Happy New Year! Is it February already? I’m so pumped to be back at Pumped On Property for another year!
2015 is looking very confident in the home, building and design industries. I have 20 or so homes to be completed in the first part of the year which is unprecedented – I usually take on 25 or so projects each year, so to have 20 in 5 months is quite the workload!
The market here in South East Queensland is certainly busy with builders recruiting to keep up with a surge in demand for new homes and renovations and real estate agents getting some great listings at an encouraging price point. The majority of my clients are looking for a full service solution so they can enjoy managing their new home or reno experience without the need to get too involved with the finer details.
Anyway, let’s get on with it!
Last year I promised an entertaining take on budget as part of my Pre-Sale Preparation Guide and after many hours and much research I’ve realised budget just isn’t entertaining, so I apologise for promising something I cannot deliver.
Having said that, I encourage you to keep reading because while it’s not entertaining, it is extremely interesting and on more than one occasion I’ve found myself ‘deep down the rabbit hole’ intrigued by the people, research and figures associated with pre-sale prep.
So here it is – Everything I’ve found in Band-Aid-Ripping style (if you take Band-Aids off precisely, carefully and slowly…)
‘As a General Guide…’
First up, as a general guide the budget for preparing your home for sale is going to be 2-4% of the current market value.
A $500k home will have a $20k Pre-Sale Preparation Budget
As every property needs some prep no matter what age, condition or demographic, the lower echelon of 2% would apply to homes that are new or immaculately maintained and require the basics – cleaning, staging and styling, ongoing maintenance and on-market costs.
Working out where to spend in order to get the best return will be easy if you know your buyer demographic and market.
Spending more than 4% on your property may see a significant return, however I believe anything over 4% and you’re renovating, and renovating has its own set of rules.
The expected return on your investment when done well is 3 times – however measuring the return is complicated as it could be in the form of a quick sale.
From the moment you decide to sell your home it becomes a product and it has overheads or ‘On-Market Holding Costs’. These costs must be tracked in order to control your spend and measure your return.
On Market Holding Costs
I consulted with a good friend of mine, Janelle Rayner at Barnes Home Loans to help me calculate my fictional holding costs on a $500,000 property at a 5.2% mortgage rate.
The property is on the market vacant but professionally staged (so I’m renting elsewhere or committed to a secondary mortgage or bridging loan) and the figure we came up with was $7500 per month.
When you pick yourself up off the floor, you should brace yourself for it again – $7500 a month.
This sounds excessive and perhaps to a certain extent our figures were ‘comfortable’, however if you consider the following figures you can see the cost of holding can add up. Apply the below to your own circumstance and let us know how your math adds up.
You are holding a property worth $500,000
- If you equated this amount to a mortgage at say 5.2% p.a. based on interest only payments, your monthly commitment would be around $2167.00
- If you are renting a property of a similar standard at say $625.00 per week, this would mean a monthly rental commitment of $2687.50
- Staging and Styling cost $1750 (half the quoted monthly amount due to a bonus 4 weeks)
- Garden maintenance and cleaning fees $200
- Plus rates, insurance, utilities, off-site storage, marketing… Are we there yet?
The need for a quick sale, and indeed speed to market to reduce your expenditure and increase your return becomes a priority and when the offers start rolling in you can make an educated decisions as holding out for a higher price could be false economy.
Know Your Stuff and Set The Budget
Don’t fish around with trades or indeed anyone, expecting them to set or guess your budget – you will never be happy with the outcome if you don’t have some idea of the costs. Invest some time to calculate the average costs so you can set the budget and then tweak or negotiate once the actual figures come in.
The below figures are what I use when I begin to budget for a specific project. Please remember these figures are purely a guide used in the initial stages of costing and quoting.
- Unskilled Labour – $20-$25 per hour
- Cleaning/Garden Work – $20-$30 per hour (service supplies equipment)
- Handyman – $30-$50 per hour or flat rate for a specific project
- Licensed Tradie – $50-$100 per hour PLUS call out fee $50-$150
How Much Does A Designer Or Property Stylist Cost?
- Pre-Sale Advice (Property Stylist or Pre-Sale Advisor) – $80-$200 per hour
- Property Styling and Short Term Hire – $3500+ per month. Commonly a ‘free’ period is offered such as an additional 2-4 weeks
How Much Do Renovations Cost?
In some circumstances pre-sale reno’s (renovation to existing structures) may be required to keep up with the Jones’s (market expectations) and in this case you need to focus on the return.
These are a guide of fair costs for a good quality reno. The figures do not take into consideration specific project requirements that could affect your particular quote.
- Laundry – 4k-10k
- Bathroom – 10k-25k
- Kitchen – 11k-30k
- Bedroom – 4k-9k
- Single Room 20m2 – 4k-8k
The Basics For Pre-Sale Prep Budget
For every dollar that leaves your wallet, you’ll be working toward receiving 3 in return.
Get the most out of every cent – you can’t just sit back and expect it to happen you have to drive it – Invest your time into research, quoting and negotiation of each planned expenditure.
Your time is the most profitable resource you have providing you spend it wisely.
You cannot and will not exceed your set calculated budget – build in a 10% buffer for unexpected costs.
Are you still awake?
How Much Does Real Estate Marketing Cost?
In Australia realestate.com is the ruler against which to measure online marketing costs. The content including your ‘hero’ shot and property blurb are incredibly important. Poor presentation, photography and copy could cost you a sale or return on your investment.
Realestate.com Advertising Cost Guide
- Casual Feature Property $360 – Perfect for a property that is in high demand
- Casual Highlight 30 day $780 – Perfect for a property with unique qualities
- Casual Premiere Property $2790 – Perfect for a property that will appeal to a focused demographic
If you’ve made it this far, my research took me off topic and I found myself engrossed in real estate commissions so I’ve included them as a little bed-time bonus below.
How Much Are Real Estate Commissions?
Keeping to our $500k fictional property, below is how your property will look through your real estate agents eyes. I need to rethink my career…
Average Commissions By State/Territory
- South Australia – 2.06% or $10,300
- New South Wales – 2.13% or $10,650
- Victoria – 2.17% or $10,850
- ACT – 2.18% or $10,900
- Western Australia – 2.48% or $12,400
- Queensland – 2.49% or $12,450
- Northern Territory – 2.65% or $13,250
- Tasmania – 3.25% or $16,250
The Definitive Guide to Preparing Your Home for Sale – Read The Full Series Here:
Everything Is Negotiable
My greatest resource is Pumped On Property and Ben Everingham. Ben has me renegotiating every figure that’s laid in front of me including commissions and interest rates. Ben and I along with the Pumped Team and Janelle at Barnes Home Loans are here to help, so please drop us a line with any questions or ideas you’d like to discuss.
So concludes The Ultimate Guide to Pre-Sale Preparation. I hope you’ve enjoyed the read and I hope that you reap the rewards when it’s all put into practice.
I’ll see you in March if not before and it looks as though I’ll be speaking at some upcoming home shows in a city near you, so watch this space or contact Pumped On Property for more info.
Warning: Pumped On Property are not investment advisers. This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. All readers should seek independent and qualified investment advice before purchasing a property.