Not Just 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 Realtor!) 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.

Step #2: add 20% to 30% for the risk and hassle factor to tackle everything ” and being able to see past the current, tired state.

That number will at least get you in the ballpark, assuming the Buyer is an owner-occupant (vs. re-seller; see below).

Other Considerations

To fine-tune the number, however, one must take three additional things into account:

Price Point (Step #3).¬†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.

Absolute Cost of Project (Step #4). 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.

Market Conditions; Inventory (Step #5). 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 — surprise, surprise — it’s all about supply and demand . . .

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

Leave a Reply