Monday, March 26, 2007

Stage This House!

We're thinking it prudent to start a discussion on the ways that people make their homes more appealing to potential buyers. We want to do this for obvious reasons: so that anybody reading this learns the tricks, doesn't fall for them and makes an offer to purchase for a fair price in a quickly stagnating market, rather than getting duped into believing "offer big or you might not get it".

According to perennial real-estate experts, MSN Sympatico, (sarcasm intended) home staging is "your secret weapon in home sales". Why stage your home, you may ask?
"If you’re lucky (emphasis added), your home will look so good that potential buyers will start a bidding war, and you might get as much as 10% over your asking price or more."
And if that isn't convincing enough, we'll bring in a completely unbiased opinion:
“Everybody who is selling a home can benefit from home staging regardless of price, condition, or location,” affirms Christine Rae, president of www.canadianstagingprofessionals.com. “Sellers can expect anywhere from 3% to 10% over list price (emphasis mine) when a home has been properly staged,” she says. “The other benefit is that a house will sell faster, especially in a slow market.”
Wow. Expect 3% to 10% over list. We did not make this up. So what exactly is home staging?
"Home-staging activities can range from minor fixes (updated light fixtures, new area rugs) to major undertakings (kitchens and bathroom renovations)."
Correct me if I'm wrong, but major undertakings like kitchen and bathroom renovations are called renovations and are usually considered improvements to a house. How can this be re-interpreted as home-staging? Isn't home staging doing a major cleaning-up, having some ambient music playing in the background and getting one's less-than-nicer fixtures out of the place? Shouldn't you have a pot of coffee on, or a potpourri candle burning in the corner? After all:
"What a potential buyer sees, smells, hears, and feels while in your home can make or break a sale."
Well, according to the experts, apparently not:
"Our expert advises you not to fill your home with the scent of fresh coffee or potpourri, since buyers will wonder what you are hiding from them."
So apparently home staging isn't something so obvious that you can do it for yourself. Nor is it a quality that professional real estate agents should possess and incorporate into their own marketing which you pay a rather-nice premium for in your agreement with them to sell your home. After all, they shouldn't be expected to renovate your home, should they? So what can you do to make sure that you keep your costs under control?
"Set a budget. 'Look at home staging as an investment in your home rather than a cost,' advises Ms. Rae. 'A good rule of thumb is to budget 1% to 5% of your list price for home staging.'"
Can you imagine staging your home for $26,000 (average price $520K x 5%)? For $26,000! I guess everyone is doing a new kitchen and bathrooms.

Is it me or does all this sound an awful lot like flipping? I mean, I could purchase your lived-in without updating home for less, spend that 5% to 'stage your home' and then collect the large profits for myself 6 months later... or you could do it yourself. Every one's a flipper baby...

I should state this clearly as I tend to get carried away with my cynicism occasionally :)
I am all for you, as a seller, getting as much for your house in any market condition as you can. You owe it to yourself and your family. It is the way the market works. The information is available to all of us if we take the time to seek it out. And I don't think the market disadvantages anyone disproportionately to the work they put in.

So stage your home, it is obviously a good idea. But should you pay someone else to do it for you? Yes, if you can afford it, don't have any sense of taste, common-sense, or style to do it yourself, or haven't gotten in touch with a RE agent who should do this for you as part of their marketing plan for your house which you will be paying them anywhere between 6-9% to sell for you.

But beware, as expert tip number 1 states:
"Stage before calling an agent. 'Get your house staged before you contact a real estate agent or before you start trying to sell it yourself,' advises Ms. Rae. Home staging will affect real estate agents as much as buyers."
In other words: if you don't, the CSP will be out of business faster than McDonald's in a world of vegetarians. Our favourite section of their website: Success Stories. A true mark of professionalism is providing real, quantifiable, research-able, substantiated evidence of success. Success Stories uses no names, no MLS numbers, no attributed quotes... in fact there is no way to tell if they just made them up or not.

If we come across any homes staged in this manner (and we have in our hunt) we're impressed. Instantly. The house is warm, smells nice, and presents well. Then we walk away, look at the price, compare it to the others we've seen and think about how much it would cost us to do the work ourselves. Then we steer clear, choosing not to get caught up in any 'emotional hype' surrounding the property. The market is driven by fear and greed, or so we are told. The only way to beat the market is to be rational and intelligent.

3 comments:

Siobhan said...

Staging and recent renovations will increase the property's value. Although I have never encountered a 10 percent increase just for staging.

A prosepective purchaser only looks at 6 basic points of a home when buying. Which I have ranked in order from most important to least based on there contributory value to the property as a whole.

1) Location
2) style - rancher vs two story
3) House Size
4) Lot Size
5) Age and Condition
6) parking

Staging would lay in the fifth position or second from the bottom between lot size and parking. My guess is that simply staging the home would increase the property less than 5 percent say at the mid-point between 2 to 3 percent. Still on a half million dollar home that can be $10,000 to $15,000. Which is good news to a seller.

On the flip side. If your a buyer, prepare yourself for "buyer's remorse" because when you walk into the home that you have just purchased, the rented furniture, plants and paintings will be gone, especially around the stained floor coverings that they were concealing.

But it costs you more than buyer's remorse. Since you have "over bought" you have lessened your future gain in market appreciation.

For example, if you over bought by $10,000 and market prices increase by 10%

The unstaged home would increase from $500,000 to $550,000, giving a return on the investment of 10 percent. But if you had over bought by $10,000 your return on your "investment" would be 7.84 percent. So over buying by 2 percent you would have lessened your future return by 2.16 percent.

If you buy a home that has recently been renovated with a kitchen, bathroom, floor coverings and paint; then the return on your investment is much worse. But that's a longer discussion - for another time.

Siobhan

greg said...

hhv,

I think that staging is really just another tool used to increase the likelihood of making a sale.

By encouraging buyers to do it, listing agents are basically getting the client to pay for improvements that will increase the likelihood of a sale - thereby, increasing the likelihood of a commission.

The seller is in effect paying the regular commission plus paying for upgrades to get the sale - not a pleasing prospect for atleast some flippers with little equity in a home.

However, in an environment where there are not enough buyers, staging probably increases the odds a smaller pool of buyers settling on some properties versus others.

But hold on, if the price hasn't gone up to 3-10% to account for the improvements - isn't this a kind of hidden discount?

What I mean is, if I spend $26,000 renovating the kitchen, and my house sells for list, shouldn't it look like my house was worth $26,000 less without the improvements?

Happily for the MLS, these kinds of discounts are never captured in the sales numbers.

A clear indication of where the market is going. I don't recall local agents making any concerted efforts to get buyers coughing up tens of thousands to stage houses a couple years ago....

patriotz said...

When a developer does this kind of thing, it's called "incentives" and is one of the first signs of a declining market.

Like you-know-where.