How to Update Your Home, Part 2

How to Update Your Home, Part 2

So you’ve decided to do some home improvement, now where do you start?

First and foremost is the financial feasibility.

It doesn’t do you any good to invest $30,000 in a complete kitchen and bath remodel if it will only net you and extra $10,000 on the selling price. Historically, kitchens and bathrooms offer the highest return on your investment. Investing $10,000 on new kitchen countertops will go much farther than $10,000 worth of landscaping in the backyard.

We suggest using a conservative approach to figuring your upgrade budget—we do not recommend targeting the “High” price per sq ft. If you end up getting it…great! Just don’t assume you will—there are too many other factors and variables that will affect how soon you will sell your house and for what price. Using our $200,000 purchase example from Part 1, a “High” comp would value your house at $240,000. I would recommend using approximately $225,000 as a target price, giving you a $15,000 potential upside and greater flexibility to negotiate selling price and cover professional fees.

We recommend approaching this project this way:

  • $200,000 purchase price
  • $13,500 professional fees (6% commission of $225,000)
  • $3,500 closing costs
  • $217,000 break-even

After discussion with your real estate agent, you determine that $4,000 in paint and flooring would easily justify $113 per sq foot giving you a target price of $226,000. If you sold the house for that price, you would make a nice profit of $5,000. Another option would be a more extensive plan, say one requiring $15,000 in upgrades, which may yield $117 per sq ft for a target price of $234,000. Under this scenario, your profit would only be $2,000! Although this is a hypothetical situation, we have seen this play out for real many times…you absolutely need to sit down with one of our network agents and work through this. More is not always better!

Another component is when to do the work, and who to do it.

There’s a lot to be said about “sweat equity”—performing the work yourself can save you thousands. For example, replacing a laminate floor with ceramic tile is a great upgrade. But in most parts of the country, you can figure on the labor being THREE TIMES the cost of the product (a $2000 job being $500 of materials, $1500 in labor).

Most home improvement stores, like Lowe’s and Home Depot, offer free classes on how to do many home projects. So installing a $2,000 floor for $500 in materials and a little hard work can be a great upgrade and give you quite a bang for your buck! Likewise, paint can be a great upgrade—not only does everything look better, but the smell gives the potential buyer a strong impression of an updated home. But be forewarned: a bad paint job is worse than no painting at all, so take your time and do it well!

In summary…

Pencil out the finances to start organizing your planning. We’ve all heard the horror stories of $10,000 projects that ended up costing $20,000! Also, work closely with your network real estate agent to determine the best possible asking price that will get you the quickest sale for the most money. If your asking price is too high, each month that passes without your home selling costs you even more! Read-on to Part 3!