It is now obvious to those who spend much time in the Melbourne property industry that the market has changed since last year. Many who report on the market but do not actually spend time in it are failing to see the true changes that are occurring. After the media hype throughout 2010 & 2011 anyone that owned property that did not absolutely have to sell, sat on their hands. It was only through the spring selling season last year that vendors began to change this tune to that of starting to look at upsizing and downsizing again.
We have spoken about this earlier this year and we can see that the market really has jumped about 3% and that turnover volumes are up by nearly 10%, just as we predicted 2 months ago. HOWEVER, what we did not foresee was “THE BLOCK EFFECT”. There are now so many properties coming on to the market and about to come onto the market that have had makeovers. And the vendors are assuming they will see the same returns as what happens on THE BLOCK and other renovation shows. Vendors are looking for prices that can be up to 10% above the property’s value, and their reasoning is, “we have renovated and spent $100,000.”
The average person will almost never make money on a renovation or simple development. This is not to say, “don’t showcase your property in its best light.” It means that the average person who spends $100,000 will probably increase the chances of selling their property, but are highly unlikely to earn more than $100,000 above what they would have got anyway. In almost all instances of renovation shows, the actually property costs, plus holding costs, plus renovating costs are well above what the property sells for on the final night of the TV show.
I have spoken with many real estate agents throughout Melbourne, and all are doing an above average number of listing presentations. Most are saying they have picked up more work than last year, but many of the vendors want to renovate before they sell. I have been invited in to many homes prior to the renovation, then heard what the vendor wants to do to the home before putting it on the market, and how much they are going to spend, and I have to think, they are vastly overvaluing their property.
For the average person who is selling his or her own home, you should maximise its potential with the absolute minimum spending of money. The majority of times that vendors make money after a large renovation, it follows an upsurge in property values. This could be seen in most of the TV shows back in 2005- 2010. The market was moving up so quickly, that many of these shows could have actually done nothing at all and sold the property for a similar price.
In the current market, which has begun to move up very slowly, I would advise the majority of sellers to cosmetically update their properties, but shy away from large renovations. Some paint, a garden clean up and some new carpet and blinds can make a huge difference to how many people will be interested in your property. It rarely makes a significant difference in the price a purchaser wants to pay. However, a good agent that has two or three parties interested in your property can then make a huge difference to the final price that you get from the sale of your property.
It is all about competition, not what you spend on a renovation. If only one purchaser is interested in your property and they have a good advocate working for them, you, as a vendor, are going to need an extremely talented selling agent assisting you to get even market value. However, if you present your home well and two or more purchasers are interested, and you have a talented selling agent, then you should achieve above market value for your home.
As a buyer, you need to understand that quite often, good value is not represented by the value of a home plus the full cost of a renovation. Many times, vendors renovating things that do not require renovation, or that have no value to a “would be” purchaser waste money. You do not want to overpay for someone else’s mistakes.
Buyers and sellers alike, need good representation when getting involved in the property market. If you are interested in property, please feel free to give us a call
JPP Buyer Advocates