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An Explanation Why A Fixed-Up Home Sells Faster And For More
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Back in the 1980s, there seemed to be an endless supply of qualified buyers for every price range and every neighborhood. Even though the market is pointing in a positive direction, the supply of buyers is far diminished from the late '80s. Interestingly, the spectrum of clientele widens at both ends. Specifically, there is strong demand for the fixed-up home, with perfect floorplan and prime location, and also equally in demand is the below-market fixer or foreclosure that every investor, contractor, and builder dreams of. Owners often fail to appreciate why a buyer is more willing to pay two dollars extra for one dollar wisely invested, but it's really a matter of current day circumstances. Today's typical Westside buyer has a strong income and very little time. That little time they have is not something a buyer is willing to give up supervising a remodel job and dealing with contractors, but more to the point it often comes down to the bare economics.

Let's use an example of a home I recently sold for $500,000. This home was remodeled totally; in fact, it was virtually a new home. All a buyer had to do to be comfortable is bring their toothbrush and move in. The buyer purchased this home with a 10% down payment. The buyer's total investment was $50,000.

Now let's use another example. A home in the same neighborhood of similar square footage is currently available at $400,000. It is an original home, never updated or remodeled. From the perspective of the property owner, he considers his home a bargain in comparison to the $500,000 home and cannot understand why his home has not sold. The reality is this. Using the same 10% down payment scenario, a buyer's investment begins with $40,000, but that's just the beginning. Now to remodel this home and bring it to a similar standard of the $500,000 home, a buyer will need an additional $100,000 to $150,000 in cash unless he can arrange financing which is not always simple. Before he is all done and over, the buyer of the $400,000 home will have invested an excess of $150,000 including the down payment and cost to remodel. Because there are far fewer buyers with this amount of cash on hand and because of time constraints so common among today's typical buyer, the price of $400,000 may likely exceed fair market value. It's simply a supply and demand issue. In spite of the improving real estate market, buyers continue to show great concern to investing large sums of personal cash even when it's available just in the event the market turns the other direction again. I am seeing more 5% down and 10% down payment purchases than I have seen anytime before in my 24-year real estate career. Most of this is the result of consultation from CPA's and financial advisors becoming involved in a buyer's real estate purchase.

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