How To Prep A House for 519% ROI

August 19, 2022

What difference can fully prepping a house make?  Will the upfront investment to spruce up your house pay off in the form of a higher purchase price?  Does it matter whether a home is owner-occupied or “vacant/go direct”? At the Young Platinum Group, we have great data to share with you!  Read on, future home-seller, to see why it makes sense to invest the upfront costs and receive outsized returns.

Executive Summary

• Before full preparation, 744 Guinda received an offer at list price of $5,000,000.  The house was occupied and hard to show.

• The Young Platinum Group fully prepped the now-vacant house, costing $33,711.

• After marketing and 40 days of exposure, we received an offer for $5,175,000, resulting in a 519% Return on Investment.

• The internal rate of return over 79 days was an astronomical 15,090%.  

The Challenge

Our seller (who is a dear friend and a busy tech executive) was leaving the area and looking to sell the stately and beautiful 744 Guinda Street.  We had a listing agreement in place and were planning the timeline and getting quotes to make the house fetch maximum value.  Suddenly, the perfect home showed up in the other place, and our seller pounced on it.  We abruptly needed to get 744 Guinda into shape.  However, the seller would still be living there, and we would not be able to do the normal prep work or allow normal realtor access.  We did not even have time to conduct the property inspection.  But we shifted into overdrive, as we needed to be on the market ASAP!

The Work We Could Do

Because the home was occupied, typical activities like painting the interior walls and professional staging were not going to be feasible.  We did a tiny bit of work inside (furnace and HVAC maintenance and some handyman tasks), but mostly we stayed on the exterior.  The garage was repaired and repainted.  Trees were trimmed back.  Dead branches were removed.  Flowers were planted.  Worn grass was replaced with fresh sod.  Railing and gates were painted.  Hardscapes were power-washed.  Exactly $14,432 was spent in swift fashion, and the home went on the market.  

The First Listing

We kicked off with a Broker Tour on Friday morning, and held a pair of 4-hour Open Houses over the weekend.  But after that, it was the family’s house again unless we negotiated a time for them to be away.  No realtor lockbox means friction for a buyer’s agent to check the house out, and even more trouble to coordinate with potential buyers.  Appointment-only listings are common above $10,000,000 in Palo Alto, but uncommon at our list price of $5,000,000.

At the Young Platinum Group, we view our jobs as solving our clients’ problems.  A “semi-prepped” approach was the right thing for our client in this context.  We acquired the previous listing’s photography and executed our custom marketing plan.  Brochures were printed. Print ads went out.  Online traffic-generators flooded Palo Alto’s aether and brought the right eyeballs to our website.  Broker tours educated realtors, open houses welcomed buyers (always staffed by us!), and we diligently followed up with tens of buyers’ agents. 

The First Offer

In short order, one of those other agents produced an offer.  And it was a good offer!  On May 2nd, after being on the market for six days, we got a solid offer at $5,000,000.  In summary, we decided not to accept it.  We waited another 14 days before the seller’s new house closed escrow, allowing them to move into their new future.  744 Guinda was free to go off the market, and receive all the prep work we had always intended.

The Proper Prep

On May 17th, the moving truck arrived.  On May 18th the seller was gone.  On May 19th our painters moved in to freshen up this lovely home.  We selectively redid some (not all) of the interior walls, patched holes, and lightened the kitchen and dining room.  New carpets went in upstairs and downstairs, handymen came in to fix lights, tighten doorknobs, and repair closet doors.  Cleaners swarmed the place, gutters were cleaned, and windows became unnaturally transparent.

Our photographer came in, as did the 3D modelling people, videographers, pest inspectors, and property inspectors.  As seasoned real estate developers, we have a trusted network of contractors and tradespeople who can do the prep work quickly and skillfully.  We efficiently invested exactly $33,711 into the house. With our client burning money every day for insurance, utilities, and property tax, there was no time to waste! 

The Second Listing

On June 16th, we went back on the market.  June 17th was Broker Tour, where realtors came to check it out.  We had rave reviews, with the key people who would be influencing buyers saying things like, “it’s so much nicer!”, “it feels so open and light-filled now”, and our favorite, “oh its so much better that you got rid of the tenant; my client will consider it now.” (There was no tenant; it was owner-occupied.)

We ran more print ads, more online ads, made new brochures, and held open houses again.  Dear reader, if you think it sounds like we are doing two listings, you are correct as far as realtor workload goes.  But it was the right thing for our client.

We had a few things in our favor on the second listing, compared to the first.  The house was professionally staged, instead of “real people” furniture.  The goal of staging is to suggest an idealized yet non-descript lifestyle, so that buyers can paint their unique lives onto a receptive canvas.  The house was also vacant, meaning that a realtor lockbox could go on and any realtor can visit (with or without client) whenever they pleased.  This certainly helped.  We did those high “bang-for-the-buck” improvements like painting and carpets, that are just easier for us as professionals compared to the future buyers.  And we had fully completed disclosures, allowing strong non-contingent offers.

On June 21st we got a lowball offer.  We countered, but they were unwilling to go higher. Over the next five weeks we soldiered on.  Open houses were well-attended. In this second listing, we had 104 groups pass through on the weekends, and more in private tours with their agents during the week.  And 33 realtors with the serious clients were followed up with.  But no offers. 

Palo Alto homes usually sell in about 9 days.  We were on for 40 days the second time (and 20 before that).  What was wrong?  Well, the real estate market was seizing up.  Stock markets were crashing.  Interest rates were soaring.  Talk of recession was in the air.  Buyers were sitting on their hands.  It was a nerve-wracking time to be a seller.  Despite vigorous efforts, no offer was forthcoming.  We talked about reducing price, but the open house traffic continued to be strong, so we held firm.

Finally, the perfect buyer came through on one of the open houses, and fell in love.  Quick consultations with the buyer’s agent resolved any doubts.  On July 26th, we got the offer.  All cash, at $5,175,000, and 7 days to close.  It was close to perfect, with a reputable agent on the other side.  We accepted.

Everyone likes fast closes (i.e.- a short time between Sale and Close of Escrow), but 7 days actually puts pressure on the seller side:  can you de-stage that quickly?  We were able to.  Just.  And so, on August 3rd, the seller received the proceeds of the sale.

It was a good victory.   

The Case Study

We had one offer during the first listing for $5,000,000, and eventually accepted an offer during the second listing of $5,175,000.  The incremental value of the home prep and easy access seems to be $175,000.

We spent $14,432 to partially prep the first listing, and an incremental $33,711 to prep the second listing.  The total out-of-pocket was $48,143, but for a ROI calculation only the incremental costs are relevant.

We invested $33,711 to generate a return of $175,000.  That’s a 519% return on investment (ROI)!  Pretty spectacular.

But wait.  The post-game analysis gets better.  Financial types prefer to consider the “internal rate of return” (IRR) over ROI, because it considers the time factor.  A 519% ROI in a month is better than a 519% ROI in a year, right?  So what was the IRR of the prep work?

The off-market time when we did the work was 31 days.  We were on the market for 40 days, then in escrow for another 8 days, for a total of 79 days (due to the way the contact timing worked, “7 days to close” worked out to 8 days on the calendar). Factoring each expense as of the invoice date, and via the magic of excel’s XIRR function, the internal rate of return for this house prep work is an astronomical 15,090%.  If the stock market on average returns 8% and Palo Alto real estate has been going up by 15% per year, a 15,090% investment is quite a no-brainer!

Critiques

A critic might say, “you can’t really judge anything from only two offers; there is so much noise in that data!.”  Well true.  In our past lives, Gloria priced SuperBowl ads for NBC and John ran online games with millions of users.  THOSE were meaningfully large data sets.  So we understand and agree with the critique.  But here’s the counter.  We were in the market for 60 days when houses around here usually go in a week (at least when we started).  The second listing had 8 open houses with 104 groups through.  These are actually big numbers for residential real estate at the ~$5,000,000 price point. 

But the most unusual thing about 744 Guinda is that we had two listings, one with the improvements and one without.  And they both had legitimate, arms-length offers.  That is super-rare!  Usually the “should we even bother prepping the house?” question relies on an assumed counterfactual scenario that never happens. 99.99% of listings will not test this hypothesis.  But we inadvertently did.

Also, buying or selling a house is the very definition of a high-stakes situation.  It’s the biggest personal financial transaction most of us will ever make.  Therefore, any scrap of data to make a better decision is really valuable, despite the validity of the critique.  It’s the best data we can get.

Another critique is that we did not have complete disclosures on the first listing, but did on the second.  How much of a factor was that?  We’re not sure.  But on the other hand, the first listing was before “the shift” in the housing market that tilted some bargaining power away from sellers and towards buyers.  How much more of a return would the prep have been worth just two months earlier?  We just don’t know.  Perhaps these two factors offset.

Conclusion

We pride ourselves on putting our client first.  In this case, it meant:

• Patiently gathering market feedback and competitive intelligence over months

• Holding out for the highest price possible

• Listing the property twice…because (unusually) it made sense for the seller

• Not caring about “days on market” or “% over asking”, which some realtors use in their marketing, but are not necessarily in the client’s best interest

By going the extra mile, we inadvertently ended up with relatively excellent data suggesting that full prep and easy access to a listing is worth quite a lot:  a return on investment of 519%, and an IRR of 15,090%.  To recap:

• Before full preparation, 744 Guinda received an offer at list price of $5,000,000.  The house was occupied and hard to show.

• The Young Platinum Group fully prepped and marketed the now-vacant house, costing $33,711.

• After marketing and 40 days of exposure, we received an offer for $5,175,000, resulting in a 519% Return on Investment.

• The internal rate of return over 79 days was an astronomical 15,090%.  

About the Authors/Datamancers

The Young Platinum Group (aka Gloria and John) specializes in Palo Alto, Atherton, and surrounding areas.  We work with buyers, sellers, and builders to enhance exceptional lives in the finest homes in the heart of Silicon Valley. Would you like this sort of data on your side in your next real estate transaction? Or a complementary analysis of what your home is worth in the current and ever-evolving market? Contact us to start. This sort of original analytical work, customized on your behalf, with our fabled customer service, can be deployed for your needs to make your next move a smooth and happy one.  We proudly affiliate with Golden Gate Sotheby’s International Realty for our realty activities, and the Peninsula’s finest builders, architects, and designers for our development projects.