Mary Beth Loves Denver

I just read the annual “Cost vs. Value” report for 2008. It shows how much common remodeling projects cost, and how much they increase the value of a home. Results are divided by region, with some particularly common projects broken down by metro area.

Guess what? In the Mountain Region, not a single remodeling project recouped its cost. In other words, remodel if you want to live in it and enjoy it. But don’t remodel to make money if you’re ready to sell. It apparently doesn’t pay these days.

Some examples: Replacing exterior siding was, nationally, a very popular option. Still didn’t pay for itself in most places. The national average gave it an 81% return on investment. In Denver, it gave an 84% return.

Adding a deck? Cost will be roughly $10,923. And it’ll add just under $9000 to the value of your home. New windows? 77% return.

And then there’s the old standard favorite, the kitchen remodel. It’ll cost around $21,000, but only add about $17,000 to the value of the home.

Why so little return from remodeling these days? Basically, construction prices are going up and home prices are remaining stagnant. So you’re paying for the increasingly expensive commodity, but not seeing a parallel increase on the return side.

Note that this is referring to remodeling jobs, not smaller “facelift” type projects. Painting, new carpet — projects like that are inexpensive, and tend to give a bigger bang for the buck at closing time. They change the “feel” of a house without the high price tag of a remodel.

So when it comes to projects that help a house to sell, think small and pretty.

So what happens if you have to sell you house in a down market?

Say you’ve been transferred. Or you got married, and two houses is one more than you need. Or your family is growing, and more square footage is now a necessity instead of a luxury. Or you need to downsize your home to meet your newly-downsized income.

As I said last time, (did I promise to write again “tomorrow”?) that isn’t necessarily a bad thing in this market. Many Denver neighborhoods are plugging right along, appreciating at a lovely rate. Others have just stagnated for the past few years. And yes, some have taken a market-value tumble.

Regardless, homes are still selling in this market. There’s more competition, to be sure. Gone are the days of sticking a sign in the yard and watching the buyers line up. If you want yours to be the one that sells, you need to put some thought into it.

The first step is to check out your competition. You obviously can’t see all of the competition, because most buyers are looking at more than one neighborhood. But you can see the immediate competition – the other homes on the market in your price range that are near your house. Have your realtor show you pictures of the listings. If possible, schedule an appointment with him or her to actually go see those houses.

These are the other houses your buyers are looking at on the same day they look at yours. They are your competition.

First of all, your house needs to be nicer than theirs. Obviously, if they have a remodeled kitchen and you don’t, you won’t remodel yours just to get the upper hand. But whatever is in your control that makes your house better, do it.

Update

A lot of updates don’t make sense when you’re selling a house. Others do. Flooring is one. If your carpet is old or worn or just unattractive, install new carpet. Sellers constantly say to me, “But won’t the buyers want to choose their own carpet?” Maybe, if they really thought about it logically. The problem is, buyers are not at their most logical when choosing a home. They’re emotional. And when they see ratty carpet, they think “ratty house.” New carpet looks good, it smells good, and it screams “new!!”

Paint is another good, easy, inexpensive fix. New paint, like new carpet, gives the house a “new” smell. It’s like new-car smell. It affects buyers on a level they can’t really describe. Plus, in warm neutral colors, it looks good. Incidentally, if you have any, umm . . . “bold” colors in your house, it’s especially important to neutralize them. With my buyers, houses get names. You don’t want yours to be “Purple Wall House.”

Minor kitchen improvements are also helpful. If your countertops or appliances are particularly dated, investing in new will pay off in the end. If your cabinets are old and worn, look into painting them. Put new hardware on them. There’s a lot you can do to make them look better without having to replace them.

Clean

Your house needs to be the cleanest. Trust me, buyers notice this. Not just the obvious things like trash in the middle of the room. Everything. You want shiny chrome. Dust-free corners. Clutter-free surfaces. Streak-free windows. Have the house professionally cleaned before it’s listed, and then keep it clean until it’s not yours any more.

Smells are really, really important. I’m a freak for smells. If a house smells funny or “off”, buyers notice. I have buyers who walk out if they don’t like the smell in a listing. Pets, food, trash – they can all affect the smell of a house.

The thing is, people often don’t notice the smells in their own houses. So ask a friend. Ask your realtor. Ask someone who will be straight with you. And then deal with it. If you have pet smells, thoroughly clean the carpet and any other surface the pet is exposed to. And then, ideally, send the pet on a vacation to Aunt Sally’s until the house sells.

Never ever try to cover up smells. It doesn’t work. I once showed a condo where the owner had obviously sprinkled cologne around to cover up some kind of obnoxious odor. It smelled like obnoxious odor mingled with cologne. It was disgusting.

Stage

To stage a home means to strategically arrange furniture and accessories to make the house more appealing to buyers. This is really important. I bring a professional stager in on all of my occupied listings.

If you have a vacant listing and you want to sell it fast, you might want to look into staging that as well. A vacant property can seem stark and cold. Stagers rent furniture to go into vacant properties, to make them look more warm and “homey.” It makes a big difference. Staged properties tend to sell sooner, and for more money, than those that aren’t staged.

Price

So after your house is updated and cleaned and staged, you need to price it. And not only does it need to be the nicest property in the neighborhood, it needs to be the best-priced.

Seriously. In the old days, we’d tell people that they needed to spruce up and stage their homes so they could sell them for more money. Today, we say that you need to spruce up and stage your home so you can sell it. Period. It’s hard to sell a house when there’s so much competition on the market. Buyers look at a lot of houses. Yours has to stand out.

Of course, your house may not be the nicest house in the neighborhood. Your neighbor’s house may be full of cherry and granite and marble. They may have diamond-studded stairs. All the more reason to price uber reasonably. The less your house stands out for being the nicest, the more it needs to stand out by being clean and well-priced for the market.

There are two kinds of houses that sell in this market. The first type is the junky, ripped up foreclosures that sell for far less than market value. The second type is homes that are nicer and better priced than their competition.

Trust me, you want to be in one of those two categories.

Before I was a Realtor, I was a “realtor-wannabe.” I was always the one volunteering to help friends (and sometimes total strangers) look for a new home. When somebody new moved into town, I was the “chamber of commerce” — giving them tours, showing them neighborhoods, talking through their housing options. I loved doing that, and it’s one of the reasons I hung up my “amateur” standing and became a professional Realtor.

But one time I took it too far. I tried to sell my own home as a “for sale by owner” (FSBO). “Why not?” I thought. “It’s a hot market, I don’t need help finding a buyer. And I could put all of that extra money in my pocket.”

Famous last words.

It WAS a hot market, so it only took a couple of open houses and I had a buyer. Buyer didn’t have an agent either. It was just the two of us — the blind leading the blind. One of us (I don’t remember which) found a contract template at an office supply store, we wrote it up, and we were good to go.

Or so we thought.

I got a call from the title company a few weeks later. Any conversation that starts “Gee, I’m glad I’m not you,” can’t possibly end well.

The house hadn’t appraised for the agreed-upon sales price. The buyer was freaking out. I had no idea whether or not I had to let her out of the deal, or if I could force her to buy it anyway. I didn’t think my templated contract had given her an “out” for appraisal. I called an attorney, who told me I didn’t have a leg to stand on. She walked — no, ran — and I called a Realtor.

Looking back on that episode from the perspective of all of the real estate training I’ve had since, I see that the transaction would have been doomed 19 different ways even if the property had appraised. She wasn’t planning on an inspection. I had never had it inspected, so I had no idea what lurked behind the walls. I had no familiarity with the various disclosures required by state law.

It was a lawsuit waiting to happen.

Believe me when I say that I understand the temptation to try to save that 3.2% of the purchase price. It’s a lot of money to any homeowner — it was a lot of money to me then, and it’s still a lot of money to me now.

But what I’ve learned is that the math isn’t so straightforward in a home sale. At the end of the day, someone who sells by owner probably doesn’t wind up with an extra 3.2% in their pocket. In fact, the best statistics I’ve seen show that it’s the sellers who use an agent who wind up pocketing more money — a lot more money. According to National Association of Realtors’ Profile of Home Buyers and Sellers for 2006, FSBO homes sold for an average of 36% less than homes sold with a real estate agent. That’s thirty six percent. Not three point six percent. Thirty six. Over one third.

It makes sense to me. Realtors know how to prepare a home for sale. They know how to market it. They know how to position it to maximize the sales price (without, mind you, pricing it so high that it won’t appraise and the buyer runs off like a scared bunny.) And, most important, they know the ins and outs of the sometimes very complex laws and paperwork and disclosures, so that a post-closing lawsuit doesn’t sap whatever profit may have come from the sale.

Another factor: when buyers see a FSBO, they immediately start doing math in their heads. “Let’s see, if they’re not paying an agent, then I’m knocking 3.2% off my offer price.” And if they’re not coming in with a buyer’s agent, you can bet that another 2.8% is going to come off the offer as well.

I can’t guarantee that any one home is going to sell for 36% more with an agent than it would as a FSBO. But I’m pretty danged sure that the difference is going to be enough to make it well worth your while to hire a real estate professional.

You’ve probably seen the “We Buy Ugly Houses” billboards. They’re done by a company called Home Vestors, which buys houses for below market rates, for cash, with quick closing times. It’s a set-up that appeals to people who are so desperate to get out of a house quickly that they’re willing to take less than what they could get if they took the time to list and sell the house on the open market. I’ve never had any contact with Home Vestors, so to the best of my knowledge they’re perfectly honest and do a good job at what they do — which is buying houses for a lot less than their owners could otherwise have sold them for.

I HAVE, however, had some experience with at least one independent businessperson (NOT affiliated with Home Vestors) working on the same basic business model. And I didn’t find him to be quite so honest.

A woman called me because this “nice man” had, for the past three years, been coming to her home offering to buy it. Over time “offering” had become “pressuring.” She was feeling like it was time to sell, and was thinking of taking him up on his offer because it would involve a lot less hassle than going through the whole listing process. It would have been VERY easy, what with him showing up at the house regularly with pen in hand, insisting that she sign. I asked her to show me the contract.

Holy cow! I don’t know where to being with all of the subtle ways he was ripping her off. We can start with the price, which was WAY below what I knew the property was worth. Then there was the non-existent earnest money. And the clause where he had the right to immediately begin repairs to the house — and she would be contractually obligated to pay him two dollars for every dollar he spent. And the other clause where if she changed her mind, he would sue her and she would have to pay for all of his attorney’s costs.

It went on and on like that, but you get the idea.

I told her to run and run fast.

She asked me to list the property for her. I did — at $70,000 more than he was offering her. And it went under contract in a single day.

That’s a whole lot more money in her pocket for really a lot LESS hassle than she would have gone through continuing to deal with him.

The moral of the story? Beware of deals that look too good to be true. 

It’s getting more and more important to prep a house before putting it on the market. There’s a LOT of competition out there. The buyers who are looking at your listing are looking at a bunch of other listings in the same area. Yours has to stand out. What’s worse, some of that competition is bound to come from foreclosures. And they’re going to stand out because they’re priced 5% to 10% lower than yours. (I know that doesn’t seem like a lot as a percentage, but 10% of $200,000 is $20,000. That’s a lot of competition!)

So if you want to sell your listing without letting it go at a foreclosure price, it’s got to be in better shape than a foreclosure. Buyers might overlook bent screens, dinged woodwork and broken shingles if they think they’re getting a great deal. But at market price, they don’t like to see that stuff.

I saw a great article on MSN a while back on the top ten repairs to make before selling a home. It’s here.

My favorite part of this has to do with smells. I’m a freak about this. When I’m with buyers, we usually give nicknames to each house we see. It’s easier and more fun to remember a home as “Big Plaid Wallpaper House” than as “You know, the one on Vance Court. Two story, blue trim, 2000 square feet . . .”

And when a house smells, guess what name it gets. “Smelly Cat House.” Or “Weird Cologne Trying To Cover Up Smelly Cat House.” A bad smell will drive buyers away. So will a weird smell that’s clearly an attempt to cover up a bad smell.

If you’re selling a house that contains smelly pets, a smoker, weird or aromatic foods, or anything else with an overwhelming olifactory presence, you need to do some work. Get rid of the source of the smell. (Seriously, it’s best if Kitty lives elsewhere for a while.) And then clean or get rid of everything that harbors the smell.

I know it’s hard to for sellers  to notice what their own house smells like. So tell them. Tactfully.

And hope they take the answer very, very seriously.