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March 18, 2017October 20, 2020

Misguided house makeover

Do you really need to spend money to make money? Deciding what renovations and updates to make prior to your home sale can be tormenting. It’s easy enough to say that your home needs a facelift; but, the repairs, updates, and painting costs money – and usually lots of it. The suggestion of making renovations and updates to your home before you sell is everywhere, it’s on TV, the internet, and magazines. And if you ask friends and real estate agents, they will also give you a list of “must do’s.” Regardless of how you decide to do a house makeover before the sale, chances are that you’re not doing it right.

There is no doubt that many home buyers are looking for a turn-key home. If your home is not “out of the box brand new,” you probably need to freshen it up, as well as make some repairs and updates. But before you embark on the house makeover by making those renovations, you need to ask yourself two important questions: “How much money can I realistically allot for a makeover?” and “How much am I expecting to net from my home sale?”

Does a house makeover really get you top dollar? Spending money on renovations will certainly make the home sell faster, but not necessarily make you more money. And there is no guarantee that the house makeover renovations you make are to home buyers’ tastes. So if you’re goal is to get top dollar, don’t look at the sale price. Instead keep your eye on your estimated net (the amount you’re left with after the sale minus total renovation costs).

Of course, the best way to maintain your home’s value is to perform regular maintenance. It would certainly make the home prep easier too! But the reality is that many home owners defer maintenance until they feel it’s absolutely necessary. Deferring maintenance can actually cost more in repairs down the line, and lower your home sale price. Spending money to correct all the years of neglected repairs and updates prior to the home sale won’t necessarily get you top dollar.

Not all buyers are looking for renovated homes. One of Stephen B. Billings conclusions in his recent research (Hedonic Amenity Valuation and Housing Renovations; Real Estate Economics; Fall 2015, 43:652-82) was that during the past “healthy” housing market, there was a balance between renovated and non-renovated homes that sold. However, he also found there was an increase in renovated home sales during the housing downturn of 2007.

Selling your home “as-is” would certainly decrease your sale price, but could net you the same or even more if weighed against extensive renovations of the house makeover. Consider that you would only recoup a fraction of the cost of a minor kitchen and bathroom remodel; which averages about $20,122 and $17,908 respectively (according to 2016 Cost vs Value Report; remodeling.hw.net).

Concentrate on the basics of decluttering first. Decluttering can make your home look different and feel larger. Decluttering can set the stage for fo you decide on renovations, and maybe even home staging.

If you decide on freshening up your home before the sale, start with the basics. Focus on deferred maintenance, and make necessary repairs. Consider a fresh coat of paint, and maybe new carpets. Wood floors don’t necessarily have to be replaced or sanded; flooring professionals use state of the art processes to “renew” wood floors.

If you decide on a house makeover, focus first on making repairs and freshening your home. Work out a budget and get several quotes from licensed contractors. Don’t automatically go for the cheapest quote, even if you’re on a tight budget. Focus on quality, even if it means limiting the scope of work. Poor workmanship can sabotage your home sale by making your home look shabby and in need of additional repairs and updates.

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

January 6, 2017November 23, 2021

Greedy home seller tips

Don't be a greedy home seller — Pricing Strategy for a Home Sale (infographic from forsalebyowner.com)

When there is a buzz about home sellers being greedy, you know home sales are doing well. So, not surprisingly, along with last year’s record home sales came the reports of greedy home sellers. Are you a greedy home seller? Or are you adjusting to a market where home prices are increasing?

Greed has developed a bad rap. Surely there is an evolutionary basis for greed. Many believe that early hominids promoted personal and group survival by being “greedy” (although disputed by some). Those who hoarded food, so as to have more than enough, lived through difficult winters and droughts. During times of financial prosperity, greed is looked upon favorably. However, in the aftermath of a recession, greed is thought of as the basis for fiscal calamity. Immortalized in Gordon Geckko’s famous “greed is good” speech in the 1987 movie Wall Street, “greed” is a cinematic vehicle to show the fine line between a healthy desire to prosper and a corrupt drive to have more than enough.

Avoid being viewed as a greedy home seller by creating a realistic pricing strategy. Creating a pricing strategy is an art and a science. When selling a home, you have to determine the list price. There are many factors to consider besides recent neighborhood sales, such as condition of your home, sales trends, mortgage interest rates, economic trends, etc. Like other home sellers, you fall into a conundrum. If you price your home too high, then it will limit potential home buyers who visit. However, if you price your home too low to increase home buyer interest, you may not get the price you want.

Contrary to some assertions that a home’s list price doesn’t play a role in the sale, there is evidence to suggest that it really does matter. Lu Han and William C. Strange determined that a lower list price does increase home buyer visits – but only to a point (What is the Role of the Asking Price for a House? University of Toronto, Rotman School of Management; 2012). They concluded that there is a point at which the home price is perceived to attract too much buyer competition, which may turn off other home buyers. Furthermore, their data shows that there is a negative relationship between a list price and the number of home buyers: meaning that the higher the list price relative to the neighborhood, the lower number of home buyer visits, and vice-versa.

If you fear being a greedy home seller by asking for a high price for your home, there is research to suggest that you’ll let go of the greed in order to make a deal. A 2013 study by Nuno T. Magessi and Luis Antunes looked at how the emotions of fear and greed compete internally (Agent’s fear monitors the spread of greed in a social network; Proceedings of the 11th European Workshop on Multi‐Agent Systems EUMAS, 12-13). They concluded that greed is mitigated by the fear of loss within the confines of a social network. When applied to a home sale, the fear of not selling a home competes with the impulse to hold out for the high price. Deducing further, there is a need to fit within one’s social network by trying to sell a home for the most money, and yet avoid the stigma of a failed home sale.

Don’t be a greedy home seller. RealtorMag described three common home seller mistakes in a 2015 post (3 Mistakes Sellers Often Make; realtormag.realtor.org; April 12, 2015). Included were “Not being honest with the home’s history,” “Not making a better home presentation,” and “Being unrealistic about the home’s value.” About unrealistic home value, it was said:

“…Despite tight inventories of homes for-sale in many markets, sellers still need to be careful not to get too greedy with their list price, say real estate professionals…Home owners tend to get a much lower price when they overprice a home at the onset and then drop the price several times. The longer the home lingers on a market, the more likely it will receive a deeper discount…”

If your home doesn’t sell, you must examine your pricing strategy. Was the price realistic, or were you too greedy?

Original published at https://dankrell.com/blog/2017/01/06/greedy-home-seller/

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August 19, 2016November 23, 2021

Home sale timing – sell for more

Everyone wants to know the future, especially when it comes to the home sale timing. Home sellers and buyers want to predict home prices. Home sellers want to know the best time to sell. While Home buyers want to know if they’re getting a good price. And apparently there may be a fairly reliable predictor to home prices, however it’s not what you think it is.

Several empirical studies have attempted to provide a methodology for predicting the housing market (home sale timing). Of course there is the familiar of forecasting real estate through divorce and premarital agreements. Back in 2013, the American Academy of Matrimonial Lawyer (AAML.org) issued a press release citing the increase of prenuptial agreements as sign of the improving economy. The increase in prenuptial agreements meant that people felt there was value in their assets. And this was meant to be a good sign in for housing market.

Of course there was also a spike in divorces that year, leading some to believe this to also be a good sign that people felt better about the economy because of their willingness to begin anew. But as University of Maryland sociologist Philip N. Cohen pointed out in his November 2015 blog post (Divorce rate plunge continues; familyinequality.wordpress.com) the increased divorce activity of 2013 was a just a recession related “bump” and in actuality the divorce rate decreased in 2014.

Then there was predicting housing through internet search data, which sounds more like fortune-telling than research to be honest. However, Beracha and Wintoki (Forecasting Residential Real Estate Price Changes from Online Search Activity; The Journal of Real Estate Research 35.3 (2013): 283-312.) concluded that, indeed, you can gauge regional housing trends through specific keyword search volume. Given this method, I used Google Trends to look up the keyword “home for sale” for the Washington DC metro region – and it is bound to become a hot market in the next six months (maybe a Presidential election has something to do with that?).

But a better indicator of where home prices will go may be the availability of credit. Most would argue that mortgage lending is a matter of housing demand. However, a working paper by Manuel Adelino, Antoinette Schoar, and Felipe Severino (Credit Supply and House Prices: Evidence from Mortgage Market Segmentation; February 19, 2014) concluded that “easy credit supply leads to an increase in house prices.” They contend that higher conforming loan limits and low interest rates benefit home sellers in the form of higher sale prices.

Adelino, Schoar, and Severino’s premise can be witnessed in hindsight as the pre-recession housing boom seemed to be fueled on easy credit. As credit became increasingly available, home value appreciation took off. Likewise, housing stabilized and home values appreciated post-recession as home lending requirements loosened.

Of course, many associate easy credit policies with recessions, and even the Great Depression. However, it’s not necessarily the easy credit that precipitates the recession – but rather it’s the tightening of credit. Stephen Gandel (This is When You’ll Know it’s Time to Panic About a Recession; fortune.com; March 8,2016) said it succinctly, “Tightening credit doesn’t always lead to a recession. But every recession starts with that.”

One may infer from Adelino, Schoar, and Severino’s research that a home seller can gauge their home sale price based on the lending environment. Lower interest rates and loose credit points to a higher sale price. However, tightening credit policies may point to flat or even lower home prices.

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June 17, 2016December 6, 2019

Home owner savvy

The playwright Oscar Wilde must have been fond of the idiom “nowadays people know the price of everything and the value of nothing,” because he used it in back to back works; first in The Picture of Dorian Gray, and then a variation in Lady Windermere’s Fan. Today, corrupted forms of Wilde’s phrase are wrongly attributed or misquoted – but the point is well made. More psychologist then poet, Wilde seemed to characterize a core consumer behavioral trait of seeking short term gain vs long term value – which applies to home owner savvy!

Consumers in the 19^th century were much like consumers today, such that they sought out to get a bargain; often times overlooking the costs from which it comes by. And what may have been in Wilde’s time a conflation of price and value, is still common today – especially for home owners. While many home owners pride themselves on their frugality in home maintenance, they don’t realize the consequences of their poor choices when it comes time to sell their home. Home owner savvy is also knowing about value.

Today’s home owner’s frugality comes honestly as a result of the great recession. A McKinsey Global Institute consumer sentiment survey from a year and half ago sums it up in the title: America the frugal: US Consumer Sentiment Survey (Martinez, Motiwala, and Sher; mckinsey.com; December 2014). Martinez, Motiwala, and Sher wrote in their economic analysis that “…Multiple years of austerity have left consumers with altered views about spending. Almost 40 percent say they will probably never go back to their prerecession approach to buying…”

While looking to spend less on maintenance and home repairs, home owners often ignore the effects of their thriftiness on the long term maintenance costs of their home. Trying to spend less often means becoming reactive to maintenance issues, instead of proactive. Reactive maintenance typically means that the plumbing, electrical, or roof issue the owner is repairing, may have been an ongoing problem that may have also affected other systems of the home. However, proactive home maintenance is an ongoing process that can prevent minor problems from becoming costly major issues and is home owner savvy.

John Riha invoked Ben Franklin’s “An ounce of prevention is worth a pound of cure” when writing about home maintenance and house values (How Much Value Does Regular Maintenance Add to Your Home?; houselogic.com). He repeats a common theme that regular preventative maintenance doesn’t only save you money down the line, but can add to a home’s sale price. Riha quotes University of Connecticut and Syracuse University studies that implies the value of a regularly maintained home may increase by 1% a year!

Riha recommends a “proactive maintenance strategy” to help stay on top of necessary repairs and system replacements. He suggests saving 1% to 3% of a home’s cost for regular maintenance. To help keep it “interesting,” he suggests repairing and updating one room per year. If you are unsure where to begin, a home inspection may help identify areas of immediate concern; as well as develop a regular maintenance schedule. Also, keeping records of ongoing repairs and upgrades will cement in a home buyer’s mind the amount of care you had for your home.

Home owner savvy is not necessarily about being frugal with home maintenance, which is also not about knowing the price of everything; but in reality, diminish the value of their home. Regular home maintenance can not only keep you comfortable and safe through the year, it may help you sell your home faster and for more!

Original published at https://dankrell.com/blog/2016/06/17/home-owner-savvy/

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May 27, 2016December 13, 2022

Get top dollar for your home

The guarantee of “Getting top dollar for your home” is a theme in many real estate ads, as well as being promised by many agents. Of course the goal of every home owner is to get top dollar is the goal for every home seller! But why is this meme still prominent, and is it still meaningful?

What does “get top dollar” mean anyway? Getting top dollar on your sale may be relative to other home sales during the same period. Market conditions and timing are variables that may dictate your sales price; home sale prices are lower when home buyer demand wanes, as well as sales that occur during winter months. However, other influences on sale price include your home’s physical location and condition. For example, homes that sit on (or are in close proximity) to a main thoroughfare typically sell for less; as well as houses with deferred maintenance and a lack of updates.

Is “getting top dollar” just about listing at a high price? The key to a successful sale is pricing your home correctly. Proper pricing includes analyzing your local market, and comparing your home to the most recent neighborhood sales that are most similar to your home in style, size, age, and condition. Also, looking at market trends in three and six month segments will determine a seasonal effect.

How can you tell if your home sold for top dollar? Certainly if your house sells for more than others in the neighborhood, you might think you got “top dollar.” But if your neighbor sells immediately after you and sells for more; your claim to getting top dollar is now in jeopardy. There is also the home sale price conundrum: If your house sells fast with multiple offers, you might think that the list price was too low; However, if you price your home too high, you risk over pricing such that the house might languish on the market and miss the window of opportunity.

Maybe the promise of “getting top dollar” is just a marketing ploy by real estate agents to get your listing. A top complaint by home sellers is that their agent misled them; often citing the promise of a high sales price, only to be coerced into reducing and/or accepting a lower price at a later time. Regrettably, there are real estate agents who resort to questionable sales tactics to get business; and unfortunately, they learn these tactics from real estate trainers, and/or develop them on their own and share with other agents.

Maybe “getting top dollar” for your house is a metaphor for being satisfied. Although you might think you could be satisfied with just selling for a high price; customer satisfaction includes other factors too, including level of service. It has been determined that many consumers are less interested in hiring agents whose focus is about being “#1;” rather, consumers want to be treated as if they are “#1.”

Maybe “getting top dollar” is about your bottom line. Consider that many home buyers in today’s market are seeking “turnkey” homes, where they won’t have to worry about immediate maintenance issues – and some are willing to pay “top dollar” for such a home. Be honest about your home’s location, condition and features. Making some modifications can increase the sales price, however at a cost. A cost-benefit analysis of pre-listing repairs and updates may help you decide on the projects that will add to your sales net.

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