The cost of Overimproving - Written by Melissa Killion
Listen, I have been the bearer of bad news more times than I count with my sellers.....why? They over improved their home - simple as that! But Melissa, what do you mean, we put 100k into this gourmet kitchen, why can't we get our money back!!
If your home is currently on the market or you’re considering putting it up for sale soon, you may want to make some improvements. Improvements are usually a good thing BUT you have to balance any improvements you make with the potential that you’re going overboard. Over-improving is something I see all too often as a real estate professional. People put so much into upgrades and renovations that they basically have little equity left in their home and worse, they reduce its general marketability. 9 times out of 10 you’re not going to get a 100% return on anything you do. While it might increase the property value, you’re not going to see dollar-for-dollar returns so you have to be strategic. A good rule of thumb is that if you’re making improvements for your own lifestyle and enjoyment and you plan to stay in your home for many years, then go for it. If you’re planning to put your home on the market in the next few years (typically less than 5) be cautious of any improvements and also realistic.
The tried and true number one indicator of success in real estate is your location and this holds true for improvements as well! When you make improvements to your home, consider the location. If you improve your home to the point that you have now priced yourself out of the surrounding homes in your community, then you’re going to have a tough time selling it for a higher price. You want to keep the neighborhood and the general market in mind when you’re thinking about projects and upgrades. One thing I always do for my new homeowners is send them a community market analysis monthly or quarterly which updates on your neighborhood sales, includes pictures of the interior and exterior and lists any major upgrades. So basically, if your home is in a starter neighborhood and you add high-end finishes, you’re probably not going to make your money back. If you are in a neighborhood catering to families, taking away the 3rd bedroom to make a massive walk-in closet will likely result in you losing money! Location and comps are two of the biggest drivers of the value of a home so be in the know!
Outdoor Living
Since Covid, we have seen a huge increase in upgrades to outdoor living spaces with Millennial families tending to value outdoor space much more now. They turn it into a whole other living area, so if you’re considering the addition of a room to your home, consider how it will impact your outdoor space. Yes, additional square footage and something like an extra bedroom can be appealing to buyers, but NOT if it’s going to make your yard smaller than the homes around it. Patios, decks, firepits, outdoor kitchens and water features can get a high return on investment. This is because upgraded spaces offer additional functional living areas without the price tag of a large scale home addition.They also rate high on the happy scale for homeowners who get emotional satisfaction looking out at landscape lighting, beautiful planted pots, zen gardens, cafe lights, fountains etc and use their backyard more for relaxing instead of maintaining.
Appeal to the masses! You have to think about possible buyers who won’t share your same appreciation of your upgrades. Nice countertops might be something fairly impersonal, but a pool, on the other hand, can be polarizing for a potential buyer. You may think adding a wine cellar is luxurious, but new buyers might not drink wine. Be careful with color too, I cannot tell you how many times a buyer will literally walk out of a home simply because the dining room was red! You have to balance true upgrades that create value with your personal preferences if there’s even a chance you’ll put your home on the market in the near future.
***Pro Tip*** Y'all - Before doing ANY upgrades, please make sure to tackle any maintenance items first! A leaky roof, peeling paint, moldy showers and general deterioration will turn a buyer away faster than that red wall!
-Melissa