Three Key Factors Besides Price Tag, Scope of Work
Discounting for a home’s “vintage” condition is inherently subjective.
Some Buyers don’t want to tackle anything more challenging than painting a Bedroom (if that).
Others — especially if they have contracting skills (or access to them) — are up for remodeling the Kitchen, Bath’s and anything else that needs attention.
How does a prospective Seller (or their agent!) put a number on everything?
Five Steps
Step #1 is to tote up the things that the average Buyer would want, priced at the going (retail) rate.
Then add 25% to 50% for the hassle factor to tackle everything — and being able to see past the current, tired state (“step #2”).
That number will at least get you in the ballpark, assuming the Buyer is an owner-occupant (vs. re-seller; see below).
Phase 2
To fine-tune the number, however, one must take three additional things into account:
One. Price Point. First-time Buyers have less money . . . for everything. After scraping together earnest money and a down payment, many of them don’t have anything left for remodeling.
Or have the time for it.
As a result, $50k of remodeling on a $200k house (at least in the Twin Cities) is a much bigger deal — and requires a commensurately bigger discount — than $50k of work on an $800k house.
Two. Absolute Cost of Project. In my experience, fixer-upper’s (the people, not the houses) divide into two types: amateurs and pro’s.
Or if you prefer, part-timers and full-timers.
Once the total updating budget gets north of, say $100k, the number of retail Buyers shrinks dramatically.
Which leaves the pro’s, who subscribe to “buy low, sell high,” and need enough upside to pocket a profit at the end.
That often means a steeper purchase discount once the total project cost trips six figures.
Three. Market Conditions; Inventory. Like anything else in real estate, market conditions trump — or at least influence — practically everything.
So, in a Seller’s market, the discount for a tired home can shrink dramatically if there’s nothing else for sale and Buyers are desperate.
Meanwhile, in a Buyer’s market, the discount typically has to be especially mouth-watering to entice reluctant (or financially conservative) Buyers.
In other words, it’s all about supply and demand (no surprise).
