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Should You Renovate Before Selling Your Home?

Before You Spend the Money, Make Sure the Improvements Make Sense

You're thinking about selling your home.

The kitchen is dated. The flooring has seen better days. One bathroom could use some attention. Maybe the exterior needs paint, the landscaping needs work, or there are repairs you've been putting off.

So, a common question comes up:

Should I renovate the house before I put it on the market?

There isn't one answer that works for every homeowner or every property.

Some improvements may make a home more appealing to potential buyers. Others may cost considerably more than the value they add. And in some situations, a homeowner may be better off selling the property in its current condition.

That's why the first question probably shouldn't be:

"What renovations should I make before I sell?"  

It should be:

"Should I make the renovations at all?"

Start With Your Realtor — Not the Contractor

Before committing thousands of dollars to improvements, talk with a knowledgeable realtor who understands your local market.

A realtor can help you evaluate questions such as:

• What are buyers currently looking for in your area?
• How does your home compare with competing properties?
• Are updated homes selling for enough more to justify the expense?
• Are there repairs that could affect the home's marketability?
• Would smaller cosmetic improvements accomplish most of what you need?
• Would it make more sense to price and sell the property in its present condition?

A $30,000 kitchen remodel doesn't automatically increase a home's sale price by $30,000.

And the improvements you personally love may not necessarily be the improvements a future buyer values most.

Before spending the money, it helps to understand what you're trying to accomplish.

Repairs and Renovations Aren't Always the Same Thing

There can also be an important difference between repairing something that needs attention and remodeling something simply because it's dated.

A roof near the end of its useful life is a different conversation from replacing perfectly functional kitchen cabinets because you don't like their color.

The same applies to HVAC, plumbing, electrical systems, damaged flooring, windows and other components of the home.

Some property-condition issues may also affect the type of financing available to a potential buyer.

For example, FHA, VA and USDA financing have property-condition requirements, and certain health, safety or property issues may need to be corrected before a buyer using one of those programs can complete the purchase.

That doesn't necessarily mean a seller should renovate the entire property. It means there's an important difference between improvements made primarily for appearance and repairs that could affect the home's ability to qualify for certain types of financing.

That's another reason to involve your realtor before deciding what work should be completed.

Sometimes Smaller Improvements May Be Enough

Preparing a home for sale doesn't necessarily require a major renovation.

Depending on the property and local market, relatively modest changes may improve presentation without requiring an extensive remodeling project.

That might include painting, replacing worn flooring, improving landscaping, updating fixtures or addressing deferred maintenance.

The goal isn't necessarily to turn an older home into a brand-new home.

The goal is to determine which improvements, if any, make financial sense for that particular property and that particular market.

What If the Improvements Do Make Sense?

Once you and your realtor determine that certain repairs or improvements may be worthwhile, establish a realistic budget and timeline before starting the work.

If you're preparing to sell relatively soon, financing those improvements may not always be as straightforward as it would be for a homeowner who plans to remain in the property.

For example, home-equity financing generally isn't available through the programs we offer once a property is actively listed for sale.

That's another reason the decision about what to repair or renovate should be made before the property goes on the market.

But there's also another possibility worth considering:

Maybe the seller doesn't need to make all of the improvements.

Could the Buyer Renovate the Home Instead?

Depending on the property, the market and the buyer, an eligible purchaser may be able to use renovation financing to purchase the home and finance qualifying improvements after closing.

Programs such as Fannie Mae HomeStyle®, FHA 203(k), USDA Renovation and VA Renovation may provide options depending on the borrower, property and planned improvements.

That can change the conversation around a home that is dated or needs work.

Instead of the seller spending substantial money choosing new cabinets, countertops, flooring or finishes that a future buyer may or may not like, renovation financing may allow an eligible buyer to make some of those choices themselves.

This doesn't mean every property should be sold as-is.

Necessary repairs, property condition, marketability, likely buyer financing and local market conditions all matter.

But it does mean that "the house needs updating" doesn't automatically mean "the seller needs to update it."

Renovate, Repair or Sell As-Is?

There is no universal answer.

For one homeowner, completing several strategic improvements before listing may make perfect sense.

For another, addressing only necessary repairs may be the better approach.

And for someone else, selling the home in its present condition and allowing the next owner to make the improvements may be the smartest decision.

That's why I would approach the decision in this order:

1. Talk with your Realtor.

Determine what improvements or repairs, if any, make sense for your property and current market.

2. Consider the likely buyer.

Could property-condition issues interfere with FHA, VA, USDA or other financing? Or could renovation financing potentially give a buyer another option?

3. Establish the cost.

If work makes sense, determine what it will realistically cost and whether the potential benefit justifies the expense.

4. Then decide how — or whether — to proceed.

Sometimes the answer will be renovate.

Sometimes it will be repair.

And sometimes the answer may simply be selling the home as it is.

What If You're Planning to Stay?

Everything changes if you're not preparing to sell.

Maybe you love your neighborhood. You don't want to move. You simply want a better kitchen, another room, updated flooring, a new roof, an ADU or other improvements that make the home work better for you.

Now we're no longer asking:

"Will I get this money back when I sell?"

We're also asking:

"What is improving this home worth to me if I'm going to continue living here?"

And if you've decided the project makes sense, the next question may legitimately become:

How should I pay for it?

A HELOC May Provide Flexibility

A Home Equity Line of Credit, or HELOC, allows qualified homeowners to access a portion of their available home equity.

Unlike borrowing a predetermined lump sum, a HELOC generally establishes a credit line and allows the homeowner to draw funds as needed, subject to the terms of the particular program.

That flexibility can be useful when renovation expenses occur at different stages.

You may need money for one portion of the project today and additional funds later.

Depending on the HELOC program, payments during the draw period may be based on the amount actually borrowed rather than the entire available credit line.

HELOC structures vary considerably, so it can be helpful to compare available options rather than assuming every home equity line works the same way.

A Home Equity Loan May Be Better for a Defined Project

If you already know approximately how much money you'll need, a home equity loan — sometimes called a HELOAN or fixed second mortgage — may be another option.

Instead of an open line of credit, the homeowner generally receives a lump sum and repays it over a predetermined period.

A fixed-rate home equity loan may provide more predictable payments than a traditional variable-rate HELOC.

That could make sense for a homeowner with a clearly defined project and budget who wants to leave an existing first mortgage in place.

Don't Borrow $50,000 to Solve a $5,000 Problem

Access to home equity doesn't automatically mean you should use it.

Before borrowing against your home, determine what you're actually trying to accomplish.

Maybe you need a major renovation.

But maybe a much smaller project accomplishes most of what you want.

The same principle applies whether you're planning to stay in the property or eventually sell it:

Financing should help execute a good plan. It shouldn't be the reason for creating the plan.

If $5,000 solves the problem, borrowing $50,000 simply because the equity is available doesn't make much sense.

Have a Plan Before You Tap Your Home Equity

Your home equity can be an extremely useful financial resource.

It can potentially help finance repairs, improvements and renovations without requiring you to replace an existing first mortgage.

But the financing decision should come after the renovation decision.

If you're planning to sell, start with your realtor and determine what work actually makes sense before listing the property.

If you're planning to stay and have decided that improving the home is right for you, then we can look at the available financing options.

HELOCs and home equity loans can have very different rates, fees, draw requirements, repayment structures and qualification guidelines.

I'd be happy to help you compare the available options and determine which structure may fit your project and financial goals.

Robert Clark
Home Loan Consultant
Firestone Financial Group
NMLS #357788 | Firestone Financial Group NMLS #301522
209-227-7745/559-476-9279

rbrtclark53@gmail.com