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Should We Give Buyers a Discount?

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Posted On: 07/15/2015

QUESTION:

We’re selling our home. The asking price is $540,000. Someone said that they might offer $540,000 less the cost for repairs and upgrades. This means if they want to add a new kitchen and bathrooms at a cost of $100,000 their offer would be $440,000. Should the buyers get such credit for the value of the improvements they want to make?

ANSWER:

If your asking price is fairly consistent with the recent and nearby sales of like properties, then in most markets you have no reason to sell at a discount. If the buyer with lots of rehabbing plans does not want your home, then presumably another buyer will.

A number of years ago I sold a home, and the purchaser promptly tore the place apart and made numerous improvements. He did a great job; the house looked terrific. But once sold it was none of my business what the buyer did with the property. It was only my job to get full market value from the sale, the goal of every seller.

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If you sell for $440,000, you have no guarantee that the buyer will actually make the repairs and improvements that have been suggested. For all you know, the buyer might turn around and sell the next day for $500,000.

When selling a home, owners want to maximize the market value of their property. It certainly makes sense to make sure that everything now in place works, to do some painting, and to donate the things you do not expect to move to create more space.

This raises the question of whether sellers should make major improvements – say, a new bath or remodeled kitchen. Some in real estate might argue that yes, such improvements will help sell the home for more money. The opposite view is that if a seller makes major improvements they may actually create a home that’s less salable. Here’s why:

First, with big improvements the seller will want more for the property – that’s not unreasonable, but as asking prices go up the pool of potential buyers shrinks.

Second, if the improvements are inconsistent with the neighborhood then it may be very difficult to sell the home. The usual rule is that buyers seek the least expensive home in the most expensive neighborhood they can afford ,and a home with lots of upgrades and extras is unlikely to be that “least expensive” home.

Third, studies consistently show that repairs and upgrades do not result in dollar-for-dollar value increases, much less profits.

Fourth, we all have different tastes. Marble countertops and cherry wood cabinets may awe an owner, but maybe potential buyers prefer something different. It could be that potential buyers like the overall structure and size of a house but will see new upgrades as features that need to be torn out, replaced or painted over.

As a seller it makes sense to speak with local brokers to get pricing data and recent sale information. Brokers can also suggest the steps needed to assure that your home is competitive in your local market.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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