I was out showing property this past week to buyers who are seeking a "fixer-upper". They've asked a lot of very good questions about how to determine a home's value during and after a renovation. Their questions and my experiences this past week influenced my BLOG today.
When you're evaluating a home that has been renovated one or more times, there are many ways to proceed. Establishing the value placed on a renovation requires some knowledge of current market statistics and conditions as well as experience in the current housing market with distressed and renovated properties as well as the typical resale.
Realtor's, Home Inspectors and often Appraisers can be valuable resources when considering whether the home you're about to purchase is priced appropriately. These professionals have seen many homes of all descriptions and conditions -- every week, every month during the year. Typically they have a good feel for the market and condition of a home with a keen perspective of the overall cash outlay.
Often, the potential buyer will also be considering a renovation of their own by purchasing a "fixer-upper" property. Understanding what has been done to the property already will be useful in determining the direction and scope of work necessary.
My experience is that most buyers severely under-estimate the financial expense involved in fixing and repairing a property to bring it to a "habitable" condition. Renovations can be very expensive, time consuming and incredibly inconvenient to the homeowner while they are being achieved. As if that isn't enough trauma, many people are not prepared for what I call the "domino effect" of one repair leading to another and another that weren't expected. Buyers who are not prepared for this suffer incredible stress in their lives and relationships, as the costs seemingly skyrocket out of control. Then, the overall cost for the project, their relationships and the cost of the stress involved is impossible to calculate.
While the renovation may improve the value and enjoyment of the home, a deeper understanding of the market (and a certain degree of luck) combine to ensure that the sale price of the home will cover or exceed the cost of the renovation without pricing the property out of it's neighborhood.
The fundamental hope is that the financial investment put into a renovation will reap an eventual reward of an increased sales price in the next sale. Often a renovation is needed to simply bring a home up to the value and standards of other homes in the neighborhood. Conversely, some homes have not been maintained adequately and are sorely in need of basic TLC.
Completing major renovations to put a home on the market may be attractive if the buyer is seeking to "flip the home" -- that is buying an under-valued property, repairing it and selling it as a profit. However, homeowners that are simply improving their own living space frequently run the risk of going over budget or over-valuing the work.
The challenge in evaluating a renovation is understanding that balancing act between the end result - what was achieved, how it was achieved, by whom the work was completed, and with what materials. The budget, time and inconvenience, and the enjoyment of the renovation -- along with understanding the market and the scope of the renovation all become part of the equation in determining its worth.
Suffice it to say, purchasing a home needing renovations is not for the faint of heart and it is definitely not for beginners! Join us tomorrow when we discuss "scope of work".
Sara Hibbard a licensed Realtor in the state of Georgia. Sara works with distressed properties and has achieved the REOS and CDPE designations. Call Sara with your many questions regarding the Atlanta metro real estate market in general or specifics regarding the relocation / selling / buying process. Sara is easily reachable at 404-660-2481 or via e-mail at sara.hibbard@metrobrokers.com. Sara Hibbard is Glad Georgia Real Estate is on Your Mind!
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