If you’re sitting on a property that’s more than five years overdue for a renovation, it may be a difficult decision on whether to invest the money in renovating it or selling it as a fixer-upper in this value-driven market. We thought we’d pitch in some ideas on how to make this decision.
On the pro-renovation side of the argument, contractor costs are off as much as 20-30% from peak, making today the most cost effective time in years to freshen up your home. With renovation spending down significantly in NYC (as well as country-wide), supply has outstripped demand, creating a downward pressure on prices. A few well-spent thousand dollars could make your property more competitive as inventory picks back up heading into the summer.
The argument against renovating the apartment is that many buyers in the market today are looking for a value play. The likelihood that they will fall in love with your particular kitchen, bathroom or all-in renovations is a hit or miss. They may well rather purchase the property as a fixer-upper and renovate it to their own tastes.
Some other food for thought … we see some correlation between the size of the apartment and the need to renovate. Here is our theory:
- The smaller the apartment, the greater the chance that the natural buyer is a first-timer. To us this means that the last thing (s)he wants to do is take advantage of low interest rates and a depressed market to finally make that purchase, only to spend more money out of pocket to renovate it (plus limited financing is making it harder for buyers to find the money for these renovations). Most first time home buyers want the property to be move-in ready, with minimal, if any, touchups required. As such, if you’re sitting on a studio or 1-bedroom, a renovation may well be the difference between selling now or later.
- In the 3- or 4-bedroom segment, however, you’re most likely dealing with families as the natural buyer. This generally means particular needs in terms of layouts, kitchen or bathroom preferences, or even a room with a separate entrance for the nanny. (Let’s not forget that renovation costs will also be more significant for a larger space). As families can’t move at the drop of a dime as easily as can individuals or couples, they most likely have more flexibility in terms of living situation, meaning they have the time to make the necessary changes to the home that would best match their needs. Add to this that 3-4 bedroom inventory tends to be minimal to begin with, and the argument goes even further.
Now, of course, this lovely theory goes out the door depending on the specific competition in your building or the true comparables in your neighborhood. If your apartment is unique, then you may need to do less to move it. If, on the other hand, 3 competing apartments exist in your building at similar price-points but more updated, then the decision is largely made for you unless you’re willing to significantly undercut the pricing of the other units.
{ 3 comments… read them below or add one }
From what I’ve seen and heard, unless you know what your buyer is wanting, you cannot renovate to their specifications. Therefore, I consider it better to let the buyer renovate the apartment how (s)he sees fit. First-off, one can rarely cover the cost of full renovations in a sale, especially if those renovations occurred near the time of sale. Of course, HGTV would beg to differ, but unless you can do it yourself OR have a TV show do it for you, I believe it is better to price to sell rather than put upfront costs into something that may not have a good return on investment payback.
Per Renovation magazine:
Remodeling costs recouped, by project and year:
2005 2008
Upscale siding replacement
103.6%
86.7%
Bathroom remodel (midrange)
102.2%
63.5%
Minor kitchen remodel
98.5%
79.5%
Major kitchen remodel (midrange)
91.0%
76.0%
Major kitchen remodel (upscale)
84.8%
70.7%
Master suite addition (midrange)
82.4%
66.0%
Source: Remodeling magazine
VERY helpful addition, Jamal. Are these market specific (i.e. California, East Coast) or generic? Am assuming the latter … just had to ask.