Howdy folks! I hope everyone has been well since my last post. It’s been a crazy end of summer as we hit the streets hard with buyers looking for those end of summer deals before the fall rush hits. Now that I have a second to breath I wanted to touch base on something that came up in the past month that I call the curse of the over improvement. I want to make sure you don’t become the victim of this or the creator of it after your home purchase.
Updated turn key homes are all the buzz these days especially with first time home buyers who just don’t have the cash on hand to finance any sort of major renovations. That’s all well and good but it’s important when you’re looking at these turn key homes you’re keeping a close eye on the market and make sure the home isn’t improved so much that you are too far ahead of the market in home value.
Sellers will tell you “Oh don’t worry about it, you’ll be protected by the appraisal” or “We’re sure that these improvements will stand up to the market” etc but don’t let that cloud your judgement. It’s all about the numbers and your goals for your home purchase.
On average folks are moving every 5-7 years these days, especially first time home buyers who will be looking for that move-up home. With a 5 year turn around it’s extremely important you understand your position in the market by going over comparable properties with your Realtor®.
Let’s put this into perspective by using an example. Say you’re looking in a neighborhood that was built in the 90s and most homes still have the original finishes with minor cosmetic updates but you come across a beautiful listing with a totally redone kitchen, new floors throughout, and beautiful drop dead gorgeous bathrooms. Any buyer would hands down love to choose this over the other slightly updated listings but the problem is it’s listed 30-40k ahead of the most recently sold comps in the neighborhood. So what now?
While you will easily be able to see where that extra value is coming from, it may be hard to justify the entire price increase especially if the market in the area has been flat over the past few years. The sellers will pull out their “You’ll be protected by appraisal” line which is true but not the be all end all to your goals on your home purchase.
If this is your first home purchase and you expect to be moving in 5 years or less, while you don’t have to put any money into it yourself, when you go to sell you’ll largely be relying on other homeowners in the area to undertake comparable level of updates for home values to bring the market up to the break even point for you, and let’s not forget you’ll now be contributing ware and tear on all those new updates.
So what’s a buyer to do in this case? Of course your Realtor® will work their hardest to negotiate the price down to a more favorable position in the market for you but sometimes you simply have to walk away. Sellers who put a lot of work into their homes will be emotional about it and understandably want to get as much out of it as possible. The seller will likely also understand that they may be able to get the price they are looking for if they just wait for the right buyer to come along. While market position and resale is very important for a first time home buyer, consider if an empty nester comes along who is looking for their last settle down home. They will be in a much better position to pay closer to what the seller is asking allowing the market plenty of time to catch up to them.
Next week we will flip roles and talk about how you should approach your home improvement projects once you get your first home to make sure you don’t find yourself limiting your pool of buyers on the back end.
Remember, this is all about you. Buying a home is a completely unique and individual experience for everyone and every opportunity will be a little different. The most important part is to set clear goals for what you’re looking for and stick to it.