Shoud you buy or sell a home "as is"?

Most homes are neither fully original nor fully remodeled. Most homes are "somewhat updated" or "somewhat remodeled". To get them into shape to pass inspections (there's not really a pas-fail grade, it's more "items of concern", health and safety issues, or serious structural issues, and big cost items), most homes will require some work. And this is often a surprise to homeowners.  Sellers don't usually know that they have termites, for instance. They often don't realize that the electrical system they've been living with isn't entirely safe.  They won't know until and unless they get the home professionally inspected.

Silicon Valley real estate buyers strongly prefer a remodeled home that is not in need of any repairs. If a kitchen is 15 - 20 years of age or older, most home buyers will think it needs to be remodeled.  Water heaters last about 10 years - so if yours is 9.5 years, they'll want (expect) it to be replaced, too.

Treating pests, correcting issues with electrical, roof, updating countertops, appliances etc. can often run 1 - 3% of the purchase price. This is really in the range of normal.

Then the only question is this: who will pay that 1 - 3% to get the home into ideal condition?

When the sellers do the repairs, updating (and staging), often they recoup far more than that amount because buyers feel confident knowing that there are no major issues or concerns.  When the buyers pay for the improvements to the home after closing, often they get a better deal on the house.  It's a risk - return ratio.  Buyers will pay more when they feel sure that the home is in good shape (and it looks better too).  They pay mcuh less when there's the unknown of "how much will it cost to fix it?" and when they have to live through doing the work.

Let's look at a couple of hypothetical examples using a million dollar property for the sake of easy numbers.

(1) A Los Gatos house has been updated and remodeled for the most part, but it needs about $20,000 worth of repairs (that were previously unknown to the seller), between a roof tuneup, pest work (Section 1 work on the termite & pest report), a couple of electrical issues, replacing some appliances that currently function but are really not at all close to new, etc. It could also use some fresh paint, carpet, and a little work on the landscaping to show at its best. Altogether, it's about $30,000 worth of repairs, updating, and "freshening up" to sell.

In this hypothetical case, one seller will do the repairs and updating and one won't.

The seller who doesn't do the work expects that the home can sell for $970,000 since it should be worth about 1 million if the work's done.  The seller's thinking goes like this, "I've been living here and it's just fine. I might pick out a paint or carpet color that the buyer wouldn't like."  Or "I'm not going to stage the home, or inspect it. What if it doesn't sell? I'm going to sell As Is, but only if I get my price."  That home might eventually sell in the low 9's, if it sells. Maybe at $920,000 to $940,000.

The seller who does the work and prices it aggressively (a little on the low side, under a million and maybe as low as $975k) gets multiple offers, driving the price up over one million dollars. Depending on the number of offers, it might sell at $1,020,000.  That would be a pretty good return for $30,000.

(2) Now let's consider the 100% original home vs the fully remodeled one.

If a fully fixed up home sells for $1,000,000 and the same floorplan in the same neighborhood is clean but original and it would take about $100,000 to bring it up to the level of the remodeled home (it needs a new kitchen, new baths, new furnace, water heater, pipes, etc.), a buyer will NOT pay $900,000 for it. No, the buyer will want an additional discount for the unknown, for having to arrange the work, for having to live with the construction etc.  That home will probably sell for more like $850,000, perhaps $830,000.  You may not think it's a "fixer upper", but the buyers will.  It's what most of us would call a "cosmetic fixer". The home's not falling down, but it needs a lot of work.

If you're the seller, you may not have the time, energy and money to do the remodeling - but realize that you can't sell for what  it is worth per se. You will have to discount it more because of the risk and hassle.

Buyers, sellers often don't think they should have to take as big of a discount as you want.  Sellers won't part with that "could be a million dollars" home in the 700s.  But the good news is this: if you do the work, you should, in most cases, have great instant equity. You won't have as much competition. (In both examples, of course, assuming that prices are flat or better, not declining.)

Also factor in the real estate market conditions:

When the market is flat such that prices are either not changing or appreciating, it is usually better for sellers, if they want to net more money, to do the repairs and staging.  Homeowners, even if you have periodically updated your home and you think it's in perfect shape, please understand that there will probably be repairs and improvements to make in order to maximize your return on the home sale. Mentally budget up to 3% of your home's value, though most likely if you haven't deferred work, it should be closer to 1 - 1.5%.

Often sellers don't want to do the work, and in many cases they don't have either the energy or finances to do it. However, when they do have the work done, it is usually greatly to their benefit.  I once had a Santa Clara listing and the seller agreed to do $7000 worth of minor staging and repairs and that brought a sales price of $20,000 more  - about three times the "investment" returned just a couple of months later.

If the market is depreciating and prices are falling, it is often better to get the home on the market quickly since the time spent on improvements will often cause a loss that is greater than the value of making the imrovements would bring.

If you are interested in improving your net from a home sale or in paying less for a property, please contact me and we can discuss your plans and strategy. If you are thinking of becoming a Los Gatos, Saratoga or San Jose area home seller, please also see
Get the Best Deal When Selling Your Home in Silicon Valley, my book. If we meet, I'll be happy to give you a copy of it with my compliments.

If you read the San Jose Mercury, you've seen a rash of articles on the local, Santa Clara County real estate market.  You probably know that although there are a lot of foreclosures in some parts of Silicon Valley, they are being bought up (or "absorbed") at a fairly decent rate. These homes are more affordable, and buyers are responding. Countywide, about one home in four is selling.

It's not that easy in the high end marketplaces such as Los Gatos, Almaden Valley, Monte Sereno and Saratoga. In these four areas, only about 8 - 15% of all homes are selling.  (Monte Sereno is a very small area and the actual numbers for January were worse as no homes closed escrow, so technically in January that would be 0%. However, it has improved there in February already.)

My January Real Estate Report is now out and I invite you to view it and input the area and home type you seek to get the most current numbers.

Here's an image from that report regarding the Los Gatos real estate market which will help to make the current situation more clear:

It is important for homesellers to understand that inventory is rising and sales are falling and that the odds of selling are not in their favor. Only then can they be realistically prepared to do what it takes to sell.

How is it that some of these high end homes are selling now, despite the odds?

• all of them have been priced aggressively, aiming to be "the best value" for the buyer
• many of them have been professionally staged
• most of them are very easy to see (lockbox, call first and then go rather than appointment with seller or appointment with listing agent)

It is very likely that the homes that have sold have been well marketed too, but that is not so easily trackable as there are so many components to consider in that arena.

Today's post has focused on the Los Gatos real estate market. For more information on the Saratoga real estate market, and a focus on selling luxury homes in particular, please read a blog post I did yesterday on my Valley of Heart's Delight blog:
http://sanjoserealestatelosgatoshomes.com/how-is-the-saratoga-real-estate-market/

If you would like to discuss selling your home in Los Gatos or nearby areas, please contact me for a personal consulatation.

If you are thinking of selling your home sometime in the next year or two, how soon should you really start to address this project? A real estate agent can have listing paperwork signed by a homeowner and put the house on the market (and on the MLS) within a couple of hours. But that's not usually the best way to proceed.

It's best if you can "hit the ground running" so that the day your home goes onto the multiple listing service, everything is in place and you've arrived at that day in an unhurried way if at all possible. When your home goes "live" and "on the market, ideally the lockbox is on the house, the color flyers are ready, the disclosures are completed, the pre-sale inspections are done (and any corrections or improvements finished), the virtual tour online, etc. And perhaps most importantly, when your home is exposed to the pool of buyers, it needs to be staged - decluttered and spotless above all.

So when to begin?

(1) Decluttering, thinning out possessions:
however long it takes

Because few of us in Santa Clara County have basements, a lot of times our extra stuff ends up in the garage. It can be a magnet for not only holiday decorations, but boxes of unopened items from the last move and things that are on the "to deal with" list. Closets and cabinets can be similarly stuffed and all of these need to be fairly well thinned out for the purposes of showing and selling your house, townhouse or condo.

The weeding out process can take quite a while for some people. Take a look at your garage and then your closets and start a plan for what to do with all the items you seldom or never use. If you haven't touched something in several years, it may be time to part with it.

Each situation is different, but some sellers need months to do this difficult process of thinning out possessions in the garage and closets. For some, it's more acute and there are too many possessions everywhere (countertops, tables, desks - home offices can also attract too many items for the space).

(2) Six weeks ahead of when you'd like to be on the market, begin to interview for your real estate professional (ideally a Realtor since members of NAR adhere to a code of ethics that goes beyond what the law requires). Allow enough time to meet, check the Dept of Real Estate's website for the license status and check the agent's marketing materials, web exposure, experience etc. (You can always select your agent first, but normally that's not necessary.)

(3) About four weeks ahead of your desired to-market date is a good amount of time, an unhurried and comfortable amount of time, to sign the listing paperwork, order inspections, complete disclosures, finish staging, and get the photos and virtual tour and marketing & advertising pieces ready. This allows you enough time to address any surprises that might come up in the pre-sale inspections so that you can better control the outcome of your sale.

Some people contact me years ahead of when they actually decide to sell. I once got a call from a woman who asked me to come right over and list her house (I had never met her before but she was close friends with a past client). These are the extremes. More often, people aren't sure how their timetable will exactly pan out and they may start a dialogue with me about selling their home in Los Gatos, San Jose or Saratoga or elsewhere in Silicon Valley several months ahead of when they will actually do it. And that's fine. Most real estate professionals will be happy to speak with you well in advance of when you actually sell because they want to establish a relationship with you so that when you do sell, they are "top of mind". That's certainly how I view it: I would like to be the go-to resource for home selling in Silicon Valley (especially in Los Gatos).

Please call or email me if I can help you with your selling questions, whether for now or in the distant future.

Mary Pope-Handy, Realtor
CRS, ABR, e-PRO, SRES, ASP, RECS, CNHS
Helping Nice Folks to Buy & Sell Homes Since 1993
Co-Author:
"Get The Best Deal When Selling Your Home In Silicon Valley"
Intero Real Estate Services, Los Gatos, CA (Silicon Valley)
408 357-5760 (Direct); 408 204-7673 (Cell); 408 715-0201 (eFax)
www.PopeHandy.com www.ValleyOfHeartsDelight.com
email: Mary@PopeHandy.com