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Buyers want to buy beautiful turnkey homes that they can move into and start living. Agents who understand this and can successfully guide potential sellers through the process will not only help their sellers score big but also enhance their prospects.
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We have been preaching for some time now that the more a property is prepared for sale, the faster it will sell and the better the price and terms will be.
Historically, there have been three types of buyers:
- Top-tier: Willing to pay a premium, this group seeks move-in-ready homes with all the desired amenities, including updated kitchens, bathrooms, windows, flooring and more.
- Mid-tier: Looking for homes in their original condition, this group hopes to secure a decent price and then, by improving the property over time, build value through “sweat equity.”
- Bottom-tier: This group includes contractors and flippers who seek distressed properties, typically paying cash and purchasing them “as-is.” The goal in this category has been to purchase at “wholesale” prices, typically not exceeding 60 percent to 70 percent of the retail value.
Over the past few years, we have seen a steady decline in interest in mid-tier properties. There are several reasons for this trend, particularly in higher-end markets such as Alameda County, California, where the current average price is $1,141,855.
- With San Francisco Bay Area homes selling at astronomically high prices, buyers are already stretched to the limit to scrape up enough money for a down payment. In many cases, they have no resources to do significant upgrades after occupancy. Consequently, most are looking for move-in-ready homes.
- Higher mortgage rates mean that many buyers have maxed out their monthly payments. There is simply no money left at the end of the month to fund upgrades.
- The ever-increasing costs of labor and materials are pushing improvement projects out of reach for many homeowners who might want to perform upgrades after the close of escrow.
- Today’s buyers have less knowledge about what it takes to upgrade a home. Whereas older generations might have been willing and able to put sweat equity into a home, on average, younger buyers are not the same.
- The demographic makeup of regions such as the Bay Area’s Silicon Valley has undergone significant changes over the past few years, resulting in a predominance of cultures that lack experience with American construction techniques or local issues, including termites, wood-boring beetles and similar pests. Many potential buyers are highly averse to purchasing a home with any outstanding issues, as they have no idea what is involved in remedying any perceived problems.
- Today’s morphing lifestyles — especially in the case of dual-income families with kids — translate to less available time to work on a home once they move in. Evenings are spent helping the children with their homework, and weekends are filled with soccer games, baseball, karate and other activities.
- For flippers, the margins have shrunk dramatically as higher purchase prices for distressed properties and soaring improvement costs require significantly more capital, resulting in diminished returns upon resale.
As buyer patterns have changed, the mid-tier, which historically represented a significant percentage of buyers, has been steadily declining. Over the past few years, as buyers have been moving away from mid-tier “original condition” properties they perceive as needing upgrades, prices for these properties have been forced downward toward bottom-tier pricing.
As a result, potential sellers in the mid-tier category have been encouraged to upgrade their properties to push them into the top-tier.
While some sellers are resistant to improving their homes for sale, no doubt upgrading their home dramatically increases their odds of getting top dollar. If they are not willing to upgrade, then their pricing needs to be more in line with bottom-tier pricing.
Now, however, the bottom tier is diminishing as well.
Given this, as I stated back in June 2022, any seller hoping to get the maximum return on their property needs to understand how today’s buyers think. Quite frankly, I am tired of hearing classic seller dialogues, including “We want to give buyers the opportunity to upgrade the home the way they want to” or “If we replace the carpet, the buyer may not like it, and we’ll have wasted our money.”
These arguments are effectively dead. Today’s buyers, in large part, do not want to fix up homes. When sellers ask why they should spend money to upgrade when a buyer might change things once they move in, the question you ask in return is:
“If you can spend $1,000 to make $2,000 to $3,000, does it matter what buyers do when they move in?”
Sellers must understand that buyers are looking for homes that meet their criteria, not the sellers’. Homes that resonate with current buyers’ tastes will reap significant rewards, while homes that do not will languish on the market or sell for much less than a seller might have anticipated. We need to help sellers understand that buyers no longer want or are even capable of fixing up a home after purchase.
Sellers also need to understand that they have between seven and 10 seconds to sell their home, and those seconds will not be in the property — it will be on the buyers’ devices. If they do not like what they see on their screens, they will never show up.
Since upgrading homes is critical for achieving top dollar, here are our recommendations:
Spend time helping sellers understand the importance of upgrades
While some sellers will dig in their heels and refuse to budge, others, once you explain the situation to them, will understand and allow you to lead them forward. I have found that a simple conversation can be helpful.
I ask if they are planning to find a replacement property once they sell their current home. If they say “yes,” I ask if they have been looking at homes online. In most cases, they have been busy scoping out potential properties.
I then ask, “If you see an ordinary home that needs upgrades, what do you do?” Virtually 100 percent of the time, they state, “We simply move on to the next home.” At which point I say, “It is the same for any buyers who might be looking at your home.” Many sellers have told us, “We never thought of that …”
Reasons for providing an upgraded turnkey home to potential buyers also include the following:
- Known issues have been identified and dealt with. While some sellers attempt to conceal issues, if done correctly, upgrades can alleviate potential buyers’ concerns about the property’s condition.
- Upgraded features and amenities resonate with buyers’ tastes and preferences, including energy-efficient appliances, smart home systems and more.
- The overall aesthetic of a home can be transformed from ordinary to spectacular, especially when coupled with effective staging.
- Upgrades to key areas, such as kitchens, bathrooms and flooring, can substantially increase a home’s value and appeal, resulting in higher offers.
Hire a transformation specialist to assess needs and oversee the upgrades
There is a growing number of entities out there that specialize in preparing homes for the market. While some agents have connections with local contractors, others utilize national companies such as Curbio or Bosscat, or local or statewide entities like Freemodel, which covers Florida, California and Texas. In many cases, these companies will also carry the cost of any upgrades to the close of escrow.
Some larger teams, including ours, have also had transformation specialists on staff and even owned in-house construction and staging companies. There is a problem with this approach, however, especially in highly litigious states such as California.
Since Realtors are licensed to sell homes, some states argue that they should not engage in activities that fall outside the scope of their licensing, such as acting as general contractors. While it is certainly convenient to have the ability to do everything in-house, we have been advised to outsource all upgrades and transformation processes to unrelated third parties.
Finalize the scope of work
The key here is “less is more.” We assure our sellers that we will only request upgrades that will provide a return on their investment and, if implemented correctly, can easily yield $2 to $3 or more for every $1 invested.
The transformation specialist should do a thorough walkthrough and then produce a detailed outline of recommended work along with a budget for completion. Once there is an agreement on the scope of work, have the transformation company issue a contract for the seller to sign.
Finalize payment plans
Some sellers can carry the costs themselves, but many need funding. Some contractors are willing to carry upgrade costs to escrow, while companies such as Curbio will bring the costs to close. We do not recommend that agents carry any costs — we have discovered over the years that this, while convenient, can have an unhappy ending for the agent (trust me on this).
Pre-order inspections
There is no point in painting over dry rot or refacing cabinets that should be replaced. Inspections not only identify problems ahead of time, but they also provide a roadmap for upgrades. Once the work has been completed, we provide prospective buyers with copies of the reports, along with a comprehensive list of upgrades and repairs made to the items identified in the reports.
If a buyer chooses to go out and get their reports, we can find that in most cases, buyers will accept the reports we provide, along with the list of completed repairs.
Monitor the work to make sure everything is on track
Most renovations to homes headed for the market need to be done as quickly and as cost-effectively as possible. There is a tendency for some sellers to want to provide additional enhancements that they might prefer, but which will not make a significant difference in the return, and could slow the process.
It is crucial to stay on schedule so that staging and photography can happen on time.
Encourage the sellers to live elsewhere during the renovations
The renovation process can get very stressful for all parties concerned and can be an ideal time for sellers to take a vacation.
Sellers are often shocked when they return to see the finished product fully staged and ready for the market.
We have heard them say, “We had no idea it could look this amazing!” We have seen trustees selling a home after their parents’ demise say, “It’s a shame Mom never got to see this — she would have loved to have lived here.”
Done right, improvements make all the difference between a home that slowly sells and one that truly stands out in the market.
Carl Medford is the CEO of The Medford Team.
