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Thursday, February 22, 2024

Five Times When You Shouldn’t Renovate Your House Before Selling


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Selling a house can be a bit of an emotional roller coaster: When we sell our homes, we worry about who we’re selling to and whether they’ll appreciate its quirks the way we did, but we also want to make as much cash as possible from the sale. No one wants to think they left money on the table. That’s why we’re commonly advised to put some work into a house before selling. From simple paint jobs to larger remodeling projects, the theory is simple enough: A new, updated house will sell faster than a dingy, broken-down, as-is house. It’s easy to be seduced into investing large sums of money into a house you’re leaving behind, but it doesn’t always make sense. There are several instances where it’s just not worth it to fix up your house before putting it up for sale.

When the ROI is low

The most compelling reason to skip all the projects and just sell your home as-is comes down to the potential return on investment (ROI), which is the amount of money you can expect to get back in the form of increased home value. In general, very few renovations or remodels actually pay for themselves—only a handful of projects get an ROI of 100% or more, which means you’re very likely to lose money. If you remodel your kitchen to make it new and gorgeous and you only get a 40% ROI from it when you sell the house, you actually lost money.

Every home and neighborhood is different, of course. Calculating the ROI of a renovation or repair depends on many factors. If you can do a lot of the labor yourself and can get the work done much more cheaply, you might push that ROI up over 100%. If the comparable homes in your area all have brand-new kitchens, a remodel might be worth it even at a lower ROI because otherwise your house might languish for months on the market. But if your goal with a remodel is to pump up the sale price, you probably won’t actually increase your profits from the sale.

When there’s nothing wrong

If your house is fundamentally sound—the infrastructure (heating, cooling, plumbing, electrical, roof system, etc.) is in solid shape—and the only upgrades you would apply are aesthetic in nature, it’s probably not worth sinking significant time and money into upgrades. That’s because the people who buy your house are likely to do their own remodel according to their tastes—more than 90% of homebuyers do some level of renovation and remodeling after they buy the house. That means you could invest in a new kitchen that the buyers will simply rip out and replace anyway.

When inventory is low

Inventory in real estate simply refers to the number of available properties for sale. When inventory is high, there are a lot of homes for sale and as a result, it’s a buyer’s market—house hunters have a lot of power, because they have a lot of choices. When inventory is low, it’s a seller’s market, because buyers wind up bidding against each other for the few homes that are for sale, driving up prices.

If your area is a seller’s market, you can probably skip almost all renovations and repairs, because buyers will be motivated and you’ll get top dollar for the house without lifting a finger. You can figure out the current inventory levels in your neighborhood with a simple calculation: Add up the number of houses for sale in the last month and divide that by the number of houses sold. The number you get is how many months of inventory. For example, if there were 75 houses for sale in the last 30 days and 40 home sales, the inventory is 75 / 40 = 1.8, or just under two months of inventory.

Anything less than four would be a seller’s market, and the lower that number, the more advantage you have.

When you’re short on time—or cash

Remodels and renovations take time. If you need to sell your home quickly, it probably doesn’t make sense to attempt them; no renovation project goes according to schedule, and the average home renovation takes a whopping 79 days on average. If you need to sell your house sooner rather than later (because you need to relocate for a job, or because you’re under financial stress), adding a delay of nearly three months—not counting the time to find a contractor and actually get them to start work—isn’t going to work.

On the other hand, if you’re low on cash and do a partial renovation or remodel to save money—replacing some aspects of the house but leaving others as-is—you risk making the house seem less valuable. A home with old vibes but that’s in good shape typically shows better than a home with a few brand-new, trendy things amidst a bunch of worn, old materials.

If the house is unlivable

It might seem counter-intuitive, but if your current home is severely damaged and basically unlivable, it’s almost certainly not worth it to fix up just to sell it. The investment of time and money to bring the house back to a livable state will almost certainly yield a ROI of less than 100%. Selling a house in that condition will necessarily limit your potential buyers, of course—most people won’t be able to get mortgages for homes in very poor repair, so most offers will come from investors more interested in the property than the structure, and repairs won’t move the needle much for them.

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