Presale Renovations with the Best ROI

BY MICHELE LERNER

One of the most delicate, diplomatic moments for Realtors® to navigate can occur during their listing presentation, when it’s time to have the talk about a property’s condition. Very few sellers want to hear that their home needs a thorough cleaning or a fresh coat of paint, much less that they need to spend thousands on a property they’re about to leave. On the other end of the spectrum, a handful of sellers may have watched so much HGTV that they think they need to upgrade their entire house before putting it on the market.

What should be done and how much should be spent depends on the property, its location, and market conditions, which is why a Realtor® ’s opinion is essential to presale preparations.

“You need to tour the listing to see what really needs to be done to get the most money without spending too much,” says Kevin Yento, a Realtor® with Coldwell Banker Realty in Bedminster and Bridgewater.

Professional cleaning and staging are the most important actions to take, says Yento. After that, a lot depends on the timing and goals of the homeowners.

“If they’re selling now and the market is hot, you just clean and paint,” says Yento. “If you’re thinking of selling next year and you’re more concerned about getting more money, then you can think about doing a little more.”

If the home you’re listing needs repairs that could be flagged on a home inspection, it probably makes sense to take care of those upfront.

“Realtors® know many of the minor repairs that homeowners will need to make anyway after a home inspection, so it makes sense to do those first,” says Kathleen Kuhn, president and CEO of HouseMaster Home Inspections, a home inspection franchise brand in the U.S. and Canada, based in Somerset. “It may cost twice as much to take care of something after the home inspection to meet the buyers’ requests, so it’s better to do it first.”

Home Improvements and ROI

Remodeling projects are notorious for having a negative return on investment, especially for homeowners planning to sell their property. Renovating a home to live in brings the satisfaction of a new space that matches the homeowners’ lifestyle, so even if they don’t get a 100 percent return on their investment when they eventually sell, they at least have had the enjoyment of using their new space or features.

For sellers, whether a renovation is worthwhile depends on the sales price of the home, how quickly it sells and the cost of the project. Even if spending $10,000 on a home improvement doesn’t garner a $10,000 higher sales price, it could mean the difference between selling in a few days, a few months or not at all.

“The only project in our analysis of home improvements that has an ROI above 100 percent is a garage door replacement, which costs an average of $3,791 and adds an average of $4,031 in resale value,” says Max Anderson, director of product at Porch, a home services company based in Seattle.

In the New York, New Jersey and Pennsylvania region, Porch’s analysis found that the improvements with the highest ROI besides a garage door replacement include adding stone veneer, replacing siding, a minor kitchen remodel, a deck addition, replacing the windows and replacing the front door.

“The equation depends on how much something costs as well as what a buyer will pay for it,” says Anderson. “So, for example, a minor kitchen remodel will get an 80 percent ROI, while a bathroom renovation gets a 63 percent ROI. A homeowner may want to look at upgrading the kitchen a little rather than the bathroom if they don’t want to do both.”

Generally, Anderson says, big home improvements aren’t recommended before a sale.

“It’s best to focus on staging, inexpensive landscaping improvements and curb appeal,” he says. “After that, you may want your kitchen to look updated, but you don’t want to spend too much money on it.”

According to a recent study by Lending Tree, home sellers expect to spend an average of $10,000 upgrading their homes before listing it. The study found that the top projects homeowners have done or plan to do before selling include fresh interior paint (planned by 80 percent), a bathroom upgrade (72 percent), improving the landscape (72 percent), fresh exterior paint (67 percent), new kitchen appliances (65 percent) and replacing the floor or carpet (64 percent).

“I always suggest that sellers do the bare minimum that will bring them the biggest bang for the buck,” says Daren Sautter, a Realtor® with Long & Foster Real Estate in Cherry Hill. “If you do bigger projects, whatever you do may be wrong in the eyes of buyers.”

Exterior Improvements to Suggest

Encouraging homeowners to look at their property with the eyes of an investor can help them see what needs to be done and what doesn’t, says John T. Swartz, a Realtor® with RE/ MAX Community in Williamstown.

“Getting your house ready to sell is like getting ready for a date,” says Swartz. “You comb your hair, shower and put on a pressed shirt. Same thing with a house, you put flowers in pots, upgrade the front door light, power wash the house and clean the gutters.”

Yento recommends adding mulch or stones to the yard and washing the windows. “If the front door leaks, then it needs to be replaced, but otherwise I suggest painting it black,” Yento says.

Fix loose paving stones and walkways, suggests Kuhn, and check the porch, patio and deck.

“Anything that slopes towards the house can cause moisture and structural damage inside,” says Kuhn. “A shaky deck needs to be tightened because that could be a hazard and the buyers will want it fixed after an inspection.”

Replacing or repairing roof flashing can be an inexpensive repair that prevents roof leaks, Kuhn says.

Interior Improvements with Highest ROI

Inside, every recommendation should be made on a case-bycase basis but painting and taking out wallpaper usually make the biggest difference for the least amount of money, says Sautter.

“You can also change out the hardware in your kitchen and bathrooms to make them look a little more contemporary,” he says. “Painting everything a nice neutral color like Benjamin Moore ‘Edgecomb Gray’ with the moldings and trim painted white perks up older homes.”

Sautter recommends painting the walls of an unfinished basement and a garage white and the floors a soft grey, which gives buyers a sense that the space is usable.

Cleaning or replacing grout and caulking around sinks, tubs and showers can help a property look fresher without the expense of major upgrades, says Yento.

“Painting is by far the cheapest way to get the highest ROI and you can even use paint to get rid of odors in a house,” Yento says. “If a house has strong cooking odors, I tell the homeowners to stop cooking for two weeks or to move out. Buyers run away from a house that smells.”

Kuhn suggests replacing burned out light bulbs and replacing older light fixtures with inexpensive new ones.

“You can also add extra outlets and switch old outlets to new three-prong outlets at a cost of $100 or so per outlet,” Kuhn says. “Seeing a lot of extension cords and old outlets is a big turnoff to buyers.”

Kitchen improvements can be tricky, says Swartz. “An updated kitchen with stainless-steel appliances, granite or quartz counters and a tile backsplash can get $20,000 or $30,000 more than a house with an older kitchen, but you don’t want to overspend,” Swartz says. “Just paint the cabinets or reface them rather than replace them, change the trim and get a stainless-steel appliance package at Lowes that looks high end but isn’t too expensive.”

Changing the counters or the fixtures can be another way to upgrade the kitchen’s appearance without a complete overhaul, says Kuhn.

Presale Mistakes

Over improving and overspending are the biggest mistakes sellers make. “I think spending thousands to put in a blacktop to replace a crushed stone driveway is a big waste of money,” says Yento. “It also doesn’t make sense to replace a roof or an HVAC system as long as they work.”

Yento also says that sellers shouldn’t offer a credit to replace something upfront. He recommends waiting for the buyers to ask for a credit, particularly in a strong sellers’ market.

“Unless they’re hideous, I don’t recommend putting the money into replacing floors,” says Sautter. “People want hardwood or luxury vinyl tiles, but it may be the wrong color for someone’s taste.”

Do it yourself projects can also backfire. “One couple did a terrible job refinishing about 4,000 square feet of floors,” says Swartz. “They were proud of themselves, but the quality

looked bad. In that case, they either need to bring in a contractor to spend money to fix it or lower the price.”

Selling ‘As-Is’

While sellers may be tempted to sell “as-is” and not bother with improvements, that decision always depends on market dynamics.

“If the going rate for a house is $515,000 and your house is worth about $470,000 but it would take $60,000 to get it in good shape then it may not be worth fixing,” says Swartz. “If you could spend $5,000 to $10,000 to get it marketable, then it would be worth doing.”

One option is to provide 3D renderings of potential upgrades to buyers that show what the space could look like and approximately how much the improvements would cost, says Sautter.

“You can offer a credit of $10,000 or $15,000 to buyers instead of doing the work yourself,” Sautter says.

Presale Renovation Specialists

Multiple companies and brokerages now offer a new way to prep a house for the market: coordinating and paying for renovations upfront, with the sellers reimbursing the company at the closing. For example, Curbio, Compass Concierge and RealVitalize all work with sellers to provide home improvement recommendations, contractors and financing.

“RealVitalize is a partnership between Coldwell Banker and HomeAdvisor to connect the agent or seller with a HomeAdvisor consultant to determine the appropriate scope of the project and pricing,” says Sue Yannaccone, regional executive vice president of Coldwell Banker Realty for the Eastern Seaboard and Midwest regions. “We can look at what’s popular in different markets and then the contractors can work quickly and professionally to fix or replace features in the home.”

Postponing payment for the items means that sellers can avoid spending cash that they need for their next home purchase, says Yannaccone. RealVitalize can be used at any point during the transaction, including for post inspection repairs.

“It’s important for sellers to put themselves in their buyers’ minds,” says Yannaccone. “Buyers want to be able to move more quickly and don’t want to have to deal with some things. Think about where the buyers want to spend money and what they’d rather have done for them. For instance, maybe they prefer to replace the carpet with their own choice of color but having the garage door replaced is great because that’s about as exciting as replacing your tires.”