When the Numbers Don't Add Up

By now I expect that most sellers have heard that buyers expect the homes they are purchasing to be in good, if not excellent, condition.  I have shown homes recently where the fact that the homes were not in good condition appeared to be reflected in the asking price.  The specific homes of which I am thinking were each 15-20% below comps. 

In each of these cases, despite the fact that they loved the neighborhoods and the floor plans of the homes, my clients opted not to write offers.

Neither of these clients were naive about house prices, remodeling expenses or comparables. Each was going through a divorce and hoped to get in low and was willing to put some time and money in to make the numbers work. The problem was that the numbers did not work for either of these houses.

What I am seeing is that there are a number of properties that have gotten so behind on their maintenance that it is almost impossible to bring them up to market standards without the cost of improvements and the property costs together exceeding the neighborhood comps.

These homes are in nice neighborhoods where other homes have been well maintained.  Because the owners could not afford routine maintenance, and in some cases improvements that were virtually standard in their neighborhoods, the homes will require almost a complete overhaul.

One specific situation I saw last week; I had my husband, a contractor, do a 'realistic' estimate of what it would take to get the house up to standards of the neighborhood (remember, he has no interest in padding this--he would want me to make the sale, if it was the right thing for my client). This included doing a mid-range kitchen remodel, updating baths and replace flooring. The windows had broken seals, the skylights appeared to be leaking. The roof needed to be replaced (cedar shake), there were MAJOR drainage issues, the deck had not been maintained. There was a lot of dry-rot, the house had cedar siding that probably needed to be stained.  Just to do these things--conservatively--his estimate was $150,000.  This included a small pad for things we could not see behind the walls. It did not include finishing the basement, which is a fairly standard feature of homes in our area.

Right next door a house was listed for $150,000 more.  It was in beautiful shape. It had a finished basement, and updated kitchen and appeared to be well maintained. By the time we were done looking at the two, my client was interested in the 2nd, even after visiting the 1st several times over 4 months.

Okay, I know you don't have to offer full price.  I am sure the price on house one is very negotiable.  But you know what, so is the price on house 2!  There comes a point where the client sees that a year or so of remodeling comes with a high cost and a lot of unknown angst and potential expense. 

It looks like there are some good opportunities out there for buyers who are handy and patient. In the meantime, if you are a seller and plan to list your house, make sure you take care of what ever maintenance you can handle and afford. It will help you sell in the long run. If a buyer can't make the numbers work for your house, you are going to have hard time selling it!

 

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Comment balloon 1 commentHolly Weatherwax • February 11 2008 12:00PM

Comments

There is no doubt that a little TLC is one thing but when it requires a lot of work most buyers simply don't have the time or energy to live through a major remodel these days!
Posted by Diane Aurit, Lake Norman Real Estate (LKN Realty, LLC) over 10 years ago

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