The definition of economics is the allocation of scarce resources among competing alternatives. Whether we are conscious of it or not we all deal with economics every day. The scarce resources that bind all of us are time and money, there’s only 24 hours in a day and each of us has only a certain amount of money and access to debt. Our cash on hand and our ability to take on debt fluctuate throughout our lives, but at any one point in time the number is fixed and we need to decide how we will allocate the cash and debt to maximize our returns. Time, available cash, and debt are all critically important when it comes to preparing a house for the market.
There are times that we do nothing to prepare a house for the market. If a house needs everything, and the sellers and their agent do not have the resources and/or the desire to go through the hassle of putting in enough money to realize a justifiable return, then it makes no sense to invest time, money and resources into the property. In cases like this, we need to consider supply and demand. Is there demand for homes that need everything? Depending on the neighborhood 'yes', in the form of flippers and sometimes people looking to build sweat equity in their homes. We've all heard that finding the worst house in the best neighborhood is the best way to buy. Contractors who want to occupy a home for two years, redo it, and potentially realize a tax deduction on their capital gain are still present here in Marin, but I see less of those now than I did 20 years ago. Mostly there are flippers who just want to fix, flip and move onto the next property.
The more work we do to prepare a house for the market, the more it becomes appealing to the wider market and the more demand we potentially generate. The sweet spot for some homes is where you can do just enough cosmetically to attract more buyers, such as applying fresh paint, refinished flooring, fixing minor defects and staging the home, while still appealing to people who might want to do everything. In such instances it’s not unusual for someone to come in and repaint, choose new flooring, and either right away or eventually redo everything in the house.
Then there are the homes where everything is either already done, or the sellers and their agent decide they want to redo everything. These homes often have a premium in our wealthy Marin market. If everything isn’t done, the economic choice to do everything is a difficult one. How much time is it going to take? Home much money are you going to make? What is the time value of that money and the opportunity cost of using it? One of the advantages an existing homeowner has over a flipper when making this decision is that they will only need to put out the money for the remodel, vs. the flipper who will need to buy the house first, and also have the money to do the remodel. They’ll need to get the property at a price where they can create an attractive margin with their work. The main advantage a flipper has over a homeowner is that this is their business. They have the resources and likely can get the work done for less money and in less time, plus they are used to the process and associated stresses. Timing is critical for flippers because every day they own that house costs them money. Every day an existing homeowner owns the home likely costs them a considerably less, unless they are underwater.
It's the job of the Realtor to help guide their clients through the economic maze of selling their home. Realtors are professionals, and getting professional guidance in any aspect of life can be crucial to making the right choices. Lots of people know a lot about real estate, but arguably nobody knows more than the people who do it for a living. If you are planning to sell your home, talk to a good Realtor.