Having a good contractor and real estate agent made a huge difference. People have asked me if I would get a real estate license and handle that part by myself, or hire subcontractors and act as my own general contractor. These are both things I considered before I started, but can now say with certainty that I have no desire to do either. I want to spend as much time as I can with my family and also have a full time job that I enjoy. I got to do the fun design part, leaving the headache of managing a crew and dealing with the paperwork to my contractor and real estate agent. Sure, I have to pay for their services, but I think it’s money well spent to have people who know what they are doing handle these aspects, and allow me to do the part I enjoy, the designing. This way, it doesn’t feel like “work” to me, but rather, a fun hobby, that hopefully can generate some income.
As I mentioned, E bought L-House over 15 years ago so it had significantly appreciated, even in its original state. What I wanted to know was whether investing the time and money to renovate would actually appreciate its value beyond what we put in, or perhaps be a wash and just allow it to sell faster. Worst case scenario, we may even lose some of the money that we spent on renovations. In the end, I think the renovations allowed it to sell faster and at a much higher price than anticipated.
Construction took about 10 weeks, a bit longer than anticipated due to some delay in waiting for the cabinetry as well as time for the grass to grow in (we didn’t want to spend on turf so we grew from seed). We had open house on a Saturday and Sunday in early summer and met with the realtor 4 days later to make a decision on the 9 bids that we received, many of which were over the asking price. We decided to counter the 6 or 7 bids that were at or above asking price, requesting them to give their best and final offer, agree to work towards a 17 day escrow and find alternate funding if the lender appraisal came out lower than their bid. 3 days later, we had a signed offer with the highest bidder.
Now, I learned that choosing a buyer wasn’t as simple as choosing the highest bid, though that’s eventually what we went with. More importantly, we were trying to choose the buyer with the highest chance of making it through escrow smoothly. They needed to have a good amount of money in the bank, and verified funding, as well as be very motivated to buy and move quickly. Our agent helped us assess this, based on her discussions with the buyers, buyer’s agent, and from her experience.
Despite the smooth and fast process in getting bids, the escrow part did drag out much longer than expected, out to about 45 days. This was mainly due to the fact that the assessed value came out quite a bit lower than the bid. Our realtor indicated that institutional lenders’ appraisals do typically come out lower than private mortgage lenders’ appraisals, but it’s not like choosing a buyer using a private mortgage lender would guarantee no issues. The key is identifying a motivated buyer who is equally eager to move the process forward to get into the house as soon as possible. Though we had asked buyer to agree on coming up with the funding if the appraisal came out lower, in the end, we had to come down a bit on our price and the two agents took a cut in their commission to move things forward faster.
Overall, the final price was still a good amount over the asking price. The renovation also made a huge difference, allowing it sell very quickly, as well as generating conservatively, a 50% return on investment and potentially even over 80% (based on the real estate agent’s original assessment on how much the house would sell “as is”).
We are really happy and thankful of the outcome. What I didn’t anticipate was the high amount of capital gains tax associated (~30%) of which there is no tax shelter or opportunity to increase charitable giving to offset. However, I am still very thankful. This was a fun experience and I’m already asking my agent to send me more homes to review. Ready for the next project!