association of Exclusive Buyer Agents ( www.naeba.org), says current homebuyers won’t pick up the tab for any renovation work that raises a property above neighborhood standards.
What sort of upgrades constitute “over-improvement”? For example, you wouldn’t want to install high-end, designer light fixtures in a neighborhood of starter homes. By the same token, you wouldn’t want to construct a three-car garage in a neighborhood where most houses have no garage at all.
• Don’t be afraid to cancel any projects that prove too expensive.
If you think your contractors are going over the top, Nash says it’s better to cancel projects before they’re finished than to overspend on work that will cost much more than expected.
“For example, most buyers don’t care if they get super appliances in the kitchen or laundry room. It’s the basic house and floor plan they’re looking for and not high-end elements in every room,” Nash says.
As he points out, real estate agents often recommend the use of less expensive products than are suggested by contractors. For example, you don’t need to spend your money on top-of-the-line carpeting when a mid-level grade will do just as well.
“It’s true that bailing out of work with a contractor can cost you a penalty. But doing so might still be the wise course if a project has become too ambitious,” Nash says.
• Avoid rushing the renovation process.
As Nash notes, many home sellers realize too late that a thoughtlessly executed remodeling program can hit their wallet hard. That’s why he recommends you write on an index card the basic elements of a carefully considered plan. Have that index card handy as a reference guide when contractors come over to do estimates.
“Don’t let the contractors dissuade you from your goal of staying within your budget. What you need is a sound plan. Then stay true to that plan until it’s all done,” he says.