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How Does Deferred Maintenance Impact Sale Price?

Within the real estate industry, there are a lot of issues that impact buyers or impact sellers. However, there are a few issues that come up along the way that can impact both sides of a transaction. One of the primary issues that plague both buyers and sellers is deferred maintenance. If you took an objective look around your home, you’d probably see a few little things that need to be repaired. Maybe you have a cracked piece of trim on one of your walls, a window that has some a crack, or something else that you’ve continued to put off. We all have those items that just never got checked off the to-do list. 

Make no mistake about it, you can sell any home in the Bay Area. It really doesn’t matter what kind of condition a home is in; you can sell it. In fact, you can sell a property that has been completely destroyed by fire and has nothing left standing other than a back wall. Property in the greater San Francisco Bay area is in such high demand that someone will make an offer on the property. However, there are some things that you will need to consider before you put your property on the market.

How to Sell a Home with Deferred Maintenance

One of the most important factors that you will need to consider before selling your home that you have put off the maintenance on is that pricing matters. Obviously, pricing matters regardless of the condition of your home. You’re not going to sell a home that’s worth $800,000 for $1.5 million, regardless of how much maintenance you’ve done on the property. However, when you’ve put off some maintenance tasks around your home, you’ll need to price it accordingly.

Let’s assume that you have a 2000 square-foot home in an area where homes routinely sell for around $400 per square foot. A quick glance at the numbers means that you’re going to list your home for around $800,000. However, your home needs some paint, new carpet, the windows need to be replaced, and you have a few other things that need to be upgraded.

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If you get an estimate on the construction costs of the property, you may find that it’s going to cost around $50 per square foot. Since you have a 2,000 square foot home, that means that you are looking at around $100,000 in repair costs. Now, it’s easy to assume that you’ll just knock off $100,000, sell your home, and someone will offer you $700,000 before doing the repairs themselves with the $100,000 that they saved. That’s simply not how things work. 

Buyers will not purchase a home that needs $100,000 worth of work for $100,000 less than you believe that you can sell the property for. There are several reasons for that. First of all, while fixer uppers have become popular in reality TV shows, most of the people who are buying homes, especially homes in an area like the Bay Area, simply do not want fixer uppers. Since home prices are so high, and the people who live in the area are professionals, they want a home that they consider move in ready. Obviously, they’re often willing to make a few upgrades to the home that makes it more of their style, but most buyers in San Francisco don’t want to buy a home that needs to be completely redone. 

Additionally, there is the fear that the home may need more than $100,000 worth of work. While you may have gotten an estimate on the things that you believe need to be done to the home, what if the buyer has different tastes? Did you get a price quote on high-quality vinyl flooring? What if the buyer wants some sort of high-end luxury tile? Suddenly, that $100,000 improvement that you’ve priced turns into $150,000 worth of work.

 

Perhaps most importantly, there is a question about where the buyer is going to get the money to repair the property. Let’s assume that your $100,000 estimate meets all the buyer’s wishes for the home. Where are they going to come up with $100,000 to perform those repairs? Remember, the buyer is out a lot of money in this transaction. By the time they borrow enough money to buy the house, use their own funds as a down payment, pay closing costs, the price of moving, and any other number of fees associated with buying a new home, they probably don’t have access to an extra $100,000 to pay for maintenance that you have deferred.

How to Price a Home with Deferred Maintenance

I always let my seller clients know that they need to price the home below the upgrade cost. For the reasons that we just discussed above, a buyer who views your property and sees $100,000 in needed upgrade costs simply isn’t going to offer you the price of your home minus $100,000. What’s the formula? Well, there isn’t a perfect, constant mathematical formula. However, I generally encourage my buyers to price their home with a price that takes off 150% of the price of repairs. That means that you would sell your hypothetical $800,000 for around $650,000.

That’s not because your home is a “dump.” Instead, it’s because we have to find a way to create a sense of value in the property. When a buyer believes that they can get a home that’s worth $800,000 for $650,000, even if it needs some work, they’re more apt to make a competitive offer on the property.

Yes, you can absolutely sell a home in the Bay Area that has some deferred maintenance issue. Additionally, there are benefits of pricing things lower. Not only does the buyer perceive a greater value, but you may be able to generate even more interest in your property. Remember, the three biggest factors in real estate are location, location, and location. If you competitively price your home, deferred maintenance and all, in a good neighborhood, the buyers will most certainly come pouring in.

Work With Sebastian

Seb is convinced that the greater San Francisco Bay Area is not just a nice place to live. He knows that it does, on balance, provides an unparalleled opportunity for folks who live here to live the best life imaginable.
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