My house isn't selling, how far should I go to improve it?

26 Replies

Hi all, I'll try to be brief.

My house has been on the market for 5 months with no offers, even with 2 open houses and extensive marketing. It's large, is a 1920's historic home in a very high-demand area, and feedback has been that we are priced correctly ($500k), but the house is not upgraded enough.

The kitchen & bathrooms are dated, so I've decided that I need to fix those up. My question is: how much should I invest, given my situation?

Plan A: $40,000
This is the bid from my contractor which includes a new kitchen, plus rearranging the master bedroom/bathroom and utility/laundry area to be larger.

Plan B: $20,000
This would just be a new kitchen and upgrading the master bath in-place. Keep the laundry in the kitchen where it is now, and the tiny master bathroom.

Other variables:

  • Location: The house is out of state. I could fly in probably once or maybe twice to check in on the work, or maybe a friend or realtor could drop by from time to time.
  • Financing: I have $10,000 in cash. I can borrow $20,000 from a family member. To get another $10,000 I would have to pursue other private/public sources.

--------------------------

My realtor thinks I should find a way to do Plan A. He thinks we would get our money back if it's good workmanship.

I am leaning towards agreeing with him because I want it sold as soon as we can. But I don't know if it's wise for me to go into so much debt, particularly because I can't be there to supervise, and I don't know if I can line up the financing (credit score = 661/682/690).

Any insights are appreciated. Thanks!

    Can you get a HELOC?

    Without knowing the area I don't know how much I could say because it really depends what is around you. You should, or have someone you trust, tour competing houses and see how much they are updated.

    I don't know that I would trust your realtor unless you have a longstanding relationship because he would just want the property to sell quick but not exactly for the best profit on your part.

    Hi @Allen Ellis, 

    Great question.  I hope you find the answer/advise your looking for.

    I happen to agree with @Richard C.

    When I read your post that was my conclusion.  Your not priced correctly.

    If you were it would have sold.

    Is this your personal home, flip, rental etc...  ?

    If you invest 40K in fixing up the kitchens and bathroom ( which are usually the best rehab/remodel investments ) does the home still comp well?  Or will you be overpriced?

    Bottom line is if your not getting offers, then something is wrong.  It could be lots of things.

    I just finished listening to podcast #130 yesterday.  You may want to give it a listen. 

    @Will Barnard talked about things you can do to make a house easier to sell.  The best places to invest in a renovation, etc...

    Definitely cut the price to get it sold as is. What does your agent say about ARV after the rehab. Spending $40K plus the costs of funds and time and then "Getting your money back" is a terrible goal. Profit should be the goal if you're going to spend $40K+. Rehabbing it puts you with a finished rehab ready for market in Oct. Also not good. Start with the $40-50K reduction list price asap.

    Are you sure the house can be sold as-is with no issues other updating the kitchen/baths? It'll pass all inspections? It's totally ready to go? If so, there's a sweat equity buyer and/or the house could go FHA. If you're unaware (or in denial) about other issues, the house won't sell (or won't appraise or pass lender inspection) even with the $50K price reduction.

    Real estate agents make commission on the sales price ,  Of course they want you to spend money . Its cash in THEIR pocket .  Drop the price and move it 

    Thanks everyone. I appreciate all of your (quick!) answers! I see a consensus for dropping the price which I regrettably hadn't given serious thought to. Seems obvious in retrospect.

    In addition to a price drop, do you think it would still speed up the process by updating some cosmetics, such as paint, light fixtures, carpet, and maybe the new kitchen? It feels a little neglected and those should take less than a week to fix. Any reason not to?

    Answers below:

    • Background: My sister and I inherited this home from our Grandmother who used it as a rental property. I'd like to use my share of the proceeds to jump into the real estate market in my area!
    • HELOC: I'm not eligible for a home equity loan because the house is on the market (seems to me an odd reason)
    • Comps: The neighborhood is generally updated. It's walking distance to downtown so it's popular with young professionals and upper-middle class families. But it's also diverse, you have the gaumet of large/small and high-end/modest, so comps are tricky.
    • ARV: My realtor thought $540k would sell it but as I now look through recently sold comps on Zillow I worry that's a little rich. The only $550k+ homes I see are a fair deal nicer than mine. I'll ask him what comps he saw that gave him that confidence. Thanks @Mike Thomas and @K. marie P. for the obvious question, I should have done my own research sooner.
    • Other issues: I haven't had an inspection but I'm unaware of major issues. There are some minor quirks, including a messy next door neighbor who owns a loud parrot.

    (I'll definitely check out podcast #130, thanks!)

    Recommend you cut the price at least the $40,000 and get it sold. Did you set the price or did your Agent - what happens when you sink $40,000 into it and it still doesn't sell?

    You have already been on the market too long and aren't priced correctly.

    Have YOU spoken to other agents for their feedback? or are you just getting feedback from your Agent?

    Is the house staged? Are there multiple pictures and a virtual tour?

    Good luck, let us know what you decide to do and the final out come.

    @Allen Ellis

    I agree with the general consensus that you should reduce the price and sell the house. Managing a construction project remotely is very hit or miss and highly dependent upon the contractor you hire. Some are great. Some are not. Additionally, as you dig into the home you can find any number of additional issues that could easily add to your rehab budget. The beauty about not digging into the walls is that you are not on the hook for what may or may not be in them. 

    I don't see any reason not to perform some quick cosmetic work and stage the house properly. You will get your money back and then some. I would not, however, spend serious cash in hopes that you can recover it. Pass the discount along to the next home buyer and let them spend the cash to make the updates they want.

    -Christopher

    P.S. If you did live in the area and wanted to maximize profits, Option A would be the way to go. A Fully updated and modernized space always brings in far more money than an old space that has some select updates applied to it. Generally speaking, half measures are not worth the investment.

    Can you do the work yourself? We recently did a gorgeous bathroom for way less than half the price a contractor wanted. I think it will come to 2,500 (including tools) and the contractor wanted 6,000. Not sure if that is an option.

    If you want to cut and run than I would lower it to get it sold. If $50k is going to make you $100-200k more than it's worth it, to just get high price to me that's way to much risk for absolutly no reward but that's me

    You're overpriced, possibly significantly. I appraise homes like this for estates all the time. If updated homes are selling for $550K+, and yours is dated, you might be 10%-20%+ overpriced. I tend to agree that any updates you do will be fruitless.

    If you have some time and the listing agreement is about to expire, I'd pull it from the market and re-list with an agent that knows what they're talking about. Call the listing agents of other homes in that market to see what they think the problem is... Or talk to an appraiser for an impartial opinion. If you want feedback on the listing and marketing, feel free to PM me the address.

    Why not pay for an appraiser to come out and see what its really worth ?  Take out the guesswork .  Adjust the price accordingly , make it attractive for a buyer .  

    Originally posted by @Allen Ellis :

    Thanks everyone. I appreciate all of your (quick!) answers! I see a consensus for dropping the price which I regrettably hadn't given serious thought to. Seems obvious in retrospect.

    In addition to a price drop, do you think it would still speed up the process by updating some cosmetics, such as paint, light fixtures, carpet, and maybe the new kitchen? It feels a little neglected and those should take less than a week to fix. Any reason not to?

    Answers below:

    • Background: My sister and I inherited this home from our Grandmother who used it as a rental property. I'd like to use my share of the proceeds to jump into the real estate market in my area!
    • HELOC: I'm not eligible for a home equity loan because the house is on the market (seems to me an odd reason)
    • Comps: The neighborhood is generally updated. It's walking distance to downtown so it's popular with young professionals and upper-middle class families. But it's also diverse, you have the gaumet of large/small and high-end/modest, so comps are tricky.
    • ARV: My realtor thought $540k would sell it but as I now look through recently sold comps on Zillow I worry that's a little rich. The only $550k+ homes I see are a fair deal nicer than mine. I'll ask him what comps he saw that gave him that confidence. Thanks @Mike Thomas and @K. marie P. for the obvious question, I should have done my own research sooner.
    • Other issues: I haven't had an inspection but I'm unaware of major issues. There are some minor quirks, including a messy next door neighbor who owns a loud parrot.

    (I'll definitely check out podcast #130, thanks!)

    Thanks for the additional info.  I was making a lot of assumptions (in your favor).  I assumed it had previously been your primary residence.  I assumed that everything was cosmetically rehabbed but the bathrooms and kitchen were dated.  And by dated, I thought you meant last rehab in the 80s or 90s.  Now I'm guessing they aren't dated but original.  :) An inherited property that was last a rental with old tenant carpet/flooring and paint?  It's a total fixer by today's definition and for sure it's priced wrong for the owner occupant buyer market.  

    Don't paint or carpet or do anything until you pin down the real, current as-is FMV and make a plan.....and get a new agent. You may have to adjust your sale price expectations A LOT. The market has already shown that you've got something that won't easily sell to home buyers with $50-100K down(10-20%). Those buyers are spending their cash to live in a move-in ready home. Old carpet and paint is not move-in ready in that price range. I'm now guessing you don't have a lot of house knowledge so it's possible the systems are old (plumbing, hvac, electrical). I suggest that you not try to become a new, long distance, rehabber/investor on this. Get it sold as-is, but get it sold. Depending on systems age and function, you may be able to find an owner occupant sweat equity buyer. But the house has to pass inspection for a loan to have the largest buyer pool. The buyer pool after that is.......the rehabbers. You don't want to sell to them if you don't have to. Trust me on that one.

    Move on it.  The five months you've let it sit with no offers indicates to me either wishful thinking or lack of motivation or lack of time/attention.....or all three.  Don't take it personally, its a challenge I see with lots of heirs. Get yourself some better valuations and get the property listed for a price that brings you multiple offers.

    Originally posted by @Allen Ellis :

    ... speed up the process by updating some cosmetics .... Any reason not to?

    Answers below:

    • Background: My sister and I inherited this home from our Grandmother who used it as a rental property. I'd like to use my share of the proceeds to jump into the real estate market in my area!
    • HELOC: I'm not eligible for a home equity loan because the house is on the market (seems to me an odd reason)
    • ...

    Since this is inherited property - if it is still owned in the name of the estate of the deceased, then that is usually an exception for providing a seller's disclosure (in PA). If you live in it or have work done, then you might be stuck having to disclose. And you don't know how extensive the work might become until you are in the midst of it. 

    As far as the HELOC, banks do these loans hoping to collect interest for a number of years to come; since the property is listed for sale, the loan duration will be brief so not as much interest will be collected - so not really desirable for the bank.

    How much does Zillow say it is worth?
    The market has told you that it is over priced.  Drop it the $40,000 you will be paying on the proposed renovations.  The renovations will take another 3 months anyway.

    Every one on BP has told you the same thing.  Drop the price and sell the house.  What have been the holding costs for these 6 months?  
    You are bleeding money here.

    @Allen Ellis ...And yours is the dilemma shared by thousands of heirs every year. Here's my summary of issues:

    Hundred year old house with history as rental. If it's in Pittsburgh, from what I understand $500K would be higher end of the market. Property ownership shared with sibling. It's presumably a bit beat up and out of date from rental use. The dilemma: borrow money in order to make cosmetic improvements or find another solution?

    My real main business has been making loans to the people in charge of probate estates and trusts of California property, now for 25+ years. Assuming title is in your name, you would not require for such as specialized loan, even if it were available in your state.

    Surprising, I probably would not spend the money! You might get better traction by changing agents, although swapping horses may not help at all. After  five (5) months the house has had plenty of exposure using this agents skills, however. 

    Beyond improvement I've used several other strategies, including increased commissions to selling agent who brings a buyer (aka, the ethical bribe) and/or serial price reductions every few weeks. 

    As an investor, I'm not attached to a property. Several years ago I needed to sell my Mother's house, the house I grew up in, in a down market. Surprisingly, no one offered or request me to consider seller financing all or even a portion of that free and clear house. While it was a solid house in upscale Orange County, CA, it had out of date cosmetics so I had the interior painted and replaced carpet at a total cost under $10K.

    Hope you take some fast action and don't miss the summer selling window.

    Originally posted by @Allen Ellis :

    Hi all, I'll try to be brief.

    My house has been on the market for 5 months with no offers, even with 2 open houses and extensive marketing. It's large, is a 1920's historic home in a very high-demand area, and feedback has been that we are priced correctly ($500k), but the house is not upgraded enough.

    The kitchen & bathrooms are dated, so I've decided that I need to fix those up. My question is: how much should I invest, given my situation?

    Plan A: $40,000
    This is the bid from my contractor which includes a new kitchen, plus rearranging the master bedroom/bathroom and utility/laundry area to be larger.

    Plan B: $20,000
    This would just be a new kitchen and upgrading the master bath in-place. Keep the laundry in the kitchen where it is now, and the tiny master bathroom.

    Other variables:

    • Location: The house is out of state. I could fly in probably once or maybe twice to check in on the work, or maybe a friend or realtor could drop by from time to time.
    • Financing: I have $10,000 in cash. I can borrow $20,000 from a family member. To get another $10,000 I would have to pursue other private/public sources.

    --------------------------

    My realtor thinks I should find a way to do Plan A. He thinks we would get our money back if it's good workmanship.

    I am leaning towards agreeing with him because I want it sold as soon as we can. But I don't know if it's wise for me to go into so much debt, particularly because I can't be there to supervise, and I don't know if I can line up the financing (credit score = 661/682/690).

    Any insights are appreciated. Thanks!

      The summer is when buyers buy.

      Either upgrade it or cut the price.  

      Older houses with alot of rehab work need a haircut of 20% sometimes.

      Realize if a house is on the market for over 90 days, the listing is stale.

      Fire your realtor.

      If you do the rehab work, you need 

      -excellent workmanship, 

      -top kitchen and bathrooms, 

      -maybe make the master bath larger.

      Women buy houses.  Kitchens, baths, storage.

      @Josh Caldwell

      is in Pittsburg.  PM him.

      Thanks everyone. I'm impressed by your clarity of thought and ability to infer details I hadn't shared. Apparently my situation isn't very unique ;).

      I'm planning to drop the list price by $40-50k today and ask my contractor to do the light cosmetic work as soon as he can. Maybe he can clean up as he goes each day so I don't have to take the home off the market and lose a week of marketing.

      Additional details you asked about:

      • Price: My agent recommended this price. We also based it on an appraisal I had done 18 months ago of $480k, and the market is supposedly a little higher now. Zillow thinks it's worth $512k.
      • Feedback: I haven't spoken directly to any buyer's agents to get their feedback. Are you worried my realtor could be maliciously filtering out feedback?
      • Staging: It was rented with furniture when we took pictures, but my tenants moved out in June so it is no longer staged. I planned on staging it after renovating.
      • Condition: The living and formal areas are in great shape with hardwood floors and original architectural details. The rest is a mix of upgrades dating from the '80s or '90s. Only a few rooms have carpet which gives off a slight musky odor. We did some cosmetic work including painting 7 years ago. There is also a fully-upgraded 1-bedroom garage apartment on the property built 10 years ago.
      • Timeline: Until June I had paying tenants. Since they've left I've visited the property and done a few rounds of back and forth to figure out a renovation layout that would be physically possible, and to get bids from my contractors. But thanks, yes I'm sure with more of all 3 factors (realistic thinking, motivation, attention) I could have come to this conclusion sooner. Thanks.
      • Ownership: It is still named in the estate of the deceased, I haven't changed it over yet. However this property is in Florida. But I don't think I would need to worry about a seller's disclosure because I'm honestly not aware of any problems, and I'm no longer planning to open any walls.
      • Holding Costs: Until June it had a positive cash flow because of the tenants. Since then they have been $2,600/month. Painful.

      Thanks everyone. I'll jump on this today (lowering price, lining up contractor to do cosmetics) and hopefully have good news to share soon. I had already ordered new kitchen cabinets so hopefully I can return those without a big hit.

      @Allen Ellis

      Lower the price, and get your contractor to put a fresh coat of paint everywhere and replace the 'musky' carpet.  Nothing freshens up a place cheaper than a fresh coat of paint on the walls, and IMO nothing turns off a potential buyer quicker than bad smells.

      Originally posted by @Richard Smith :

      @Allen Ellis

      Lower the price, and get your contractor to put a fresh coat of paint everywhere and replace the 'musky' carpet.  Nothing freshens up a place cheaper than a fresh coat of paint on the walls, and IMO nothing turns off a potential buyer quicker than bad smells.

      We've moved many a house with just paint and carpet cleaning or replacement.  Paint smells like "new house".

      I don't think you need to fire the agent, just re-price the house.  But Brian is right - the listing is stale - however it will get attention when you drop your price.

      @Allen Ellis  You're right......your situation isn't that uncommon.  However, it sounds like you have a good house in a good area with lots of equity.  So you have more choices, which is always a good thing, even if the choices are confusing at first.

      You say the house is the name of the estate and that you haven't changed it.  Can you give a few more details on that?  Is the house owned in a trust for which you and/or your sibling are the beneficiaries or successor trustees?  Or is the house in the name of the decedent?  If the latter, has the estate been probated in the courts and there is a court order giving you the property or is there a court order giving you powers to sell?  If not, you won't be selling anytime soon.  

      Please provide a few more details on the estate and ownership status.  That could change the timeline significantly, which could change the best and most profitable plan of action for getting the property sold.

      there are a few ways to takle the problem. 

      The first and worst is to improve the property for even 20k.  This advice comes from the same raltor who told you how to price the house, correct?  The problem with improving the property is that cosmetics are all a matter of taste.   You are likely to spend money in a way turns off other buyers.  Many "upgrades" dont even pay for themsevles. Now the situaton is different if you can pay 40k to raise the price by 60k, even then, I wouldnt.

      The more logical and easy option is to lower the price. This will sell the house at some point X.

      My favorite option is to make the property easier to buy.  This is the world that is a complete mystery to most agents.  You will get everything from a glazed over look to stupid statements about the legality of techniques.  When you get the second you need to have a real estate lawyer to explain it to your agent.   You can actually sell your house quickly and for above market price if you know how to structure the deal.  You can figure out how to do this on BP or you can email me directly and I will explain it to you

      To your success

      Josh

      I'm in the middle of a similar situation.  I actually did end up changing agents.  First agent over-promised BIG TIME.  Sat on the market for 6 months.  Luckily I bought at the right time (2011) and I've got a lot of equity in the property.  Changed agents and lowered the price by almost 20%.  Have an offer on the table and hopefully will have a signed contract by early next week.  Even at the new price I'm coming out way ahead, so I can't complain too much, but I think if I'd gone with the better agent (who I met here on BiggerPockets) I may have gotten a better price somewhere between where I'm at now and the original ask which was just way too high for the market.  Lesson learned.  Look over the comps yourself very carefully, and don't go with the agent who's puffing up the value just to get your business.