Homeowners doing major renovations this summer may not want to hear it, but there’s actually such a thing as doing too much. Spending too much. Adding too much.
Bankrate‘s Dana Dratch says over-improving means you may be bringing a curse upon yourself: sinking so much into upgrades, renovations or additions that you’ve burned nearly all the equity of your home. If you plan to stay in your house for the rest of your life, perhaps it can eventually pay off. While it may increase the value of your property if you, like many homeowners, need to sell in the next 5-10 years, it’s likely you may never get 100 cents on the dollar, no matter what the improvement.
No. It doesn’t mean to stop dead in your tracks for your next renovation project. But it does mean you need to be careful in planning it, costing it out, and making sure it isn’t an exception to the rule in your neighborhood. Of course, if the improvements are for your own convenience — like adding a first-floor bedroom because you can’t face the stairs any more — that’s fine. But if your sole purpose is to increase the price of your home when you go to sell it, don’t take bets on it.
Dratch recommends asking yourself a few questions before you dive in. As mentioned, go ahead and over-improve if you’re going to stay there for a long time. If not, and your plan is to move in the next three to five years, resist the urge and bide your time. Realtors agree, however: there’s one in every neighborhood. There is always one guy who convinced himself that if he adds enough granite, hardwood, and molding to his modest house, he can get a premium price when it sells. Dratch quotes a Realtor who says, “Just because a house has new countertops and a brand-new master bath doesn’t mean you’ve made more square footage in your house. Compared to houses down the street with the same amount of square footage, the prices will be basically the same,” she says.
Watch a lot of HGTV? Remember that the Fixer Upper couple as well as the Property Brothers look for the shabbiest, lowest-priced house in the BEST neighborhoods. Once they’ve done their magic, that house will simply match the value of the homes around it.
If you own a $400,000 house in a $400,000 neighborhood and do a slew of renovations and additions, don’t plan to turn around and list it for $700,000. Your Realtor can help you by checking values and running comparable properties in your area to see if your plans are in line with what appraisers can get their heads around or you are totally off-base. Why do you need to appease appraisers? Because the majority of homebuyers get a mortgage, and a bank won’t lend on a house unless the appraisal makes sense.
Seems unlikely, but even kitchens and bathrooms can be overdone. AND it can scare buyers. If your house is the most expensive in the neighborhood, potential buyers will be apprehensive about signing on the dotted line. Adding a room and increasing the square footage may mean the house should be worth more, but if that addition puts you at or over the highest prices in the neighborhood, it won’t be a cakewalk to sell. On top of that, you may have just taken up a chunk of yard space with it. The size of the yard matters to buyers, even in the most upgraded house.
Did you go crazy taking out closets to make playrooms, dens, and home offices or using a bedroom as a walk-in closet? You just lowered your bedroom and bath count and lowered the value of your home. Appraisers don’t consider a room a bedroom without a closet. Oh, and that gorgeous pool and spa you spent $50K putting in? To some buyers, it represents hours of good times and entertaining. To others, it represents bigger energy bills and maintenance. It also might take up too much of your yard, leaving little room for kids to play and dogs to romp.
If you are selling your home in the near future, keep your improvements neutral and check with your Realtor about whether the renovations you have planned offer a decent return on investment.
Source: Bankrate, TBWS
Bill Nickerson | NMLS #4194 | 978.273,3227