One of the main questions I get on valuations is “should I do works on the property before selling?”.
Generally speaking, the answer is no. Minor repairs and a lick of paint are simple cost-effective ways that go a long way to create a more desirable space. However on the whole, drastic changes like a new kitchen, bathroom or even a loft conversion are not usually the way forward. Yes you will add value, especially adding square footage in the form of an extension or loft conversion and, with the latter, you could achieve a greater return than you outlay. However, is it really worth the time and effort if you are just going to sell straight away?
If you are doing it for your own needs and will enjoy the fruits of your labour then go for it. Truth be told, if you are thinking of doing works just to sell I wouldn’t go out of your way to put your own touch on it, different buyers have different taste and you can’t guarantee your refurbishment will appeal to buyers. I’ve been on countless valuations where the owners are living in tired homes and they think a B&Q kitchen (other kitchen outlets also available!) will get them an extra £50k. I just think to myself, why did you live like this for so many years when you could have enjoyed a new kitchen and bathroom yourself!
Just by changing such rooms is not enough to appeal to new buyers and, in some cases, can put prospective buyers off further as they would rather have a say in the finish, spec, colour, etc.
Traditionally in the areas I cover, namely Shoreditch, Hackney and Bow, the creative buyers could see past even the most odorous of pig sties and have a vision of the space they wanted to create. In fact, I have been involved in a number of sales whereby a run-down probate house has sold for between £30k and £50k less than a nice house on the street. This is despite it needing over £100k works to make it liveable. It seems the worse the condition, the more desirable it became.
Times have changed of late and I am experiencing a noticeable swing in the pendulum. The demand for really poor properties such as probates is still present. However, now it has to be the right price and those that are immaculate are getting a noticeable increase in viewing activity, multiple offers and even premium prices achieved. Also, those in the middle i.e. the tired properties needing more minor cosmetic work such as ex buy-to-lets are really struggling more than ever.
So what are the reasons for this?
Well, I believe there are a number of factors that have led to this change in sentiment. Firstly unfavourable tax law changes for buy to let landlords has meant many have exited the market of late leading to a glut of properties coming on for sale that have been rented for years and are generally in no more than average condition. Areas such as Hoxton especially (which has a large density of rented ex-local authority flats) has seen huge dips in prices, more than the average for Hackney. Is the condition of the properties the main factor for the price dip however?
The demand for such stock in general is low at present anyway as they have historically attracted buy to let investors, the very same people that are offloading or looking outside of London for bigger yields. This though doesn’t explain the fact that the few lived in and immaculate flats are selling for a premium in the very same area. For example, we recently sold a very nice two bedroom ex-local authority for £462,000 whilst struggling to sell an average 3 bedroom in the next block at £450,000. That suggests to me that the difference in condition is a big factor as two beds have historically sold for around £50k less.
There is a theory that the 3 bedroom are less desirable as they are prime for investors as opposed to 2 beds which still attract first time buyers and those looking for a home to live in. Surely then you are better off buying a tired 3 bed and sprucing it up yourself?
And there’s the issue. Either the first time buyers are not even thinking to search the 3 beds (which I doubt), or my theory is right and the well finished properties sell for so much more now.
That still doesn’t answer why this is the case though. The fact that building costs are now much higher than they were two years ago may have something to do with it. Could this be a result of Brexit with more hard working and cheaper eastern European workers migrating back?
Stamp duty may have also been a factor. Since the increase of 3% for second home owners was introduced the obvious result has also been a decline in investors, not only buy to let, but those looking to add value by refurbishing themselves. I’ve lost count of the number of times I have seen a property languishing on the market at a fraction of the price it was two years ago and been tempted to dip my toe in myself. However, the extra 3% stamp duty takes a huge chunk out of any benefit once you factor in the higher refurbishment costs. This is obviously not as pertinent now with the stamp duty holiday although I haven’t seen a huge uplift in investors since.
All of which are contributing factors. For Hackney and Shoreditch though I have one more theory…the demographic of buyer. Having seen the change of East London over the last 15 years it is easy for me to notice the different buyers now coming to the area. Whilst heavily bombed in the war, Hackney is still flush with lovely period property. Historically it was always the cheaper alternative to the likes of North London’s Islington or Crouch End and thus attracted the artists and creative types. Whilst Shoreditch is still a huge creative hub, many young millennial’s can only afford to rent in the area. The older artists are migrating out of London to places such as Margate and the buyers now seem to be more blue collar workers such as bankers and solicitors i.e. those with less time, effort, inclination (and dare I say creativeness) to do the works themselves.
Maybe one, two or even none of these theories are correct and it will be interesting to see how it all pans out in the future. Markets are constantly evolving and this year has been a rollercoaster thanks to Covid-19 and the stamp duty holiday. Brexit will rear it’s ugly head soon which will be another bundle of joy we can all look forward to!