How home improvements influence sales value
Some people are under the impression that they’ll get a “dollar to dollar” return on an investment should they opt to improve their homes – a $15,000 kitchen renovation should translate into a $15,000 boost in the sales price, right?
“Cost is not market,” said Benton Appraiser Travis Yingling.
What he means by that is a typical home improvement doesn’t directly increase the value of a home. For example, let’s say a homeowner spends $20,000 to put in a pool. That pool has a limited market as some people simply don’t want to go through the time and expense of maintaining it. In addition to limiting the number of people willing to purchase a house with a pool, the homeowner should remember that the home is compared with similar ones on the market that also have pools.
What the pool costs, then, may not necessarily influence how much value is added to the home.
That does not mean that home improvements can’t increase the value of a home. Take landscaping, for example. Let’s say a homeowner spends $10,000 to beautify a yard in hopes of realizing a healthy return on that investment when the home is sold. Yingling said the chances of getting back that $10,000 when the home sells are slim.
“A mortgage company isn’t going to make a 30-year loan on a shrub,” he said.
However, there’s the aesthetic value of the home to consider. We’re in the middle of a highly competitive real estate market and wary sellers are doing what they can to make sure their homes stand out from other similar ones that are up for sale.
Adding that landscaping, then, may be just the thing to boost a home’s curb appeal. It may be the thing that causes a buyer to stop and look at that particular house rather than moving along to another one.
The same is true of renovated kitchens, bathrooms and other improvements – that enhanced dining room might be just the thing to cause a buyer to choose one home over another. While the seller might not get a dollar to dollar return on his investment, he will perhaps get something more important – a home that’s more appealing than the one for sale down the road.
Yingling said another concept to keep in mind is effective age. Let’s say a homeowner has a house that was built in 1960. The home is actually 50-years-old, but a remodeling job would bring down the effective age of a house.
The effective age is what is used to determine which homes are used for comparison purposes to determine what the value of a house is. For example, a house that was built in 1960 but has worn out carpet, walls that need painting, an old roof and generally exhibits signs of age will be compared to other homes that are effectively 50 years old.
A renovated house boasting new floors, a new roof, fresh paint, a few modern touches here and there, etc. will effectively be younger and will be compared to homes that are, say, 10 years old.
Newer homes cost more, so the goal of people wanting to improve their homes in hopes of realizing a larger profit at a sale would be wise to think of what improvements will lower the effective age of their houses.
Yingling said lowering the effective age of a house is the thing that improves value. A homeowner might not get a dollar-to-dollar return on a home improvement project, but lowering the effective age of a house and putting one on the market that will sell before other similar houses are certainly obtainable goals.
Column written and distributed to Arkansas publications on behalf of the Mortgage Bankers Association of Arkansas.
Benton resident. Rogue journalist. Recovering attorney. Email = Ethan@FirstArkansasNews.net.