Preparing your home for sale

The 1:3 Ratio Rule

Preparing your home for sale is vital if you wish to attract a better price – that is obvious. But like most things, there is more to this than initially meets the eye. Preparing your home for sale – the 1:3 Ratio Rule will help

In a previous blog post we discussed the 3 Fundamentals of Preparating your house for sale being –  If It’s Broken – Fix It; If It’s Dirty, Clean It and If It’s Cluttered, De-clutter it. This is a great start, and most of these do not require much more than time and labour.

But what about if your home is a little dated?

Should you renovate the kitchen? Maybe new light fittings? Is the fence OK or does it need replacing? It is these types of questions that can confuse many homeowners. The answers can be the difference between spending the money and achieving a great price, therefore being a worthwhile investment; or being nothing more than a waste of money which could have been better directed elsewhere or even left in your pocket for the next home.  

Preparing your home for sale. The 3:1 Ratio rule

So how do you know what to improve and what to leave?

Of course, this is highly dependent on your situation, but to give a general overview, we would say firstly consider the following.

If you do NOT complete the work, will this place your home is a position where you need to drop your price expectation just to get the home sold?

For example, your deck is rotting and appears unsafe. Most people would probably be scared away by a perceived structural issue.

The main issue you have with this type of situation is not only the fear element it has created, but IF the buyer is willing to take the risk, they will always over estimate the cost to fix it plus add plenty of ‘pain money’. The fix may cost you $5,000, but the buyer will overestimate the job to be maybe $20,000 plus – just in case something else comes up.

Now consider if you had fixed this issue prior to going on market (assuming this is the only real issue), you would not have to drop your price simply to attract anyone plus you now have no fear triggers, meaning you will most likely have more interested buyers. This creates far more positive social proof which will mean achieving more for your home.

To put this into context, let’s say the baseline for the home is $500,000 – the average price achieved for a home like this. The scenario we gave with the dodgy deck, means a sale price now of $480,000. If you have everything fixed and created the right positive emotive environment where the buyers love your home, your sale price may be anywhere from $520,000 up. You can see this is a whopping $40,000 differential. This may sound outlandish, but with our years of experience, I would still consider this a conservative estimate. 

Now before you say “but hang on, people like a project, a fixer-upper”, remember this – if they do, they will want to be compensated for the work and risk they take on – which means money out of your pocket. Plus, far fewer people want to take on projects than those who just want to love their new home and move straight in.

What if there is nothing particularly wrong with the home, but it has some dated aspects.

Any improvements will always mean a better price, right?

The short answer is usually yes, but you have to consider at what cost? For example, you own a modern home with great features, in good condition, but due to three young kids, the carpets are trashed. Paying $3,000 for new carpets will mean the home, as a whole, now feels new and modern. Not replacing the worn out and dirty carpets will detract from the other great features. Yes, it may only be carpets, which you may say the buyer can easily replace, but it will place a negative feel on the home, which will translate to a lesser value to the buyer.

But be careful how you calculate any work and the likely return. You would not replace tapware are with solid gold taps. Why?Because the return would not validate the expense. Just as you wouldn’t install a pool just to make the home more attractive. Do not overcapitalise.

This is why we suggest the 3:1 ratio rule. Quite simply, for every dollar, you spend you need to be certain you will achieve at least a 3 dollar return, if not more. Otherwise, it is not worth the spend.

A 1 to 1 ratio is not worth your time or effort. A 2 to 1 ratio is too close, and if costs blow out  in price you are too close to the 1 to 1 ratio – again not worth it. Hence 3 to 1 should be the minimum, to help you decide if it is worth the fix or not.

Of course, this is extremely simplified, which is why we are so often called in for advice where people are unsure if to do the work or not. From our many years of experience, we have a very good understanding as to what buyers look for, their triggers and therefore what to spend the money on and just as importantly, what not to waste money on.

Also, try and be objective – don’t make a change or spend on a fix because it is what you like. You are not the buyer for your home, so you need to consider what the buyers want, what they are most attracted to – that will give you a far better return and guide as to if the spend is worthwhile or not.

We hope this has been of some help with regards to home preparation for market and assists in not only achieving a top dollar for your home but also not wasting money unnecessarily.

Remember if you would like more information or would like to chat about how best to prepare your home, just contact us. Preparing your home for sale

Written by Shawn Kristofer

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