There are large numbers of homeowners who believe that in order to fully capitalise on their properties, they need to renovate shortly before they sell. After all, if the property is worth R1-million in its current state, what will it be worth if they make drastic improvements? Well, actually, not as much as they think.
Over-capitalising on a property is a fairly easy mistake to make and many sellers has found to their detriment that they fail to recoup the costs of home improvements in the short term. This is not to say that those who are planning to sell shouldn’t take a long hard detached look at their homes and rectify defects – they just need to keep a cool head when doing so.
Before embarking on a major renovation project homeowners need to conduct a fair amount of research to ensure that the changes they plan to make, while adding value to the property, will not completely price the property out of the market. Over-capitalising on a property is a fairly common problem and it is easier to get carried away than most people think. Some things are patently obvious. For example, putting a R60 000 kitchen into a property that only cost R400 000 is generally considered to be a mistake and it is unlikely that the homeowner is going to recoup the cost in the near future. Unfortunately, it is not just lower priced homeowners who fall prey to the over-capitalisation bug.
Everything is life is relative and spending too much on a home expecting to make a profit in the short to mid-term is dangerous in both the low-end and high-end property market. Just because an owner has made R500 000 worth of improvements to a home that cost R1-millon does not mean that the homeowner is going to be able to recover his costs by placing the home on the market for R1, 5-million, particularly when other similar properties in the area are generally selling around the R1-million mark. This is particularly true when it is a ‘buyer’s market’.
Some things are not going to add value regardless of the cost. Placing a retaining wall against a steep bank will be seen by most buyers as a necessity and not an added bonus. Likewise, it is unlikely that owners will be able to attach any value to the fact that the exterior of a house has recently been painted. These aspects which may certainly help to sell the property are not perceived as improvements by buyers; they simply make the proposition seem more attractive.
Renovating a house before you sell hoping to make a substantial profit it is tricky and generally speaking, depending on the types of improvements, an area where many sellers over-step the mark. In other words those who expect too much too soon are generally going to come unstuck.
It is always wise to ask an agent to value a property before renovations are carried out. An agent who is familiar with the area in which the property is situated will be able to give sellers an idea of what the property is worth. While there are always exceptions, those who are planning extensive renovations need to heed caution and ascertain that the costs involved can be successfully incorporated into the selling price.
In this uncertain property environment it is definitely a worthwhile exercise to weigh up all the options and make decisions based on the sound advice of those in the know.
