Recoup Your Reinvestment in Repair and Renovation
Homeowners face a dicey dynamic. With home values eroding, they need to target repair and renovation for the greatest short-term payback, should they put their houses up for sale shortly thereafter.
“Sale contracts can fall apart because of peeling paint, roof leaks, and noncompliance with local building codes. The FHA, in particular, has stringent requirements for the condition of the houses purchased through its programs,” says Joanne Cleaver, Senior Content Producer for ForSaleByOwner.com, the leading source of tools and support for direct sales of residential real estate.
For more about how renovations and maintenance fit into the overall market value of your home, please visit our Pricing Guide.
“Homeowners can set themselves up for success by anticipating the problems an inspector might find and fixing them now. Our Top Five Tactics help homeowners prioritize their summer to-do lists and pave the way for an easier home sale in the fall.”
Here are ForSaleByOwner.com’s Top Five Tactics for recouping home repair and renovation reinvestment.
1. Anticipate FHA demands
Increasingly, middle-class buyers are getting loans guaranteed through the Federal Housing Authority (FHA).
The FHA itself estimates that it backed over 20% of all home sales. It’s likely that share rose in this year’s spring selling season and will continue to rise, given the difficulties of other secondary mortgage lenders , such as Fannie Mae and Freddie Mac.
If buyers are counting on FHA-guaranteed loans, sellers must be sure their houses comply with the FHA’s property condition requirements. Peeling paint that might get only a raised eyebrow from a home inspector can stop an FHA loan in its tracks.
That means that homeowners are wise to use the FHA’s home condition standards as a guide for their summer to-do list. The FHA inspection will look at big stuff – the condition of the roof, the chances that the house will fall down – as well as factors that homeowners might not consider relevant, such as the funny noise that a central air system makes when it kicks on.
Flagged problems must be fixed before the FHA will sign off on your buyer’s loan.
Here’s the FHA’s property condition checklist. Homeowners can go a step further by looking at the full scope of FHA requirements.
For good measure, they can review the FHA’s buyer’s guide to understand what shapes buyers’ expectations.
2. Code Do
Municipal building codes will prioritize your to-do list, too. Work that has been done on a house without the proper building permits – by the homeowner or by a shady contractor – may well be flagged by a buyer’s inspector.
While it’s true that pre-purchase inspectors are not specifically looking for code violations, they are supposed to find any kind of problem that could cause the buyer difficulties. And, many inspectors are former municipal inspectors. They know code noncompliance when they see it.
Homeowners with unpermitted improvements or repairs have a couple of options.
- They can retroactively get a municipal inspection, fess up to the illegal work, pay the fine, and get the work OK’d.
- Or, if the work is so bad that it probably would not pass an inspection, they can get it corrected by a licensed professional.
Either way, homeowners should document that the work meets local building codes. That will reassure a buyer and an inspector that the house is worth buying.
3. Outthink the inspector.
Deals are falling apart when inspectors come through and, properly enough, flag problems that could cost the buyers money.
It’s smart to figure out what the inspector will be looking for and prioritize repairs accordingly… leaving the inspector with nothing to find and ensuring that the deal will make it to closing.
Start with a document that usually comes into play in the middle of a home sale: The property condition report required by most states. Property condition reports require you to disclose any known defects. This ensures that the buyers know about the property’s flaws and problems before they complete the purchase.
A soon-to-be-selling homeowner can always just list the problems (basement floods in heavy rain; asbestos-wrapped pipes, and so on) and hope for the best. But today’s buyers are not interested in buying somebody else’s problem house. They will move on to a property whose problems have been fixed.
Homeowners can ask themselves these two questions to frame a to-do list from the property condition report:
- What existing problems would be disclosed on the property condition report?
- And of those, which most urgently need attention and are of enough concern to undermine buyers’ interest?
Tackling those problems before the house goes on the market brings another advantage: the homeowner has full control over the pricing, quality, timing and contractor that does the work l – which is not the case when the problems must be fixed in the midst of a sale.
4. Neutralize with personality.
On average, it takes several months to sell a house. Given the slow market, potential sellers should stage the house for their own comfort as well as for buyers’ perceptions.
They can accomplish that by tackling low-cost, big-impact projects first. That means painting over the screaming yellow that once seemed so avant-garde for the dining room. But that doesn’t mean have to whitewashing the whole place as though it were a rental.
One winning tactic is to choose softer, more neutral shades of a favorite color that coordinates with existing window treatments, furniture and accessories. That opens the door for staging with what’s on hand.
The fictitious bright yellow dining room, that no doubt was accessorized with grass-green table linens, could be calmed down to a glowing butter yellow. The table linens would still pop, and the homeowner could still maintain the original reason why she painted the room yellow: to brighten a space that got little natural light.
Going monochromatic works, too. Choose a low-key, livable shade of a favorite color and then work with layers of that color for a pleasing, calm, color scheme.
The classic monochromatic scheme is blue. Silver blue is a popular wall color these days, and easily accessorized with blue-green pillows and window shades.
When a homeowner reinterprets a look she loves through a neutral lens, she has made it and more peaceful to live in the house during a lengthened selling cycle.
5. Use energy-saving tax credit forms as a shopping list.
Uncle Sam will reimburse homeowners for qualifying energy upgrades like insulation, new windows, new doors, or a super-efficient new furnace or air conditioning unit. Tax credits are even available for up to 30 percent credit for the cost of installing solar panels.
But this being a government program, homeowners must fill out the paperwork, provide receipts, and have purchased preapproved materials for the correct purposes.
The best way to claim the full credit is to use the IRS requirements as a shopping list and project guide.
At the IRS web site, look for Form 5695. Additional details are here.