- Actual Cost of Improvements and Repairs
While it is true that that the condition of a home has a definite affect on its market value, and that a well maintained home will sell for more than a home in need of updating and repair, the actual cost of making repairs and improvements may not be equal to the increase in market value. Why? Cost does not necessarily equal value in real estate.
Repairs and improvements are two different things. A repair corrects something that is broken or not working properly, and does not necessarily add value to a home when fixed. Some types of repairs are considered necessary repairs. A leaking faucet, broken windows, clogged drains, screens with holes, gutters hanging from the roof, missing downspouts, cracked concrete walkways, among others. Repairs like these can be considered deferred maintenance, are considered minor repairs. They are maintenance related and are easily noticed by buyers. They draw attention and become distracting.
If not taken care of, conditions like these will definitely have a negative impact on the marketability of a home which will then have a negative affect on market value. When repaired or fixed, these type repairs make a home more saleable, not necessarily more valuable. In other words, just because repairs cost $1,500 does not mean that they have increased the value of the home in that amount. However, if not repaired, they could result in a loss in value of more than the cost to repair and, maybe more important, the loss of potential buyers because they feel the home needs too much work.
What about the roof, exterior siding, windows, heating system, electrical system, central air conditioning system and hot water heater? These type improvements are more costly than the repair items noted above and can have a larger impact on marketability and market value. While a buyer may not rave about how beautiful the furnace looks because it is now, they will definitely have negative thoughts on a home where the furnace is original and is 50 years old. A new or newer furnace will be more efficient than the original, save the buyer money in monthly fuel bills and, more importantly, is an item that will not need to be replaced by the buyer in the near future.
These type items relate to the effective age of a home. The chronological age of a home can be different from its effective age. There is a life expectancy in how long a roof will last, how long a furnace will last, etc. A 50 year home can have an effective age of 20-30 years when improvements like these have been made. When comparing homes, buyers are concerned with near future essential improvements which need to be made, especially those that are costly, like these.
Quite often buyers will pass up on homes they are interested in simply because they need too much future updating, even if the asking price is appropriate considering the condition of the home. Why? Very often they just do not have the time or inclination to take care of major updating, but more importantly, they may not have the additional cash to make the improvements after closing as they have exhausted their savings for the down payment and closing costs.
Should a homeowner replace the original 50 year old furnace when they are ready to sell? Should they invest the $2,300 to $4,000 and have the furnace replaced? A furnace is an integral system to the home, and one buyers are concerned with. However, it is just one aspect of the home. The question relates more to whether it will cost more to sell the home with the original furnace than what it would cost to replace. If the furnace is the only item requiring immediate attention, it may not prevent a sale. However, if there are other must do improvements, it will have a negative impact on market value.
Decisions like this have to take into consideration the overall condition of the home. When investing in a new furnace today and spending $2,500, what is the likelihood of receiving a full return on the investment? The reality is that it will help sell the home, but not necessarily at a price to recapture the cost of new furnace.
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