When to List a House Under Construction

Buying & Selling Real Estate
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When to List a House Under Construction

Jason Merchey
Investor · Hendersonville, NC · Member since 2013 · 754 posts · 281 votes

When would you suggest listing a house that I am doing a major remodel on? It's at the stage now where the shingles are on, the doors and windows are in, but many other elements such as electrical and such are not complete. I was thinking of advertising it to Realtors around town in the "white box" stage of completion, meaning it is drywalled/mudded/taped/sanded but there is no paint on the interior, no flooring, no appliances, no countertops, no moulding, no hardware. Beyond that it would probably be an additional $40,000 and 30-40 days to complete it.

One point of view is, since the downtown Charleston market is going to probably get hot again in February after a Nov-Jan cool-down, it might sell well in January or February to a buyer who is particular about what kind of finish out they want to see (it will ultimtely sell for $240 per foot x 1,600' for about $375,000). This might be a little more complicated, but worth considering. On the other hand, some say that since the wife usually makes the final purchase decision, she is only going to be emotionally engaged if it is staged well, or at least, is COMPLETE. The disadvantage here though is that there is some population of buyers out there who want Thermador, not Kenmore, or bamboo not walnut, or three strips of moulding not two, or a computer system for the whole house, etc.

Thoughts on this?

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Bill Gulley
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
12y

Common here in time to pick colors, flooring and appliances, especially at the higher end. Sooner you get a good contract the sooner you go to closing. :)

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    12y

    Different theories on this. As they say, many buyers can't use their imagination an an unfinished unit will turn them off. On the other hand, some buyers looking today, will already be under contract when the house is finished, so you lose the chance with them anyway if you wait. I'd advertise it now anyway, obviously emphasizing the ability for "custom" choices by he buyer, and just proceed with all the basics anyway, and see if a buyer steps up. If someone does, they'd have to put up some serious nonrefundable EM, to finish it their way, especially if they pick some odd finishes. Keep track of all the buyers who don't bite during the rehab, and contact them again to see the finished product, if no one buys during the rehab.

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  • Jason Merchey
    OP
    Investor · Hendersonville, NC · Member since 2013 · 754 posts · 281 votes
    12y

    Nice, good advice. At this point, Plan A is to e-blast 2,500 Realtors 5-7 times each to see if they notice the email and maybe have a client, and bring flyers by some offices and try to talk to agents. At that point though we wouldn't have it listed on MLS either by a discount broker or by a standard 3% listing agent. It's a crapshoot with a 20% chance of succeeding, but it will cost $250, so perhaps it is worth it. As far as listing it at this point, Plan B, I am interested in any other feedback to see if we are making a mistake not listing it at this time. Thanks for your feedback, Wayne

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  • Karen MargraveBusiness Member
    Moderator
    Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
    12y

    @Jason Merchey I'd put it on the market right away. The last house we built I had a buyer lined up before we closed on the land (though we didn't write the contract until after closing) I sold it off an ad on Postlets. Be sure to note that you are happy to cooperate with agents, and will pay X% to the selling office (if in fact you plan to)

    The biggest thing you need to address is how you will handle the finish work, and come up with a set plan, as it's one of the areas that can turn into a nightmare.

    First off, if you sell it in the "white box" stage, do you plan on them paying for the finishes they want, and you completing the work? Would you be setting the price for the completed house with all the upgrades, or would they be paying for the work done to date?

    The issue here is that if they are getting a loan, in order for the finish work to be financed, it would need to be included in the appraisal, and be finished before escrow closes. The other option would be if they want to buy it "as is" and them be responsible for buying everything and getting the work done, paying for it out of pocket. However; they would need to be cash buyers, because a bank isn't going to finance a house without it being completed and signed off.

    If you plan on doing the work; and allowing them to choose their finishes, you need to ask yourself how will any upgrades be paid for? if you have a set amount allotted for the finishes, you can give them that as a credit and require that anything over and above that be paid for by the buyers, with cash deposited into escrow and being non refundable. Will the price be adjusted to cover the upgrades? If it's added to the price, it has to appraise out upon completion. Will the area support an appraisal for a highly upgraded unit?

    The point is, you can do it however you want, but there are always a lot of moving parts to the puzzle,, and one affects the other. Good luck.

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  • J ScottPro Member
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    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    12y

    My general response to this question is an emphatic "NO! DON'T LIST UNTIL IT'S DONE!" for the reasons Wayne mentions above. You only have one chance to make a first impression, and MANY real estate buyers will base their decision off that first impression (I did when I bought my first personal residence).

    So, if it's only half-finished -- or even finished but not staged -- I prefer to not let anyone see the property.

    Now, there are two exceptions to this rule for me:

    1. If the buyer is specifically interested in my property based on the fact that they know about the type of work we do or are specifically looking in that location AND if their real estate agent is someone who can help them understand how we do things (preferably an agent we've worked with before), I will allow them to see the property with me (or my wife) there to paint the picture of what it will be. In other words, I'll show the property if I think there is a much better than average chance they'd want to buy it -- not just any buyer who happens to be looking that day. Btw, if I have another property completed in the area with similar finishes, I will ask their agent to walk them through THAT property first, so they will have an idea of what their house would look like when completed.

    2. For new construction or a MAJOR rehab, where either the exterior is basically complete or we have drawings with exterior elevations, we may list it on the MLS. This is because many buyers who like the idea of new construction have already become accustomed to the idea of looking at drawings versus looking at a completed house. This means they've already made that mental jump to being able to imagine what a completed product would look like, and can often look past the stuff that is incomplete.

    Those are the two circumstances I *might* let a buyer through before completion. But, even then, if they don't buy it, I'll probably second guess my decision to have let them see it... :-)

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  • Jason Merchey
    OP
    Investor · Hendersonville, NC · Member since 2013 · 754 posts · 281 votes
    12y

    Roger that. Karen, thank you for such a smart post. J Scott, yes, It does sound complicated. I guess the question will be, If we just wait to list it, are we going to find more than 5% of qualified buyers who will balk at the finish out - say, want Sub Zero and a whole house compter system and all that. Otherwise, our standard finishes of mid-range hardwood, a bit of moulding, entry level granite for countertops, LG washer/dryer, Thermador stove, Samsung fridge should be fine. On the other hand, if an attorney can help us manage the moving parts, and we don't get snagged on the loan/appraisal situation, then we could save because in that stage we will only be paying 3.5% to the buyer's agent because it won't be listed. I just don't see listing it unfinished as being the best route. I see either representing it ourselves and paying a buyer's agent vs. wating to list with a seller's agent as being the ticket. We could always say that we only accept cash buyers in the white box stage, would that be a good hybrid idea? Might only be 10% of the market, but we're not going to stop construction and sit on our hands waiting for someone; it would basically be like calling attention to the fact that we are two months from completion, so in the next month a cash buyer could snag it, but to make that a possibility, we have to advertise it a bit. Like a few hundred bucks for email marketing and twenty trips to brokerages with flyers kind of advertising.

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  • Robert Leonard
    Investor · Lafayette/Baton Rouge, LA · Member since 2013 · 1k+ posts · 915 votes
    12y

    I think this is a $375,000 question. How is your competition doing it for houses in this price range in your market? I lean toward presenting the finished product, but that's just me. The buyers in your market are who matters.

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    12y

    Common here in time to pick colors, flooring and appliances, especially at the higher end. Sooner you get a good contract the sooner you go to closing. :)

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  • Karen MargraveBusiness Member
    Moderator
    Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
    12y

    I understand @J Scott viewpoint. Most people have no imagination when it comes to construction, and no idea how to judge space, so it's something you have to be aware of. We are lucky in that our son (and partner) does 3D renderings, and is able to do virtual staging, etc., so that helps tremendously. On the job we will be starting dirt work on late this month, he is finishing up the renderings for the downstairs, and once that's complete I'll put them on my website.

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    12y

    @Jason Merchey

    Curious, why would you list it with an agent after completion, but Not list it now and try to reach only some of the active agents, as opposed to being in MLS where it will be available to all agents? And just an observation, if you blasted me 5-7 times about the same property, I would never see one of your emails again, only my spam folder would.

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  • Patrick Hayes
    Real Estate Agent · Rancho Santa Fe, CA · Member since 2012 · 7 posts · 0 votes
    12y

    I agree with J Scott, you might reduce your total hold time by selling it early, but you risk lower offers and reducing your company image. Would you make offers on an unfinished home for your family?

    Giving the market a completed package including: a dialed home including light professional staging, great listing photos, creatively written MLS listing, updated termite report and clearance, home inspection report, adding the listing to brokers caravan, circulating a marketing brochure, and setting open houses every weekend until an offer is accepted; we do these steps on every listing. And it creates hype and competing offers. We want to drive superior profits thus we strive for a superior process not just a superior product.

    Now, if your GC is not getting the renovation completed timely that's a different issue.... In my humble opinion it's all about the processes and sticking to it. Systems, systems, more refined money-making systems. Just my two cents, best of luck.

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  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    12y
    Originally posted by @Bill Gulley:
    Common here in time to pick colors, flooring and appliances, especially at the higher end. Sooner you get a good contract the sooner you go to closing. :)

    Definitely agree that if the buyer comes before finish, it's great to let them have a say in the finishes. Only thing to note there (and it's pretty obvious)...if you do get a buyer early and allow him/her to choose finishes, make sure you're protected in at least one of two ways:

    1. Only let them choose from an approved set of finishes/colors, so that if the deal falls through, the choices are neutral enough (or good enough) for future buyers;

    2. Get enough non-refundable deposit that you'll be compensated for finish choices that will be less desirable to future buyers in case the deal falls through.

    Podcast Guest on Show The Truth About Real Estate Investing in 2024 (What Investors NEED to Know)
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  • Jerry W.Pro Member
    Moderator
    Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
    12y

    @Jason

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  • Jason Merchey
    OP
    Investor · Hendersonville, NC · Member since 2013 · 754 posts · 281 votes
    12y

    Wayne, you are correct, that is a possibility. The spam folder thing is a fear. However, I was a Realtor for a spell, and I clearly recall getting a BUNCH of e-blasted marketing announcements. You do get a mess of them in your inbox do you not?

    I must admit that there are a bunch of variables and it is hard for me to tease this apart. I know my partner @Patrick H. is tuned in to how the bigger new construction developers market their product. I think they tend to try to get a buyer early on. We are competing more with new home builders I think than rehabbed properties because we are at $100/foot in rehab costs and are putting 550 new square feet. But on the other hand, I think that there are plenty of success stories for listing it completed and trying to wow the woman.

    There are probably many paths to success with this house, in this local market, in this national market, so I think whatever we choose we are going to gain some buyers and lose some others. Luckily my big fears of interest rate increases and flood insurance debacles aren't currently coming true. Yes, the market has dipped in Nov-Jan, but I think that is seasonal more than a true downturn.

    I don't want a listing to get stale though, since it is 1-2 months of time we're talking about here. I also don't want to get involved in a tangled web of complication as Karen noted since I think it will probably sell well in a complete stage. I think one simpler hybrid idea is to proceed as planned, and advertise a little bit that we are accepting cash buyers' contracts pre-completion. Even possibly perhaps advertising directly to buyers, such as on Craigslist and in the local paper, and as I said, emails and flyers. But trying to probably reserve that 3% that would end up going to a listing agent until such time as it is complete. That's kind of Plan A I think. Overall, I think it's only maybe 5-10% of buyers who are going to hate our ivory interior color, our Kenmore fridge, our LG washer/dryer, and our whatchamacallit color granite. We are a little budget-conscious, and we're making it for the mid-range buyer, not the high-falutin one. That can't be more than 20% of the market. It would be a shame to offer it early and interest some high-end buyers and persnickety ones, but lose a lot of the middle segment of standard buyers who love the smell of cinnamon when they tour a house.

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  • Karen MargraveBusiness Member
    Moderator
    Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
    12y

    Besides being a licensed contractor, I am also an agent. I understand the value of listing a property on MLS. At the same time, I understand the value of keeping the commission in your pocket if you can. If the house isn't finished, start advertising it on your own "Choose your finishes!" etc., and as I and J Scott both mentioned, make sure you have it covered on upgrades, and limiting choices etc. for finishes (those you mentioned are high end, and plenty good enough for an upscale house) Don't let buyers push you into paying for more than you have budgeted, unless they are willing to put up non refundable money.

    Set up a website for your property (you can do that on Postlets) Advertise here on BP Marketplace, and on Postlets (free and they submit to many sites) Don't worry about the email blast, because they do just go to spam (though, dropping off flyers to offices is good). Make sure on any ads or flyers, you state in CAPS that you cooperate with agents, and will pay 3.5% (or whatever you decide) commission to selling office. (If an agent has a buyer and can make the money, they will show it and sell it)

    Put up a sign on the property, with the website address, your phone number and a "take one" box with flyers.

    If you don't get any interest within a short amount of time, LIST IT! Agents do bring a lot of value to a listing.

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    12y

    J., yes, without saying, if you get a buyer on the line and they pick colors and items, you go from a spec to a custom, especially in higher ends, make them pay for it or get it in escrow. :)

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  • Jerry W.Pro Member
    Moderator
    Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
    12y

    @Jason Merchey thanks for starting this thread, I am thinking about the same thing. I have a small flip project in a neighboring town that I only work on during weekends. Listing before putting cabinets and flooring in seems both risky and tempting. I would hate to pick out cabinets and have no one like them, or put the gas fireplace insert in and have someone hate it, but the curb appeal is what scares me the most. With only 28 houses on the market if they dislike it in the rough stage I may never get a chance for a second impression. We are dealing with towns of 4,000 and 8,000 people.

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    12y

    Jerry, in that case I'd put it up and say, pick the colors and finish to your liking.

    Let their imagination sell it!

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  • John Moore
    House Flipper · East Stroudsburg, PA · Member since 2013 · 1k+ posts · 205 votes
    12y

    If you feel a "local" will purchase the house, I would advertise it as soon as possible and let the buyer select the colors. If there is a mortgage involved, it will take 45 days to get them approved and closed. If you feel the market is for out of towners, "snow birds" then it should not make any difference as your universe are transients and you have a limited time to show your property. Everything works on percentages; if you are attempthing to sell the property on your own and utilize Realtors as an adjunct to your marketing efforts, it should not make any difference. I feel the important issue is to get the home sold as quickly as possible, to avoid carrying costs. If you are not going to market your home and are going to give your house to Realtors to sell on an exclusive basis I would wait until you have the home finished as it takes a special talent to sell homes under construction as opposed to "show and tell". Food for thought. Just another opinion.

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  • Jeff Rabinowitz
    Investor/Landlord · Farmington Hills, MI · Member since 2011 · 1k+ posts · 1k+ votes
    12y

    I am part of a group that is building a spec home. The basement walls have just been poured (this is Michigan) and we will be starting a postlets (and the syndication sites) campaign shortly. We will not be listing on the MLS initially even though 3 of the principals (myself included) are licensed real estate agents. The area we are building in is very active. It is quite possible that we will find a buyer ourselves well before the construction is completed. If we do so we will have the possibility of earning more by allowing the buyer to upgrade certain items, saving carrying costs by completing the sale quickly (any buyer will be required to place a significant deposit) and if the buyer is unrepresented we may save a buyer's agent commission. If the home does not sell in a few months we will then place it on the MLS.

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  • Steve K
    Investor · Orlando, FL · Member since 2012 · 431 posts · 106 votes
    12y

    I'm adding another vote for not until it's done. Every time I've added a preconstruction listing to MLS I've regretted it. The only instance where this might be a good play is if you're building an infill project in a highly desirable area with no inventory available.

    1Reply
  • Jason Merchey
    OP
    Investor · Hendersonville, NC · Member since 2013 · 754 posts · 281 votes
    12y

    Wow this is almost split right up the middle. My partner and I are definitely going to chew on all this. Thank you for your time on this topic.

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  • Jeff Rabinowitz
    Investor/Landlord · Farmington Hills, MI · Member since 2011 · 1k+ posts · 1k+ votes
    12y

    @Jason Merchey

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