To renovate or not to renovate when selling
Do you renovate before you sell, or just put it on the market as is? This is a big question and unfortunately the answer is maybe…it is not a simple yes or no. With so many variants at play, how do you calculate if you should put in the time, effort and dollars in to renovate before selling?
Must-do home improvements when selling
We have written many many times on the LJ Hooker Blog about the importance of having a well presented property when you are looking to sell, so I apologize for repeating this, but it is super important. The other way to look at this is if you don’t do at least these 6 jobs, you’ll be throwing money down the drain:
- The big property clean – you want your property sparkle
- Touch up any chipped paintwork
- Remove or store your clutter and any highly personal items
- Fix any obvious detrimental defects
- Tidy the front garden
- Ensure you have the best possible street appeal – sweep paths, ensure your gate is working, your street number is visible etc
Treat it as a business decision
When deciding on whether you should renovate your property before putting it on the market – whether it’s your family home or an investment, you should look at it as a business decision. Will the renovations add value to your property immediately and will you be able to sell the property for more? You are not renovating your home so you can enjoy the end result, you are purely doing it to attract more buyers and add value. Don’t renovate with your heart or personal taste in mind. Think very carefully.
Real Estate expert Andrew Winter says “if your home is a genuine renovator it is probably better to leave as is. Tidy up and do the essentials, of course, but recognize that this is an entry level home that may even have buyers fighting over it.”
He also suggests that “significant renovations are not advisable on homes that have been adequately looked after and are in line with your demographics expectations of size and style.”
A priority if you are looking to renovate to sell, is to ensure you don’t overcaptalise, which means to improve a property beyond its resale value so you are not able to recoup the money when you sell. An example would be if a home owner spent $200,000 on home renovations and then decided to sell the property, they may find that the renovations only added $100,000 to the value of their property meaning they have effectively lost $100,000 as a result of doing the renovation. They have over capitalised on their property by $100,000. And that isn’t good! You need to do your research and think very carefully before renovating to sell.
Understand the current market value of your property
You can’t determine how much value a renovation will add to your property if you don’t know how much your property is worth before you event start. The first step here is to get your home valued by a qualified real estate agent.
Understanding how much your property is worth in the current market, how much it has increased in value since you bought it and how much other properties are selling for in your immediate area is very important. Plus, talk to your agent about the value of similar renovated and un-renovated properties in your area. Keep in mind that each neighbourhood has a median sale price and an upper sale threshold and this can vary significantly even within one suburb as a result of the housing style, street scape and demographics of each area.
What do your potential buyers want?
It is tempting to want to put your own personal stamp on your property, but some features you love, might actually put potential buyers off. Talk to your local LJ Hooker agent about what your buyer demographic would deem valuable, what features are really selling homes in the area. This is all about following the crowd, playing it safe, not overspending and never allowing your personal tastes to dominate. It is about giving your buying audience what they want.
Agents, whilst they aren’t building experts, can give you a good insight into what are popular features for buyers in your area. Consider whether your property has these features?
How much should you spend?
Once you know how much your home is worth and what your buying audience would value you can determine how much you want to spend on any renovations (if anything). Professional renovator Cherie Barber, who has been renovating properties for more than 20 years says, if you are doing cosmetic renovations like painting, floor sanding, ripping up carpet and landscaping and are looking to sell your home in the near future or you are renovating an investment, allow 10% of your property value for your renovation budget. For example, if your home is valued at $700,000 a good budget to work with is $70,000*.
She has some valuable insights into how much you should spend on each room here which would be worth looking at to give you an idea of room by room budgets here.
Renovating an investment property
If you are considering renovating an investment property you should consider things from a ‘need’ point of view; anything you do ‘needs’ to improve cash flow, rentability, or the value of the property.
You should ask questions like: Will it increase the rent? Will it increase the value? Am I better off without a renovation? It needs to be strictly a business decision.
6 questions to ask yourself before you renovate
*Make sure you consult your bank and your financial advisor before making any decisions about renovating to sell or not.
- Has my property been well look after and is it in line with my potential buyers expectations of size and style?
- How much is my property worth in the current market?
- Can I add value to my property with a good spring clean and a coat of paint and avoid large expesnes?
- How much will the renovations costs, do you have the available funds, how much is the expected value to be added to the property, will the renovations actually cause your home to lose value?
- What is the condition of my current home - Will I be renovating more than 50% of my home? In many states and territories, if you renovate over 50% the rest of the home then will need to comply with current building regulations, such as new wiring, plumbing and energy rating and this can add a significant cost to your renovation.
- Will my renovation be in keeping with the style of homes in my area or will it stand out like sore thumb? Often many people like an area for its style of properties and a poor design that doesn’t compliment the surrounding homes can devalue yours.