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Update Before Sale?

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Posted On: 12/12/2017

Question: My mother needs to update her home, but needs financing to get it done. Would you recommend that she refinance her current mortgage or get a separate home equity loan?

Answer: When we place a home for sale we’re always looking for the best price and terms. We expect that getting $250,000 is better than $225,000 but this is not always the case.

At first this seems odd, but the reality is that the real estate marketplace is often complex and updates and upgrades are among those strange areas where what makes sense intuitively may not be the right strategy. Here’s why:

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First, the usual rule is that buyers seek the least expensive home in the most expensive neighborhood they can afford. If a house has a number of big upgrades, an owner might expect a higher price, but if the price is too high when compared to nearby properties, it’s very possible the home will take a very long time to sell, will be sold at a discount or perhaps even won’t sell. The result is that before upgrading take a look at homes now on the market to see what’s too much in the way of improvements and costs.

Second, the go-to authority in these matters, Remodeling magazine's 2017 Cost vs. Value Report, shows that the job cost and the resulting change in resale value can differ by location. What makes sense in Yuma might not make sense in Yakima.

Third, many remodeling projects do not result in a 100-percent resale value increase, if you spend $1,000 the value of the property will go up less in most cases. Fourth, and this is a tricky one, what you see as an improvement may turn off some buyers. The reason is that we all have different tastes. Or, as a buyer recently told me, “please, can we stop looking at kitchens with marble countertops.”

Whether you refinance your existing mortgage or get a home equity line of credit the balance of all mortgage loans must be paid off at closing. For this reason you want to limit improvements to assure that you can leave escrow with a check.

Lastly, before doing anything, speak with local real estate brokers and get their opinions. Will improvements help sell the property? Which upgrades? What’s the least you can do to get a good result? What’s too much?

Peter G. Miller is author of "The Common-Sense Mortgage," (Kindle 2016). Have a question? Please write to peter@ctwfeatures.com.

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