Why Seller Investments Are a Missed Opportunity

May 23, 2022
What is the best amount of money for a seller to invest in a property they are preparing to sell? Many might answer this question by saying $0.

Their justification: this is a seller’s market. It’s all too easy to assume that clients actively disregard the opportunities in front of them because of the ease of access to the market, especially from a buyer’s perspective. Pre-sell investments can still represent a better buyer and result in greater ROI.

In what Fortune Magazine calls “the mother of all seller’s markets”, we tend to focus on the nearly endless demand throughout the market and therefore disregard the hidden value of a basic investment. In a buyer’s market, the seller tends to invest a greater amount of financial resources and time in preparing their home for market. But since the market has become increasingly seller-friendly, those investments have decreased because, in most cases, property is in too high demand for these investments to be justified. This reduction is often substantiated by the seller’s desire to have a speedy property turnover and the advising agent’s limited understanding or explanation of hidden value.

Before 2020, the average seller investment on a home was $15,000 to $55,000, depending on the property. This investment was also fully recoupable, though it was typically a break-even investment. Back then, the average seller could expect around a 13 percent property ROI based on an average ownership time. This meant that the seller had to be cautious and meticulous in their pre-sell investments to maximize their return while still selling their home in a reasonable time frame.

Today, the average property ROI, without any pre-sell investment, has jumped to 35 percent, an increase of 22 percent in just two years. With the pendulum shifting to a seller-friendly market, those once-critical pre-sell investments have greatly declined. These investments not only remain necessary, but they also present an opportunity for greater ROI.

What is often overlooked by the average seller is the now uncharacteristically high return from pre-sell investments. While not always necessary to secure an offer, a small investment can result in a more profitable return at close.

The average pre-sell investment return is now 30 percent. Remember, just a couple of years ago this was mostly a functional break-even model. This means that for every $10,000 invested in property improvements before they sell, the seller could see an additional gain of $3,000.

The important communication to a seller in this situation is that the value and functionality of pre-sell investments might not remain this lucrative for long. This is an ideal time to capitalize on demand and investment returns whenever possible.

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