Better Prepared, Better Profits
The “Deal Killer”
5 Steps to “Max Sale” Prepare
- Remove It!
- Repair It!
- Clean It!
- Replace It!
- Stage It!
Summary / Conclusion
Your goal in preparing the property is to present it in the best possible light to the buyers, real estate agents, home inspectors and appraisers that will be evaluating the property. Preparing the property helps set value expectations and avoids potential problems.
Better Prepared = Better Profit $ For You
One vs Multiple offers…
Any amount of work required to attract two or more offers vs one offer usually makes a large difference in the final sales price. Even when surrounded by an abundance of inventory, it is human nature to want what others want, and that inclination can be leveraged to benefit the home seller. It is also human nature not to want to be “played” so working Multiple Counter Offers must be done very carefully (see “Sell It!” Section for details on this).
The Four “Property Category” Types:
|1. Distressed||3. Remodeled|
|2. "Normal"||4. New Construction|
There are subsets of each “Property Category” so the basic goal is to do what is necessary, what makes sense for the highest and best use of the property and what is within your budget to be at the highest category possible or at least at the top of a “lower category”.
Example: “Category Jumps”
Real estate investors make their money by purchasing a distressed property that are cluttered, run down and have some functional obsolescence then remodels property, cleans up yard, removes functional obsolescence (by adding another bedroom or bathroom, etc.) and sells the property in the “Remodeled” price category. Buyers that do not have the vision, capacity or ability to complete the remodel, but can qualify for financing to purchase the finished product are happy to pay the investor by way of a higher purchase price for their work performed in moving the property from the “Distressed” category to the “Remodeled” category.
So your goal as a home seller is to attract “Normal” or “Remodeled” buyers because their offers will be higher than investors looking to pay 65 - 70% of “ARV” (After Repair Value).
To accomplish that goal… follow the next three steps of 1. Remove It! 2. Repair It! 3. Replace It!
4. Clean It! 5. Stage It!
But first… understand and avoid “Deal Killer” problems!
The “Deal Killer”
“Deal Killer” Definition: Any property defect or maintenance item that when discovered by the buyer it reveals a repair cost or mental barrier to the buyer so that they back out of the deal or otherwise unnecessarily costs the seller.
See the below example and a list of potential “Deal Killer” items in the “Repair It” section below.
“Deal Killer” Example:
Kitchen Sink Leak: A recent small water leak under a kitchen sink resulted in a moist plywood underlayment / side drywall and a small amount of mildew growth on the unpainted drywall.
If “Nothing Done” to Fix Leak:
1. During the home inspection the buyer’s home inspector would indicate the sink is leaking, the wood and drywall around the sink is wet and ‘appears’ to be evidence of “mold growth”. The home inspector will continue… The sink has been leaking for an unknown period of time, it is unknown if the leak traveled down the wall to the bathroom below, this type of leak can lead to extensive repairs, and we recommend further evaluation by a mold inspection professional.
2. The buyer contacts a mold inspection company and they check for mold and it is present in their comparison of inside to outside mold spore test. It is present because mold is present nearly everywhere and the tests, unless there is a serious mold problem (and anyone with a nose that has been in a real “mold house” can tell the difference), are usually inconclusive. The mold company completes a moisture test on the stucco and plywood and it shows elevated levels of moisture. They indicate in their report that they cannot determine the extent of the moisture intrusion past the kitchen sink walls or if it extends the downstairs bathroom below.
3. Now though there is a record of both the home inspector indicating there is “mold or mildew” and the mold inspector indicating there are “mold spores” in the house. Both professionals recommend further evaluation. That further evaluation requires testing the walls under the kitchen sink. Note: The bathroom wall under the sink covered by granite tile that can no longer be matched and the exterior is thick stucco that is an inaccessible part of the exterior.
4. What usually happens next:
20% of the time… If the listing agent and buyer’s agent are experienced (or maybe the buyer has some construction experience) they will agree to fix the leak, pull up the kitchen cabinet underlayment, dry out the cabinet and see how it looks in a few days. This will still leave questions in the ‘buyer’s mind’ about the property and what else is wrong with the property.
80% of the time… The buyers freak out (aided by the buyer’s agent), based on home inspector and mold inspector advice ask the seller to remove a number of the granite tiles to inspect behind the wall. The sellers get a bid for the “mold remediation” inspection that includes ‘plastic containment areas’, ‘negative pressure areas’, and refuse to pay for that. The buyer usually will not pay for that so the deal falls apart.
5. And if the bank sees anything about “mold” they will require a full inspection and remediation prior to issuing any loan on the property.
If “Something Done” to Fix Leak:
1. Determine where the leak is and fix the leak.
2. Remove the plywood underlayment to determine how extensive the leak was and dry out the area.
3. If the will dry out easily and the ‘mildew’ is not deeply penetrated into the drywall sections then any competent handyman could perform this work.
4. Disclose the work you did to the potential buyers as part of a ‘pre-acceptance’ disclosure package that goes over any known issues with the home (before you open escrow with them) so they are upfront familiar with this and any other past or current maintenance items.
5. 90% of the time… the issue stops there because the home inspector sees no problem, there is no mold inspection performed and the buyer knew about the issue prior to making the offer or getting into escrow. And if there is later a problem then you have disclosed the information as you knew it to be at the time.
6. Conclusion: Fixed for probably less than $ 300.00.
|"Something Done"||$300||$ 2k–20k||Simple repair can avoid costly issues.|
|"Nothing Done"||*$ 2k–20k+||**$0||*** Cost thousands in unnecessary work.|
* 2-5K for investigation and repairs and 15K or much more for “perceived value” decrease and possible “mold house” stigma.
** In an appreciating market price increases may offset repairs if new buyer acquires property at higher price.
*** Unnecessary removal of granite and drywall investigation because leak was isolated to cabinet area.
Five Steps to Prepare Property
- Remove It!
- Repair It!
- Clean It!
- Replace It!
- Stage It!
1. Remove It! - Garbage, Clutter and excess Personal Items
Remove refrigerator magnets, mantle photos and most other ‘personal’ type items unless they add to or are part of the interior decoration theme.
Most Buyers do not have much imagination. They go through your property and cannot get past your current property condition and personal setup.
Even though buyers may have a cluttered or dirty home they do not like to see other people’s clutter, dirt and personal items lying around. Even a little clean up can make a big difference in type and amount of offers on the property.
Fewer items of furniture makes a smaller home feel larger. Clutter detracts the buyers attention from what the house could look like to what it currently looks like… and they have to take the time to navigate around your stuff… so get it off the property before showing home.
2. Repair It!
Complete a Pre-Listing Home Inspection to determine what deferred maintenance items can easily be repaired and find “Deal Killer” type items. Many “Deal Killers” are items that can easily be avoided but once revealed and are often the cause of a sale being cancelled and that must be disclosed to the next buyer so that affects the salability of the property. So avoid them!!!
Repair and Disclose
Repair ALL ‘deal killer’ types of items and disclose to buyers.
It is usually a combination of items that sink a deal because of the ‘doubt’ created in the mind of the buyer after they see a pattern of these important items coming up.
Examples of avoidable “Deal Killer” items:
Water Stains from Repaired Leaks
Cosmetic Stucco / Plaster Cracks
Multiple Unrepaired Electrical Items
Unknown Random Electrical Wiring
Use of Ungrounded Three Prong Plugs
Easily Repaired Clogs in Waste Lines
Septic System Not Recently Serviced
Recent Mouse / Rat Droppings
Unrepaired Mouse/Rat Access Screens
Improper Drainage Around Foundation
Undisclosed items known to seller
The “Pre-Listing” Home Inspection
Perform a Pre-Listing home inspection or work with an agent that can help find ‘deal killer’ types of items. See detailed information about the “Property Inspections” buyer will be performing in the “Sell It” section.
3. Clean It!
A dirty property detracts from the “showability” because buyers are distracted and turned off by grim, odors, etc. and they are adding up in their head how much it is going to cost to replace all the curtains, carpets, drywall, etc. and often just pass on the property.
Even if there is no budget to repair or remodel a property… cleaning a property demonstrates care of ownership that translates to better showings, higher perceived value and higher offer prices.
Cleaning (and de-clutter) alone can create a “Category Jump”… we have seen this happen for real!
Proof of Concept: A cluttered and dirty property that only attracted investor offers around 430,000 because investors knew few owner occupied buyer would be interested. After partially de-cluttered, cleaned and re-photographed the property attracted “owner occupied” buyers and new investors that saw the property after work was done so offers went from 430k range up to 475k range from multiple investors.
Actual Example of Price vs Property Condition
February 2015 - San Diego County, California
|Offers $||Property Condition|
|430,000||Cluttered and Dirty|
|475,000||* De-Cluttered and Cleaned|
|$ 45,000||Additional Value|
* Property was not fully de-cluttered or fully cleaned… but was enough to change perceived value and do a “Category Jump”. Property had to be placed on the market due to looming trustee sale… otherwise would have waited until fully cleaned and repaired.
Cleaning and Replacing do sometimes meet… like when deciding to clean or re-paint, or clean or replace window coverings it will depend what is faster, the costs and what benefits Max Sale Price the most.
Items known to create buyer appeal that add to value that do not clean up… then Replace It!
4. Replace It!
Your budget and “Category Jump” goals will greatly determine what to replace.
Use common sense and results of the Pre-Listing Home Inspection to replace items that will add towards the perceived value of the property. After living at a property for many years you get comfortable with how the property (paint, carpet, furniture, fixtures, etc.) look. You need to look at the property in the eyes of the buyer and create that “Buyer Appeal” needed to Maximize the Sale Price.
A list of relatively inexpensive items to replace that create *“Buyer Appeal”
- Kitchen and Bathroom Sink Fixtures
- Light Switches and Switch Covers
- Electrical Plugs and Plug Covers
- Add Motion Sensor Switch to Kitchen and Baths
- Front Door Hardware (matching lock, handle, peep hole, etc)
- Inexpensive Horizontal Blinds
* This list will vary depending on home price point, buyer expectations, etc.
Does it make sense to remodel property? Why remodel?
Just look at the numbers… If your property is located in an area where you multiply the same price vs the cost it takes to remodel your property and the additional time does not impact the Timing Of Sale then you should seriously consider that.
Whatever you replace or remodel… make it neutral and fits to the contemporary tastes that current buyers favor. AKA… replace or remodel to your buyer’s taste… not what you like!
5. Stage It!
Staging vs. Mini Staging
Staging creates a feel in the home that allows buyers to visualize themselves living there and properly placed staging items helps blend sharp corners and construction imperfections.
Staging allows property to be photographed to create online appeal so potential buyers put it on their list of properties to visit. At the property staging creates a feel of “home” and avoids the feel of an “empty” vacant house.
Home Staging - Definition:
Home staging is the act of preparing a private residence for sale in the real estate marketplace. The goal of staging is to make a home appealing to the highest number of potential buyers, thereby selling a property more swiftly and for more money. Wikipedia, 2015
Staging vs. Mini Staging
Some high end, luxury homes require extensive staging to set the stage for receiving top dollar at sale. Staging can be an elaborate and expensive event but in smaller homes it is possible to ‘mini stage’ the property. Mini Staging typically does not include large furniture items like beds, sofas, dressers but does include kitchen and bathroom towel sets, throw rugs, wall decorations, mirrors, indoor plants and random cute / visually interesting items that match feel of house.
Much of the desired results from Staging can be accomplished with “Mini Staging” for a much lower price.
DIY - Do It Yourself staging is a great option for home remodelers and individual home sellers that have a good sense of home decoration, have the time to gather the staging items and have a use for them after the home is sold.
Finding staging items can be an extensive project in itself so decide ahead of time if it is worth your effort to DIY or hire a professional.
A quality professional staging company can handle the entire project and will usually pay for itself many times over. Professional staging can be used to supplement “Mini Staging” to add larger items while maintaining lower overall costs.
Staging - Bottom Line
Staging costs time and money but pays for itself multiple times over.
Summary / Conclusion
To Do: Properly prepare property and profit from those actions.
Not to Do: If you do not prepare or improperly prepare property then you should prepare for some pain… the pain of increased market times, decreased (or no) activity, lower offers, low appraisals, lower profits, etc.
Question: So how do you prepare property?
Answer: Each scenario is different and will vary by property type but here are some basics…
First… Do no harm!
Do not do work that will cost money that you think looks good but a buyer may not like and an appraiser will not give credit for. Example: Do not paint your house pink because it matches your car!
Second… Research and Get Professional Advice.
Research properties that have sold, determine what features and benefits they offered and compare those to your property and other properties currently for sale.
Hire an experienced professional or get a paid consultation to help determine needs.
Third… Calculate, Decide and Do
Determine the “Prep Items” to do, approximate “Prep Costs” to complete them, the “Prep Time” then estimate the “Profit Penalty” of not completing the “Prep Items”.
Decide if doing it without professional assistance may cost you more than you save then decide first steps to take…
Do follow the steps laid out in this section and website.
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