Making The Case For As-Is Sales

Too many well-meaning real estate agents push the one-size-fits-all idea that preparing a home for sale by dumping $20,000, $50,000, $100,000 into it is all but necessary. New paint. Flooring. Lighting. Landscaping. All of the above. The goal is for the property to compare favorably with others on the market and thus attract a buyer able and willing to pay top dollar (and, more likely than not in San Francisco, generate a bidding war). Several brokerages now offer programs to cover the upfront expense of cosmetic prep, and recoup the funds from seller proceeds. Sounds great, right?

But here’s the truth: Not every home is best suited disguising and downplaying its challenges, trying to be a flawless marvel from the pages of Architectural Digest. Don’t try to force a square into a circle. Marketing your property to the wrong buyer — and investing in improvements that are of no value to the right buyer — is a surefire way to leave money on the table.

CASE STUDY

 

This mess of a 2-3 bed / 1.5 bath Victorian was marketed specifically to the remodeler type of buyer, citing “room to remodel within the envelope” and highlighting the numerous opportunities to add value. Moreover, the oversized lot affords the possibility for expansion. It recently sold for $1,825,000. (Our client purchased this property before it was made available to the general public.) [Here are more examples of similar properties in the neighborhood that really leaned into being a fixer with no pre-sale prep.]

 

Had the seller invested maybe $200,000 on cosmetics to bring it up to par with turn-key starter houses in the area, and staged it with furniture appealing to end-user buyers, they likely would have walked away with approximately $300,000 to $500,000 less. Here are some examples of sales of would-be comparable properties.

It’s imperative to look at a property objectively and from multiple angles. Know when your home’s strength is its potential, and to lean into it.

Character

When positioning a home in the marketplace to attract your everyday end-user, the goal is to present it in its best light and appeal to as many potential buyers as possible. Love it or hate it, the whitewashed modern look reads as a blank slate and thus consistently achieves higher prices than homes personalized to a fault or perceived as needing work. A retro kitchen, wall-to-wall carpeting, and 1930s turquoise tile bathroom may have been treasured for generations, but is also limiting — especially with regard to buyers’ ability to visualize themselves in the space. It’s said that kitchens and bathrooms are what sell a home; and, moreover, the proliferation of so-called luxury homes in San Francisco has set a high standard. Time and money can make all the difference in comparing favorably with other homes for sale… Is the investment feasible to you, the seller? If the answer is no, then perhaps it’s best to go after a different kind of buyer.

Deferred Maintenance

Fix-it items requiring attention range from peeling paint to leaking sewer laterals and a whole gamut of challenges in between that negatively impact the market value of a home. Sometimes the expense of recommended improvements is priced into a buyer’s offer, while other times the seller’s completion of those improvements may be a condition of closing escrow (or perhaps there is some other arrangement… the possibilities are numerous). In San Francisco, inspection reports which identify maintenance and structural issues are customarily included with the seller’s upfront disclosures: General Home Inspection, Structural Pest Inspection, Underground Storage Tank Inspection, and (less common) Sewer Lateral Inspection. The longer and/or more costly the recommended fixes, the more difficult it is to find a buyer who will step up… unless that buyer is planning a major renovation or rebuilding.

Structural Issues

Brick foundation? That’s a problem. Sagging floor joists? That’s a problem. Deck about to fall off the back of the house? That’s a problem. At a certain point, the structural integrity of a house (or lack thereof) will make it unmortgageable except by, perhaps, a hard money or construction lender.

Unfinished Space

Beyond making upgrades, the simplest way to add value to a home is by increasing habitable square footage within the existing envelope of the structure. Often, in San Francisco, the opportunity presents itself as an attic or basement/garage. [The minimum ceiling height required for habitable rooms is 7′ 6″ (and just 7′ for bathrooms, kitchens, storage and laundry), according to the Building Code Space and Occupancy Standards.] It should be noted that finished space that was created without the benefit of proper permitting is generally worth only a fraction of what it would be if done legally. (Best practices for selling real estate recommend excluding unpermitted square footage in marketing descriptions.) The more untouched space with good ceiling height that there is to capture, the more desirable the property in the eyes of a buyer-investor.

Zoning

Regardless of whether a home meets any of the traditional fixer criteria above, an underutilized lot can be equate to a payday for a seller. What do we mean? Consider a single-family house on a lot zoned RM-1. That lot potentially allows for one dwelling unit per 800 square feet of area (and possibly a whole lot more with Conditional Use authorization and employing the State Density Bonus program). More common — and typically much faster to redevelop — is a single-family house on an RH-2 lot that may allow for two new condominiums. Property owners who have time on their hands and want an advantage in selling their home as a development project may consider having architectural plans drawn and go through the planning/permitting process necessary to market the property as a shovel-ready project. Money. In. The. Bank.

THE BOTTOM LINE

Every property being prepared for sale should play up its strengths. Sometimes a plain old house is best positioned on the market as a plain old house (with huge potential)!

The home renovation industry is alive and well in San Francisco. Don’t believe me? Take a drive around any neighborhood and count the number of homes with permits posted, or with dumpsters full of construction debris out front, or taken down to the studs. And while not every home needs major work, sales trends would seem to indicate that the appeal of newness is strong among today’s predominate cohort of home buyers — the Millennials, the largest generation in US history. So if your property is loaded with more value than meets the eye: lean in!

San Francisco home buyers are a sophisticated bunch. Align yourself with a local real estate broker (that’s us!) who has the appropriate network and experience to procure a buyer who has the resources to transform your property to its highest and best use.

Contact us today > 415.715.9205 / hello@vulcca.com 

Related reading: SF Real Estate Renovation & Building 101

Related reading: In It To Win-Win It