Should I Renovate Or Sell As Is? The Pros And Cons
Figuring out whether to renovate or sell as is can be a challenging task. Everyone’s situation is different and there are instances where it makes more sense to do one versus the other. In this article we will examine the pros and cons and help you understand if it makes more sense to renovate or sell as is so that you can make the best decision based on your unique situation.
Renovate Or Sell As Is Explained
Before diving in, let’s go over each of these definitions as it pertains to this article. When we say renovate we are referring to the process of renovating a property to bring it to market standards and then selling it. Doing it this way usually involves hiring contractors to fix it up, and then a realtor will list it on the market once this is complete.
When we refer to selling as is we are referring to when someone sells their house in its current condition directly to a buyer (without realtors). It is possible to sell as is with a realtor, however in this article we are specifically talking about selling direct to an investor.
Now, let’s get into it so you can decide whether to renovate or sell as is!
The Pros And Cons Of Renovating Prior To Selling
Renovating a house before selling it really only has one pro due to the effort and stress involved with doing this. You can make an argument that there are intrinsic benefits to renovating a property such as the satisfaction of taking a property in bad condition and turning it into something beautiful.
However, since this is typically a complex and expensive task, we recommend watching HGTV so you can live vicariously without having to do the work yourself! The one pro of renovating a property prior to selling it is price.
Pro #1: Higher Sales Price
The one and only benefit to renovating a property prior to selling it is the higher price you’ll likely receive. It should come as no surprise that properties that are updated and fixed up sell for higher prices than those that are not.
If someone does a renovation and continues to live in the property, then there are many benefits as you’ll get to enjoy the updates yourself. But, for people looking to do this prior to selling, where they won’t get to enjoy any of it, it is strictly about the money at that point.
If you’re considering whether you should renovate or sell as is and price is the only important element of the transaction, we recommend renovating prior to selling.
Your home is usually the largest asset owned, so price SHOULD be extremely important when you are looking to sell it. The equity in your home is built over many years so selling your home should never be taken lightly. This is why we always encourage people to educate themselves so they do not end up selling their house to a wholesaler.
Now that we’ve went over the pros, let’s talk about the cons.
Con #1: Renovations Are Costly
For a lot of people with a house in need of significant updates, they do not have the financial means to take on a project that can cost upwards of $100,000. Generally, people do not have this kind of money laying around that they can put into a home renovation.
Home renovations can be extremely costly, especially when the seller doesn’t understand what a good or bad price is. Years ago I was given a quote for electrical work that was $8,000. I almost went with it but decided to check with someone else who was able to do it for $3,700. This kind of disparity is not uncommon when hiring contractors, unfortunately.
Curbio is a company that recognized this and created a way to get around paying for the renovations ahead of time. Check them out if you want to renovate but don’t have the funds to do so. They essentially pay for the renovations up front, and then get paid once the property sells. It is a very interesting concept for those wondering if they should renovate or sell as is.
While they’ve tackled the pain point of financing the renovations when someone is looking to sell, they have not solved another pain point, which leads us to the next con.
Con #2: Renovations Are Time-Consuming And Stressful
Doing a major home renovation is incredibly stressful and can take a lot of time. There are lots of “moving pieces” and very often there are multiple costly surprises that come up along the way.
Surprises Are No Fun
On every house flip I’ve done, we’ve budgeted a certain amount of money to be set aside for things that come up along the way that aren’t anticipated. We’ve NEVER done a renovation where a several thousand dollar surprise DID NOT come up.
When dealing with older properties that have not been updated in a while, there are almost always going to be things that come up that were not expected. This is par for the course and should certainly be budgeted for.
Managing Contractors Is Like Herding Cats
Another element that makes the renovation process stressful is the need to manage and stay on top of the contractors doing work on the property. Contractors aren’t typically known for their communication skills and stellar customer service, which means there is babysitting required in order to get things done.
Hiring contractors individually based on their specialty is a way to save money. For instance, hiring an electrician to do the electrical work and a plumber to do the plumbing work. When you do this, there is no general contractor in charge of overseeing everything (and getting paid), therefore this is a way to save money.
The drawback to doing this, however, is that each contractor will report to you, and you will be responsible for making sure everything progresses in a timely manner and according to how you want it to take place.
The Process Of Renovating Can Be Exhausting
As you can see above, a major home renovation is no small task and will usually drag on longer than expected. I have yet to do a home renovation that goes exactly according to plan and on time/budget. Luckily, I have never lived in a property where I’ve done a renovation.
For those that live in the property they are planning to renovate, it can be exhausting having to live in a construction zone for weeks or even months at a time. Your daily routine is completely disrupted by contractors coming in and out making lots of noise.
For all of these reasons, some people go the route of selling their house in its “as is” condition without renovating. Let’s jump into the pros and cons of selling as is now!
The Pros And Cons Of Selling As Is
Selling a house as is directly to an investor bypasses the need to renovate, and the need to have a realtor market and sell the property. Just like renovating a property prior to selling has its pros and cons, so does selling a house as is.
The first pro we will discuss is speed.
Pro #1: Speed
Experienced real estate investors typically use cash or hard money to purchase properties. This allows them to move much faster than people using traditional financing sources such as a bank or lender. It’s not uncommon at all for investors to purchase properties in as little as 7 days.
Compare this to selling a home the traditional way where it usually takes 45-60 days for the buyer to settle on the property, and you can see why this is a major pro. When you add in the time it takes to renovate the property, and the time it takes to market the property, it can easily be 6 months or even longer before the property is sold.
A lot of sellers that are behind on taxes, their mortgage, or need the money from the sale of their home for any other reason can benefit greatly from doing a quick sale.
If you’re thinking about whether you should renovate or sell as is and selling the property quickly is the most important thing, then this route is likely going to lead to the best outcome.
Pro #2: A Guaranteed Home Sale
When planning to renovate a property, and sell on the market with a realtor, there is an element of risk involved. If it takes 2-3 months to renovate the property in preparation for listing it on the market, there are a lot of things that can happen during that time.
The housing market can improve, decline, or remain the same during this time, and there is no one who knows exactly which one it would be. And remember that anyone who claims to know exactly what will happen is lying!
Once the property is renovated, there is then the hurdle of finding a buyer to purchase it. People buying houses the traditional way are generally not as sophisticated as full-time investors, so this can lead to contracts being cancelled, and time and effort wasted.
There is a good bit of speculation involved when doing a renovation in hopes of selling for a higher price, and for this reason a lot of people will opt to sell their house as is in its current conditions instead of renovating. A good investor with a proven track record (ie. not a wholesaler) will be able to deliver a guaranteed closing so there is peace of mind.
Pro #3: A Low-Stress Transaction
There is no such thing as a stress-free property sale, however when an investor sends an offer with a fast closing and no contingencies, this is the closest you’ll get to it.
There is tremendous value in knowing exactly what is going to happen and not having that constant anxiety from wondering if the sale is going to go through as planned.
It’s not uncommon for first-time home buyers and inexperienced buyers to use the home inspection contingency clause found in the contract to re-negotiate a better deal for themselves. According to this article, a survey of 998 home buyers found that, on average, each buyer leveraged the results from the home inspection into $14,000 off the final sales price.
This is not something that seasoned investors will do. They completely understand they are buying a property with some issues, and it is factored into the initial offer price so that there are no surprises down the road. This leads us to the single con for selling a house as is to an investor.
Con #1: A Lower Sales Price
Real estate investors are trying to make money (shocking, right?). Because of this, they attempt to buy a property where they can then fix it up and sell it while making a profit, or buy a property to hold as a rental.
In exchange for a fast/flexible settlement, guaranteed sale, and an overall much simpler transaction compared to the traditional sales process, investors are looking to buy at a good enough price where it is profitable for them.
There is no question that in most cases a seller will end up making more money renovating their home, and then selling it the traditional way. But, the question is how much of a difference will it be and is it worth it to go through the renovation process for it.
Sometimes it can sound like a substantially lower price compared to if the property were renovated and sold with a realtor, but let’s look at an example comparison between selling a property as is, and selling the same property after it has been renovated.
This will be valuable for those thinking whether to renovate or sell as is.
Renovate Or Sell As Is Comparison
In this example, we have a property that has an after-repaired value (ARV) of $350,000. This is the value of the home once it is completely renovated and updated.
The offer from an investor is $240,717 and the offer once the property is fixed up and sold on the market is $350,000. Now, I know this sounds crazy because they are almost $110,000 apart, but bear with me and we will get into the math behind each offer and what the seller will truly get.
For the breakdown of how the investor came to this offer price, see below. And if you want to instantly see what an investor would likely pay for your property, check this out.
In this example the investor is looking to fix up the property and then sell it (fix and flip). You can see all the costs deducted from the ARV and that is how the price of the offer is reached.
When working with an investor directly, there are no realtor commissions paid and typically they will even pay the seller closing costs (which are around 1% of the sale price), so the price offered is truly what is received.
Now, let’s take a look at what it would look like to renovate and then sell the property:
In this example the renovation costs are 20% higher than the investor because it is assumed that the investor is able to get better pricing since they do this regularly and have connections. The closing costs and realtor commissions are pretty standard and according to the article I mentioned above about buyers re-negotiating, this is actually much lower than the $14,000 average that their study found.
Now, the disparity between the two doesn’t seem too great, does it? Bypassing the time, money, effort and energy required to renovate and sell a property the traditional way might be worth a slightly lower price.
Renovate Or Sell As Is Bullet Points
Let’s recap the pros and cons of both selling as is, and renovating prior to selling the traditional way so that you will know whether you should renovate or sell as is. First, we will start with renovating:
- Pro #1: Higher Sales Price – barring some unforeseen shift in the real estate market, or not renovating the right aspects of the home, you will usually get a higher price when you choose to renovate and sell the traditional way.
- Con #1: Renovations Are Costly – a major home renovation can get very pricey. Be sure to analyze the numbers and be confident you’ll be able to stay on budget.
- Con #2: Renovations Are Time-Consuming And Stressful – renovating a home is no small task, especially when it is severely outdated with lots of maintenance needs. It takes time and effort to manage the process and ensure everything goes smoothly.
Now, let’s go over the pros and cons of selling as is:
- Pro #1: Speed – working with an experienced real estate investor will allow you to sell much quicker than going the traditional route. Selling in 7-10 days is very possible with a good investor.
- Pro #2: A Guaranteed Home Sale – having a bird in the hand instead of two in the bush is very attractive for a lot of sellers who’d like the avoid the uncertainty of renovating their house and selling the traditional way.
- Pro #3: A Low-Stress Transaction – doing a quick sale to an investor is much less stress-inducing than selling with a realtor.
- Con #1: A Lower Sales Price – in exchange for all the pros above, getting a lower sales price is typically what happens when selling as is.
Renovate Or Sell As Is Summary
Deciding whether to renovate or sell as is can be a tough decision to make. If you have the financial means to renovate and want to shoot for the highest price possible, then it is likely the best option to renovate prior to selling.
If renovating is not possible financially-speaking, and you’re in a position where the longer process isn’t feasible, then it might make sense to look at selling as is to an investor.
Check out our valuation tool we created to help you estimate what an investor might pay for your property. It will certainly come in handy if you’re on the fence about whether you should renovate or sell as is.
And please reach out with any questions, we are happy to help!