The thought of getting the best possible price for your home is always top of mind. But what is the best way to achieve it?
With price growth coming off such cyclical highs, and the forecast for more stabilised growth rates, the question becomes how to maximise your efforts when it comes to adding value to your property, so that when the right time comes to sell, the maximum profit levels can be achieved.
Or, if cashflow is not that available to you at the moment, maybe it is better to sell now, but what work, for as little as possible time and effort will get you the best profit.
So, do you renovate or relocate?
Your family may have grown or have different needs, you may now have the ability to afford something bigger and better, you may have water tightness or other structural issues, or you may just be tired of the out-dated décor. Should you renovate your existing home, or sell it and find one that better suits your current needs?
Two factors come into play:
1. There’s a higher risk of over-capitalising. While you may be renovating the house with the intention of staying and enjoying it, life can throw you curve balls. If, for some reason, you do have to sell soon after renovating, you want to make sure you will recoup the money spent on renovations, especially for big ticket items like kitchens and swimming pools. In a market where prices are rapidly rising no matter what you do to the house, the financial buffer is wider. The reverse is true in a slowing market.
2. Conversely, relocating is easier. Most of us need to sell our house before buying a replacement. A slower market will let that be a smoother transition, and the difference in relative values won’t have romped away on you by the time you find a new house and re-enter the market.
Whether you are renovating or relocating, think about not just your immediate needs but what they might be in five years’ time. You may be keen on an extra play space for the kids now, but how long will they use it? Will that extra ensuite for your elderly mother be of use in future? This process can help prioritise your needs. Is a non-bedroom space for your teenagers’ computers more important than a new deck?
Before plunging into a renovation, a checklist for consideration:
Renovate, don’t relocate
• When you renovate, you get exactly what you want, both in layout and look. You don’t have to settle for someone else’s style… although if that style is cosmetic, you can always quite cheaply and easily repaint or choose new curtains.
• You get to keep the good features of your property, be it a good view, proximity to schools and other amenities.
• You avoid the hassles of relocation, including changes of address and services. You get to keep your nice neighbours... and your not-so-nice ones.
• You avoid the time spent looking for a new house, going to open homes, paying for builder’s and other reports, and you avoid the emotional ups and downs of making offers and bidding at auctions.
Relocate, don’t renovate
• Accessing the costs of a renovation and constructing a timeline that will work is tricky in today’s market. With the current building boom and shortage of tradespeople, we are faced with shifting sands of both trade rates and availability. You also need an appetite for renovation – it’s a stressful process; some people get a buzz out of it while others don’t want a bar of it.
• Are your renovation plans possible under current council bylaws, and will you need a resource consent as well as a building consent? A resource consent will likely need your neighbour’s sign-off. Be aware that you will probably spend money to find out what’s possible, and it may result in an answer you don’t like.
• The ability to accurately cost your renovation, and know that it’s not going to blow out. It used to be that you added a 10% contingency to any renovation budget but today, that contingency needs to be more generous. That’s not always the fault of the professionals and trades you employ. Renovations are notorious for problems arising during the process, like the couple who had assumed they could retain the existing framing of their house, but once the old linings were removed they found that over the course of various DIY renovations, the framing was unsuitable under today’s regulations and had to be replaced, costing extra time and money.
• The availability of designers, builders and other trades, and at reasonable rates. Many builders won’t give you a set contract price in today’s market, wary at being caught out with unexpected delays or deviations, but will only work on an hourly charge-out rate.
• The hassle of living in a building site, or of having to shift into temporary rental accommodation. Dragging children and pets with you, and possibly being further away from schools and work places.
• The risk of over-capitalising. Get your house valued before starting the renovations so you know what you’re playing with. If it’s worth $1.2 million as it is, and your renovation budget is $300,000, are you sure the property will be worth $1.5 million or more when you’ve finished? You may plan to stay, and therefore natural capital gain will increase the value anyway, but what if circumstances change and you have to sell soon after renovating?
Renovating for resale
Should you renovate to get ready for sale? Applying a coat of fresh paint to scuffed walls or repolishing the timber floors may well be worth it, but installing a new kitchen, for example, may not. Kitchens are expensive and people’s taste vary. Installing a new kitchen may, in fact, put off potential buyers; they may not like the kitchen but feel guilty about ripping out a brand new one. You may not recoup the cost of expensive renovations (the ‘over-capitalising’ trap) – the best person to ask is your real estate agent. They will know what the potential buyers of your house are looking for; what will appeal and what will not.
In some areas, houses that need work and therefore give buyers the potential to add their own taste will attract a premium.
The freedoms, or not, of the unitary plan
Has your property been rezoned under The Auckland Unitary Plan, and has that tempted you to check any development potential you might realise yourself?
Unless you are quite skilled in the area, developing a property yourself may not be wise. You could sell it for a premium because of its development potential rather than taking on the risks of a development yourself.
Certainly, an assessment by an experienced real estate of the value of your property pre and post development will be extremely helpful.
Here are two recent scenarios:
1. A couple whose 1000sq m property was rezoned Mixed Suburban in the final draft of the unitary plan, allowing for an extra house to be built, adjoining the first, on the back of the property. On advice, including valuation estimates by a real estate agent, they found that the existing home, being in a seaward street, would be more desirable as it was to its target market and therefore attract a premium. The difference between its current value and the value of two townhouses was negligible.
2. An experienced project manager’s property was rezoned Mixed Urban. He commissioned a plan for six terraced houses but once it had been accessed by a quantity surveyor and advice sought on value from a real estate agent, he decided to let a more experienced developer take the risks of the project and sold the property and plans as a package for a premium. He and his wife then found another house that perfectly suited their needs, but also negotiated to keep one of the new terraced houses as a rental investment.
Where to from here?
There is always a lot to cosider when making such important decisions, and while making the right decision based on your needs, cashflow and market opportunities, will always take time, it can often be the case that getting in touch with your local real estate agent can be a critical step as they will have an in-depth understanding of what really works in your neighbourhood, and what others have done successfully to achieve the best price possible.