How much value does an extra bedroom add? The bad news is there isn’t a one-size fits all answer that makes sense for every neighborhood. But the good news is we can think through some of the key issues to respond intelligently. On that note, let’s kick around some ideas below. I’d love to hear your take in the comments.
Things to consider about the value of an extra bedroom:
- More is often better: Let’s be realistic. More bedrooms is usually a better thing for value because a home with more bedrooms is more marketable to buyers. That’s obvious, though there comes a point when there are too many bedrooms, right? (like Evander Holyfield’s old house with 12 bedrooms and 21 bathrooms).
- Diminishing value with each bedroom: Generally speaking the added value of extra bedrooms tends to diminish with each additional bedroom. It’s sort of like how you pay less for each ounce of Starbucks coffee the more you buy. In other words, the value difference between a 1-bedroom home compared to a 2-bedroom home could be far more substantial than the value difference between a 2-bedroom home and a 3-bedroom home (or 3-bedrooms vs. 4-bedrooms).
- Canned adjustments: It’s tempting to give a token value adjustment for bedroom count differences. Maybe we heard it somewhere or learned from a “mentor” the value adjustment should be $10,000 for each bedroom. So we give this adjustment any time we see a bedroom difference. But does this amount really make sense if we are talking about 2 vs 3 bedrooms and 5 vs 6 bedrooms? Don’t you think the value variance could be huge for 2 vs 3 bedrooms but maybe minimal at best for 5 vs 6 bedrooms?
- Layout: At times a 3-bedroom home may sell on par with a 4-bedroom home because of a stellar layout. Imagine a 1400 sq ft 3-bedroom house compared to a 1400 sq ft 4-bedroom house. One house obviously has more bedrooms, which on paper makes it sound more valuable, but the 3-bedroom house very likely has a larger Living Room, which could help it compete well with the 4-bedroom home. This is a good reminder to be careful about blindly letting bedroom count have the final say.
- It’s easy to adjust twice: If we adjust a comp for both square footage and bedroom count, we might actually double-dip on our adjustments. I’m not saying both adjustments are not needed, but at times it may suffice to adjust one or the other instead of both.
- The story of the comps: At the end of the day we need to find similar sales and let those sales tell the story of value. This means if we are valuing a 4-bedroom house, let’s use some 4-bedroom comps. Or if we are valuing a 3-bedroom house, let’s be sure we are using at least some 3-bedroom comps. Of course it’s okay to use sales with a different bedroom count and make value adjustments if needed. As a closing example, it’s easy to claim there is a huge price premium for that 5th bedroom, so it’s tempting to give an automatic canned adjustment. But have other 5-bedroom homes really sold at a premium? Let’s look closely at sales and try to find the answer.
I hope this was helpful.
Questions: What is point #7? Did I leave anything out? I’d love to hear your take.
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The big question is “What does the market expect?
A fairly simple extraction…
Thanks MJ. Excellent question indeed.
Great post Ryan. I’ve found in my area and observed in statistics, but not always applicable to one individual property, that for most homes above 2,000 square feet or so, three bedrooms satisfies most buyers and adding bedrooms beyond four usually is less desirable and on average reduces value as opposed to using that space for larger living areas. Conversely, there are big increases in price from one to two bedroom and two to three bedroom in most areas around me except for retirement communities.
Fantastic comment Gary. I appreciate the value add here. Thank you. I think you’re hitting on an important point. Sometimes buyers expect a minimum bedroom count in a neighborhood, but they are also really looking at square footage. With the right layout and size, additional bedrooms beyond what is normal may not matter much. Just last week when speaking at a weekly real estate gathering, agents were talking about a 2000 sq ft 5-bedroom house, and almost everyone in the room had a negative reaction to it. Why? Because the bedrooms were tiny and the Living Room was also smaller in size because of a 5th bedroom.
Well said on “55+ active adult” communities. The third bedroom carries no real weight in many cases – especially if HOA rules disallow that room to be rented or occupied for an extended period.
I have to disagree on the 3 bedrooms in a 55+ community. These days having an office space and a separate guest room is very desirable. The home we have has “two bedrooms” but is really two bedrooms and a den. The closet from the 3rd bedroom was taken to make a 13 ft long walk in closet for the master. Taxes are rated for 2 bedrooms but the den is our guest room with a wardrobe in it holding a tv and drawers for guests clothes. But even if not this way, 3 bedrooms is very helpful in keeping the computer and files out of the way.
Hi Grace. Thanks for your take. I appreciate it. I actually agree with what you are saying though because an extra space such as a Den could certainly be valuable. It’s just that when there are three full bedrooms it is often overkill. I think that’s what Gary and I are both saying. We are not saying extra spaces don’t matter because your examples perfectly illustrate that. This is why most units do not just have only two bedrooms because they also have a Den, Nook, or some other area suitable for working, crafting, or something else. It’s just for the units that have an extra Den and a third bedroom, the third bedroom is sometimes overkill because it’s not really functional as a bedroom. Thus it’s easy to see more bedrooms and think more value, but a retirement community is different than a typical neighborhood. For instance, if we put a 2-bedroom home at 1900 sq ft in a typical neighborhood, it would probably sell for less. But in a 55+ community it doesn’t matter because that’s what the market expects.
Let me be clear that appraisers need to consider the extra space you mentioned. It can matter.
Point number 7? The consider the ration of bathrooms to bedrooms. And extra bedroom in a 3 bedroom house with only 1 full bath is not worth as much as an extra bedroom in a 3 bedroom house with 2 full baths.
And a point number 8. An extra bedroom in a family neighborhood with great schools might be worth more than an extra bedroom in a neighborhood of empty nesters.
Solid point Jim. I’m so glad you mentioned the bed vs. bath ratio as well as neighborhood. I agree. We are always trying to pinpoint the value a certain something adds to a property, but there are so many factors to consider. We can isolate only bedroom count, but we have to consider the bigger context of your points, mine, and others people have mentioned. Thanks again. Sincerely.
The bottom line, as always, is comps! Remember, the market controls the price, period! I like to think of it in terms of clothing “one size does NOT fit ALL!”. As you and I have discussed, Ryan, finding the right marketable price requires some effort when inventory and sales have been low in a particular area. And, one “high” sale does not necessarily indicate that’s what the market will support.
Well said, Cheryl. We have to look at the market for the answers. I’d say too we won’t always be able to isolate one particular feature and come up with the definitive value for that one feature. That’s okay. Let’s maybe look at the total package of a house and try to see it like buyers would. That way we’ll probably have a better perception of the market and any adjustments anyway.
I absolutely agree about one sale not making a market (or breaking a market if that sale is low). After all, sometimes sales are outliers rather than indicators of value. That’s not always easy for home owners or the real estate community to swallow, but it’s worth considering.
These are all great items to consider Ryan. I like to tell agents who are attempting to price a home that while it may not be easy for them to come up with an exact dollar amount for a feature they can still walk through the process of what an appraiser does using your logic and look at the sales qualitatively and still be able to come up with a market supported list price. If you use a series a pluses and minuses with respect to features you can do pretty good at seeing where your property falls in line with the rest of the sales. Great post.
Thanks Tom. I like the use of the word “qualitative”. These days we tend to want to whittle down value and make precise quantitative adjustments. But sometimes it’s best to look at the bigger picture like a buyer would. With that being said, there are many things a buyer would consider at once. I appreciate the comments really highlighting that so far.
Nice job, Ryan.
Points #4, #5 and #6 drive it home and covers all the bases from my perspective.
Thanks Wendell. I appreciate it.
Great post Ryan! I have this conversation often with homeowners. I will just start giving them a link to this post!
Ha, that’s great. Thanks David. I appreciate you. This really is a common conversation. It helps to think through the answers and find ways to communicate well about the issues at hand too. The other day I was talking with a client for about an hour in their living room just fielding questions. It was like bringing up points from so many old blog posts. 🙂
I stopped adjusting for bedrooms a while back for the majority of homes that I appraised. I found that the GLA adjustment adequately accounted for any differences in value for the most part. I typically only find it necessary when you are talking about 1 bedroom vs 2 bedrooms or 2 bedrooms vs 3 bedrooms, but those are rare occurrences in my area.
Good for you Robert. I tend to do the same. Thanks so much.
Its all comes down to understanding your specific market. In Chicago flexibility is important as size. A bedroom can be a home office or den then turned into a bedroom if and when needed. Size matters most in my area.
Well said Edward. I appreciate the comment. Size and function are two huge factors that we have to consider. I honestly bought my current house despite it not having the bedroom count we originally sought. The layout just made sense though.
I have an extra bedroom, sort of, however it has heat but no central A/C like the rest of the house and it has no closets. So I really do not consider it a full 5 bedroom house. When doing my comps for my property taxes I did use 4 bedroom/2.5 bath and the square footage of the houses to compare. Having no A/C makes that room possibly not usable during A/C season which could run from May – Sept
Thanks Mary. This is interesting. I’d probably try to stick with 4 bedroom homes for property taxes too. This sounds like a Den or something, but it’s a wonder why there is no AC. One would think that would be present unless this was some sort of an addition or area that was enclosed within the footprint of the house.
Question. I would like to flip a 3 bedroom 2 bath home. My question is that the previous owners turned part of the living room into a bedroom. I want to renovate and turn the house back to it’s original floorplan. My realtor says that I need to leave the 4th bedroom in the living room. HELP!
Hi Lisa. I don’t know that there’s any right answer here. I would recommend listening to the market most of all by looking to the comps for the answers.
I guess my first question is why is your Realtor saying you need to keep the conversion intact? In my mind if the conversion is bad, there’s nothing wrong with returning the layout back to its former glory. Keep in mind a 4-bedroom isn’t necessarily worth more than a 3-bedroom of similar size. After all, a 4-bed home with a really bad layout can be dwarfed in price by a 3-bedroom with an outstanding layout. Part of me wonders if this Living Room is tiny too. That could be an issue for some buyers.
All things considered I recommend finding out what rationale your Realtor is giving. Is there a market or legal reason why you cannot do this? If it’s the Realtor’s opinion, just find out why. Is this opinion based on market data? Is it gut instinct? Or is it an issue with code enforcement somehow? Then consider the comps. What is selling for the most? Are there ample examples of 3-bedroom homes selling at the same price as 4-bedroom homes? What will the market pay more for? Do people want a tiny Living Room with four bedrooms or a larger Living Room with three bedrooms? That’s the big question.
When we had our house built in 2001, we had the option for a 5th bedroom but chose to leave it an open area/office adjacent to the main open area/game room to save the money. Today I am considering converting it to a bedroom after all of these years but not sure if the price is worth it or not. Obviously, the square footage of the house or the number of existing bathrooms (2 1/2) does not change. The area is about 12 x 14 feet and has HVAC and an existing half wall overlooking the stairs. Any input offered here would be most appreciated!
Hi Ron. Sorry for the late reply here. I’ve had some health issues and I’ve been away from my desk. I’m just finally about back to work. Anyway, the thing is sometimes a 5th bedroom can matter for value, but other times it’s overkill. At times I’ll hear the real estate community say things like, “The 5th bedroom is a huge add for value,” but then when comparing similar-sized 4-bed and 5-bed models, there is no real price difference. Thus at some point we have to look to the comps to understand value. If that’s your primary concern, then maybe do a deep dive into neighborhood comps. But you might also consider asking a few real estate friends including agents and appraisers what they think. An open space could be nice instead of an enclosed space. But a bedroom could be an asset too. What are buyers hungry for in the market? That’s really the key that drives everything. During the pandemic of course I cannot help think about the need for more space – namely an office. Is this the office space maybe?
Hi Ryan,
Thanks for the reply. Looking at my neighborhood, my house is already among the largest in terms of square footage. A local realtor also mentioned if I complete that as a bedroom, there will be 4 competing for one full bathroom on the 2nd floor. Seeing as the cost would be approximately $3000 to enclose the room with a minimal closet and I do not need the room at this time, I will not bother with it unless I suddenly have a lot of family come to stay with me for an extended period of time.
That makes good sense.
I currently have a 6 bedroom 3 full bathroom home w/ 3200 sq ft. I want to convert one of the bedrooms into a large laundry & pantry room, there is 1 full bathroom and 2 bedrooms at one end of the house, and one master bedroom w/ large master bathroom w/ shower and separate tub at the other end, but a small master walk-in closet. I have 2 large 12X14 bedrooms and 1 12X12 bedroom upstairs with a large full bathroom containing a small shower stall, a jetted tub, a small sink, and a toilet…. there is also what we call a “Common Area” next to the stairs which is about 12X20, and a wide hallway (about 6 feet) leading down one side of the home to the other 2 bedrooms. I feel that the house does not work well for our family of 5: Married couple, elementary school age child, teenager, and adult child (preparing to move out soon). I also feel a huge lack of storage space in my home, literally no coat closet, a tiny linen closet (18″x20″) which is being used as a coat closet, while I store my linens in TOTES for the whole house… we have an existing laundry room on the other side of my master bedroom that I want to convert into a master walk in closet because the other one is so small… I want to use one of the 1st floor bedrooms as a new laundry room & pantry location and it is across from the existing bathroom and directly next to the kitchen, so plumbing costs should be minimal to convert. What I want to do is convert the 1st floor bath into a shower and install a 48″ vanity for extra storage space, and it will serve the remaining bedroom on that end of the house and be used by visitors and other household members while downstairs. The new laundry room will be large enough for a large pantry, a new side entrance to the home (leading to a future garage), and a freezer, possibly a mudroom and coat closet as well. So I will be losing ONE BEDROOM IN A 6 BEDROOM HOME… this has been a struggle determining if I am losing value or adding value because I will be fixing the problem of no storage in my home, and a too small laundry room to service a home with so many bedrooms. Upstairs in the extra large bathroom I want to remove the separate shower stall and jetted tub and put in a single tub/shower unit and replace the small sink with a large 60-72″ double sink vanity and still have enough room to add a linen/storage closet to service the remaining 3 bedrooms upstairs… by losing the 4 piece bathroom upstairs will I be losing value, or will I be retaining or increasing value by making the space more useable for 3 children and their stuff??? We also talked about in the future adding a shed dormer in the back of the house upstairs to house the air-handler for our AC which is currently in our attic, and a small laundry area for a washer and dryer, extra linen closet, and a counter to sort and fold laundry for the bedroom occupants upstairs… in other words, no more carrying baskets downstairs to do the laundry and no risk of slipping or falling down the stairs with them!!! Also, moving the air-handler should make our AC and heat work more efficiently because it will be in a heated and air conditioned pace. Do you think these changes will increase the value of my home or decrease the value because I will be altering the bedroom count and converting a tub into a shower, and converting a 4 piece bathroom into a 3 piece bathroom… There are a lot of large homes in my area… most of them have 4 bedrooms, but many also have more bedrooms… but usually with more sq ft than 3200 sq ft if there are more than 4 bedrooms. So, what do you think? Should I make the home work better for us and make the changes or just leave it the way it is and list the house and move to one that works better for our needs?
Hi Billie. Thanks for the question. This is hard to answer because it comes down to your local market and how buyers will perceive the changes. This is where I would defer to a local appraiser and local real estate agents to maybe help give you some perspective. I do wonder if others in the neighborhood have done something similar. If so, that could be telling that the market craves what you have planned. I know in my in-laws tract there are certain things owners do to certain floor plans because today’s standards are simply different than the 1960s when the homes were originally built.
All that said, it’s important with any improvements to consider if they make the home more functional and appealing. In my experience if they do, that’s often a good thing for value. If “improvements” end up making a floorplan awkward or if buyers would walk in and say, “Wow, what was the owner thinking when doing this?”, then that’s a bad thing.
My home was built in 2007, but it was poorly designed for storage and after much thought, I have decided that “I” really need the storage, but I don’t need the 6th bedroom! Therefore, regardless of what the agent says about losing a bedroom… I am going to do it, and make that bedroom a laundry/pantry w/ a side entrance and mudroom with a coat closet, because in the future, we want a garage or a carport on that side of the home. I also decided I don’t care what the value loss will be to convert one bath to a shower downstairs, next to what could be an in-law bedroom or guest room. And I decided that many parents would feel that a 4 piece bathroom upstairs where the children’s bedrooms are is a waste, so I decided to go ahead and change the layout to a tub/shower unit, a double sink vanity, toilet and a big linen/storage closet. I have to live in this house right now, and for me, it just isn’t working… I am sure it wouldn’t work for other families either! I am going to rely on my taste in finishes for the bathroom remodels, and laundry/pantry rooms to improve or maintain my homes value. In the long run, I may end up saving money on taxes because I will have one less bedroom! Who needs an extra bedroom when you already have more than the average family needs or requires… I feel making better use of this real estate footage is a better idea than worrying about how much value it will bring for my own sanity. And I did ask a real estate agent… all she told me was if I lose a bedroom I it “could” affect my value, but she wouldn’t confirm this opinion or back it up with anything than it is just her opinion. She knows we have a lack of storage here, so not sure why she is having a hard telling me if the changes will make the home more saleable in the future… I personally don’t know that many families that need 6 bedrooms, and even if they do have 12 kids… 2 of the bedrooms are large enough to put double bunk beds if necessary! Anyway… I guess it really comes down to ones own needs, of the owner and not the next buyer.
Right on Billie. That’s the thing I come back to in many cases. It’s not just about value. It’s about using the home. I hope this works out very well for you. Enjoy it. And enjoy life. 🙂
Thank you… and you too!