Upgrading a home before you sell it is a proven strategy that will not only raise the value of the property, but also improve your chances of selling the home quickly. However, over the last year, many homeowners have decided to skip the renovations and go right to listing their property. In many cases, this is because the home needs too much work and the owners either do not have the funds to cover the cost of renovations or simply do not want to spend the time overseeing such work.
It’s important to understand that if your house needs work and you decide to list it, it could cost you money on the final sale price. Making a commitment before you list to improve the property could increase the value by tens of thousands of dollars, but there are also disadvantages to doing that besides a major financial commitment from the current owners.
Why Sellers Are Not Renovating
Renovating a home in any capacity is not an easy thing to do. You have to find the materials needed and a reliable contractor to do the work. Even if everything goes great, it will still require weeks or months of work to get the house where it needs to be. As you consider your options, here are some of the reasons other homeowners have skipped renovations and simply listed their house in the condition it is:
- Construction material prices: Over the last two years many construction materials including lumber and concrete have skyrocketed to record prices. While many of these materials have come down a bit, they are still far too high for many homeowners, especially if the property needs major renovations. Replacing a bathroom can cost over $10,000 alone and that’s just to utilize basic materials and have nothing over the top added to it in the way of features.
- Labor availability: While material availability is also a concern a bigger one is labor. Even if you find a reliable construction company to do the work, they may not be available to get started for weeks or months because they are currently short on labor and can only tackle one job at a time. If this is the case, you may be waiting longer than you expected to list your property and you do not want to list it while work is being done as any buyer will use that as their window to make more demands and drive the price down.
- Return may not be enough: While in theory you should be able to make back what you spend on renovations, that may not be true, especially if the renovations are big and a major necessity. For example, if you have a house that needs a new roof and other repairs and upgrades made, spending $30,000 on the roof may drive up the value, but probably not enough to cover that $30,000 you spent on the roof and certainly not enough to generate a profit from it. The reason is because the buyer will look at the other renovations that are needed and see the upgraded roof as only one aspect of a lot of work that needs to be done. In this case, the buyer may be willing to take care of the expenses themselves as they will be eligible for the tax breaks rather than just increasing the sale amount by that much.
- Concern on market cooling: For many homeowners, their focus is to list their property as soon as possible for fear of a cooling market. While the market remains strong right now due to a lack of inventory, rising interest rates are forcing homes to stay on the market much longer than they were a year or two ago. In fact, properties that need more than $50,000 of work done to them in repairs are staying on the market far longer than expected because buyers are either unable or unwilling to cover the costs because they will be paying so much more on the interest for the loan and that limits their funds for renovations to the property.
- No tax credits: Depending on the work that needs to be done, there are some cases where the homeowner may benefit from making the renovations themselves, especially when it comes to tax credits and breaks. Adding new windows or upgrading the roof can increase the number of breaks you get when you file your taxes, and the work can be counted as a deduction if you sell the property and need to show that you did not make as large a profit when it comes to tax season. However, if the work will not benefit you when it comes to taxes, the expenses may be more than a homeowner is willing to spend, especially in cases where it is their primary residence and they are tax exempt for more than the profit margin will be.
Whenever you are selling a property and you are debating on whether or not to do renovations, it’s a good idea to ask a contractor to give you an estimate on the work that needs to be done. You should never guess what the costs and timeframe will be as it’s always better to have real numbers to work off of. In some cases, what you think will cost $10,000 to fix may cost half that or twice that, but you do not want to make any decisions without having that information first.
Another person to consult with before making a decision will be your realtor. They can take into account your personal options as well as what’s needed for the property. While they understand that the renovations needed will increase the value of the property, he or she will be able to help you determine if it’s a good idea based on the current market, time of the year, any tax breaks you may be eligible for as well as if you will get a fair return on the investments you make for renovations.