The Cost Benefit Analysis of Fixing Up Your House Before Selling

Crappy Old Kitchen

Each year Hanley Wood puts of a report looking at the Cost vs. Value of a variety of home improvement projects.  In this article we will look at the Remodeling 2014 Cost vs. Value Report to see what the average costs of fixing a home that is in “rough” shape and what value these repairs might bring.

The report is broken down by region so since we are interested in Eastern MA and Southern NH this is based off the “Boston” area report.  Note that this region is defined as the almost exact area of interest noted above (Specifically it is for Bristol, Plymouth, Norfolk, Suffolk, Middlesex and Essex counties in Massachusetts  and Hillsborough and Strafford counties in New Hampshire).

We will look at a fictitious case study of a house in need of major work to make it appealing to the retail market.  The conclusions based on this will likely not be the same as someone with a house that is more or less market ready and they want to try to boost the value and make it more appealing so it might sell faster.

Case #1:  We Love The 80’s!

This is a common type of house, the one that was redone in the 1970s or 1980s and has some of those unique period features that are no longer desirable.  Kitchens and bathrooms are funky pink or green colors, carpets are big shag, copious wood paneling throughout etc.  In addition to the cosmetic issues little has been done with the structure or systems in this 25-30+ year timeframe.

So let’s think of what will need to be done to make this house appealing to buyers and will allow the sellers to get close to market value in any reasonable amount of time (let’s say less than 60 days on market or 90-110 days from list to close).  For this type of house we will do a minor kitchen remodel, a bathroom remodel (I’ll assume the fairly common 1 bath room house we see in the area), replace any carpeting, new sheet rock and fresh paint and replacing the roof.

The Roof:

We’ll say it is about 28 years old.  No major issues with it yet but it is at the end of its useful life and there are some obvious issues like you can see many shingles curling up and while no big leaks there are water marks on some of the ceilings indicating water penetration in some areas.  According to the report the average cost of a roof replacement is $25,138 and the resale value captured is only $19,372 or about 77.1% of your costs.  However few buyers will be interested in a house that will need a new roof very shortly.

The Kitchen:

The kitchen is one of the rooms that sell a house.  If you have a 70s/80s kitchen then you will have a hard time selling your house for anything close to average retail price of similar homes.  In this case we will only do what is defined as a minor kitchen remodel.  In this case you will keep the existing cabinets and just replace or refinish the doors and add new modern hardware, remove the stained and dinged up pink counters with a new “granite style” laminate, replace appliances with low/medium grade new ones (You can probably splurge on stainless steel) and remove the linoleum and put down low end ceramic tile flooring.  You will also update the sink and faucet and some light fixtures with cheap but modern styles.  The average cost for this is $22,175 and you get back on average $19,438, or about 87.7%.

The Bathroom:

After the kitchen the bathroom is always the next place they say will sell your house.  Similar to the statement about the kitchen above, few buyers want to pay retail price for a place with one outdated bathroom.  In this case the space is small enough and it is often just as costly to work around something worth keeping we will just assume a full gut.  Nothing to fancy going back but a new tub with modest tile surround, a new modern vanity with solid surface counter, new medicine cabinet and toilet, fresh paint and tile floor likely with the same tile as the kitchen to save a little on material costs.  Average cost for this project is $19,980 and you recoup about $14,219 or 71.2%.

Other Repairs:

The report only covers so many projects and many minor things such as sheet rocking, new flooring and painting are not included.  However in the house we described many of these items will be critical to appeal to retail buyers and to get the price you want after putting in all the money for the major work.  For this section I will assume that you get 100% of your costs back.  Some of these things you might actually get a little more than you pay but others you might get far less so we will just assume you just back your investment on it all to be conservative.

Carpet Replacement:

Let’s assume a 3 bed room house that only has carpet in those bedrooms.  We will assume there is hardwood in the living room that are decent enough to not have to refinish, just polish for minimal cost as a DIY project.  Guess something like 550sqft of carpet so let’s say about $1,800 for that job.

Sheetrock:

The wood paneling is a big turnoff.  Alone it won’t kill the deal for a large number of buyers (but will for many) but they won’t pay as much.  This will be highly variable based on the exact size of the house and how much of it has the paneling.  In this case I’ll assume it is mostly contained to the living room and dining areas and that the existing sheetrock is in decent shape.  The best idea is often to just go over the panels with very thin 1/8-1/4″ sheetrock and not risk seeing what issues might be behind the walls if removed.  Taking an optimistic estimate I’d say you are looking at around $2,000.

Painting:

You can’t do all this other work and have old paint on the rest of the house.  And of course the new sheetrock has to be painted (which will make not painting the rest stick out that much more) and the kitchen and bathrooms will be painted as part of their remodels.  Since those two rooms have that included in their costs I’ll say you can probably spend as little as $2,000 if you make the same assumption as above that the places with existing sheetrock needs minimal repairs and prep to be painted.

What DIDN’T We Do?:

So you did a lot of work to your house!  However there are several things that were not done that are worth mentioning.

  • The boiler died about 12 years ago and you replaced it then.  The current one is old but not old enough that failure is imminent.  It won’t be a plus to a buyer but if it is working you can probably get away with it okay (You may want to spend a couple hundred bucks to have it serviced to show it is working fine).
  • The windows are 20+ years old but they are vinyl and not old single pane wood with broken pulleys.  Again it is not a selling point, but no need to replace them if there aren’t any issues.
  • The exterior siding is vinyl and in good shape still.  The color isn’t anything crazy so that isn’t a worthwhile expense in this situation either.  If it is a dirty looking, especially if it is a lighter color, it might be worth getting a power wash just to make it shine.  You can rent one for minimal cost and do it yourself in an afternoon most likely.

Final Costs vs. Rewards:

So the estimated bill for all the work you did to this house is a whopping $73,093 with an expected return of $58,829.  This is only an 80.5% return on that investment.  What it will hopefully do for you is let the place sell much faster at the appropriate price point.

That is a benefit beyond the money but what are the drawbacks.  One thing is you will be living in a construction zone for at least a couple months during the work.  Even with a quick retail sale that has few hitches if will take a minimum of 30 days to sell it (Offer accepted the first day on market and not a single hang-up leading up until the closing, both unlikely).  Of course the big one is – What if you don’t have $73K to do the work????

If you don’t and you put it on the retail market you will have to discount the place much more than the $59K of value you would have added.  Most retail buyers won’t even consider a place that needs that much work.  Even those looking for a fixer upper will want to buy the place at most the value after the repairs less the costs of the repairs, so you will need to price it at the $73K less to start, and hope someone likes it.  Most likely you will have to drop the price and/or wait several months to be able to sell it.

While selling to an investor is not right for everyone one, someone with the 80s house is a very good candidate.  Do you have a dated house that needs a lot of work to appeal to retail buyers?  If you want to sell your house fast and hassle free in its current condition hit the “Schedule a Consultation!” button on the top right of this page to get more information.

 

*Remodeling 2014 Cost vs. Value Report © 2014 Hanley Wood, LLC. Complete data from the Remodeling 2014 Cost vs. Value Report can be downloaded free at www.costvsvalue.com

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