Cost Does Not Equal Value

Okay, I get it. This is a tough market to determine the value of property. The housing market is volatile, the economy is surging and stalling, buyers are uncertain, and many buyers and sellers are unrealistic. At times it seems that the best way to determine the value of a home is to get out a dartboard, close your eyes, and let it fly.

In a market like this, some sellers don’t understand the difference between cost and value. Just because it cost a seller $40,000 to install new landscaping does not mean it has added $40,000 in value to the home. I had a client once build a custom home, and he installed travertine marble on the whole exterior of the house. It was beautiful, unique, and very expensive. It cost him well over $300,000 to install. Did buyers like it? Some did, some didn’t. Were buyers willing to pay $300,000 more for the house because of the exterior? Uh, no. It reminds me of the line in Jurassic Park that Jeff Goldblum muttered as Dinosaurs overran the island. “They were so preoccupied with whether or not they could, they didn’t stop to think if they should”.

Some improvements yield a higher payback than others. Typically, upgrades to kitchens and baths return a higher percentage of value than other improvements. But they don’t usually return 100% of the cost. In fact, the average return on remodeling projects nationally typically ranges from 65% to 75%. This is an aggregate of all projects, but it illustrates the point: When you upgrade or remodel your home, you won’t necessarily see 100% of the costs returned when you sell.

Does this mean you should not remodel your home?. Of course not. Most of the time you do it to improve your living space, or for your own enjoyment, or for a specific need (for example, a home office or a swimming pool). And there is nothing wrong with that. The important point is that when you do undertake remodeling, keep in mind that buyers aren’t likely to pay a premium just because the granite you picked was extracted by hand and mule-packed in from the Italian Alps. And some buyers don’t want a steam shower with built-in surround sound, so they aren’t really willing to pay extra for it.

That being said, there are some easy upgrades that can have a dramatic effect on the appeal of your home when it is time to sell. Even if it does not technically return the cost of the improvement, it can make the home sell faster, which can be worth money in a volatile market. Minor kitchen and bath remodels, new paint, new flooring, and a landscape tune up all can improve the appeal of your home and make it more valuable to potential buyers, and are usually well worth the money.

Value is relative. It means different things to different people. So if you really want to install an outdoor pizza oven with fiber optic lighting and hand made tile signed by Wolfgang Puck, go for it. Just don’t expect that your home will sell for $75,000 more because you did.