There’s no shortage of bad real estate advice out there. Today let’s look at a few common examples and talk through Zillow’s recent claim that blue bathrooms add $5,400 in value. Any thoughts? I’d love to hear your take.
Common bad real estate value advice:
1) Solar Salesman: “You will get $20,000 in value if you buy this $20,000 solar system. Buyers always pay for the full cost of the system in the resale market”
2) Enclosed Patio Contractor: “This 400 sq ft enclosed patio will definitely add 400 extra sq ft of living area to your home when you sell it.”
3) Energy Salesman: “If you do these energy upgrades for $28,000, you’ll get $28,000 back in value. There won’t be any trouble selling your home after going through the PACE program either.”
4) Landscaper: “Studies show doing $2,000 of landscaping will yield about $10,000 in value.”
5) Zillow’s Blue Bathroom: “Homes with blue bathrooms sell for $5,400 more than expected.”
What other examples can you think of?
Thoughts on Zillow’s blue bathroom:
Zillow put out a press release last week stating, “Homes with blue bathrooms, often found in hues of powder blue or light periwinkle, sold for $5,400 more than expected.” Thanks Jonathan Miller for writing about this. A few thoughts:
a) False hope: Consumers hear they can increase their value by $5,400, so they think they can just buy a gallon of paint for $30 and make some huge profit. As Jonathan Miller said, “The consumer absorbs the results as gospel without challenge.”
b) Location: Which market would this idea of blue paint apply? Is it true in Portland, Sacramento, Birmingham, and Baton Rouge? Is it equally true at $200,000 as well as $900,000? Was it true when the market was collapsing in 2007 or is it only true right now? How long will it continue to be true?
c) Buyer Behavior: When we hear such precise value claims, let’s take a step back and ask if buyers actually behave that way. Have you ever met a buyer who said, “Oh snap, that blue is on point. I’m gonna pay $5,400 more for this house now”? Probably not. To be fair we all know color does make a difference for value. Yet making such a precise value claim at $5,400 ironically doesn’t line up with how buyers tend to behave in real life.
d) Multiple factors: There are so many factors when it comes to a house selling at a certain price. Maybe the blue paint is part of the package, but what if it’s also the condition, remodeled kitchen, refinished wood floors, landscaping, updated bathrooms, location, garage size, multiple fireplaces, school district, built-in pool, etc… Maybe it’s just me, but isolating only one inexpensive factor and attributing a large value boost seems like a stretch.
My advice? Be careful when individuals without local real estate expertise start giving you specific value advice. Of course their advice might be spot on, but sometimes people say things in order to get a contract signed. Also, be wary of general stats because they might not make any sense for the local real estate market or for every property type (or market). Lastly, before doing something significant to your home, you might consider finding trustworthy real estate professionals in your local market who can help give advice or steer you in the right direction.
I hope this was interesting or helpful.
Questions: What other examples of bad real estate advice can you think of? What do you think of studies that make specific value claims? Anything else to add? I’d love to hear your take.
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I commented already on twitter but figured I’d add to the conversation here too (and where comments can be longer than 140 characters!). I regard this “analysis” as worthless.
First, Zillow analyzed colors in 32,000 sold homes. Ok, that’s nice. But not all homes listed and sold on the open market end up on Zillow. Not all homes listed and sold on the open market have photos. So it’s impossible to get a purely random sample from the onset. Plus their article doesn’t address how these listings were selected. Selection bias abounds.
Second, if they only looked at color without controlling for other variables (which helps hold property characteristics constant), this “analysis” is only a summary of descriptive statistics for color.
Third, it’s likely the more modern colors that “add” value are highly correlated with other improvements that DO add value. And again if those other improvements were not control variables in the “analysis” then again, this finding may as well be printed on the toilet paper in these blue bathrooms.
My 3 cents.
Erin, these are fantastic points. Thank you sincerely for taking time out to scratch out these points. Excellent stuff and I completely agree.
You always have something interesting to offer Ryan. My thought is similar to your thought. When you run statistics based on colors found in photos, there may be a correlation (and I’m not questioning that) between the blue bathroom and value, but that does not mean the blue bath caused the change in value. Maybe people who paint their bathroom blue tend to be of a personality that makes other updates to the house or take better care of the house. It would be fun to design a study to look at color and its effect on value. The easiest way to do that would be to look at new spec. homes that have different colors. Since there would be no difference in condition and few differences in amenities, a study like that would offer results that have been controlled and possibly cause and effect could be shown.
I think you are 100% correct about causation. Just because a bathroom is blue does not mean that sole factor caused $5,400 in value. It really doesn’t make reasonable sense too because we don’t often just spend a few bucks to make thousands in real estate. It’s easy to think real estate is magical like that because of how easy it looks on flipping shows on HGTV and the DIY Network. Yet in many of these shows the flippers actually make their money on the front end of the deal by acquiring the property for a low price.
Let’s hope a study on color comes out. I’d be fascinated to see something like that. My guess is in the scenario of two identical bathrooms, one buyer probably wouldn’t pay $5,400 more because the bathroom was simply a different color. Now if the bathroom was upgraded with a trendy vibe (including a trendy color), then maybe we are looking at some real value. But just paint? Meh.
Great post as always. You mentioned one of the falsehoods is around solar panels. As an appraiser how much of the price of the solar actually increases the value of the property?
Thanks so much Jared. I wish there was a set value we could adjust for in every case, but it really is going to depend on what the market says. The truth is any value adjustment is probably not going to be the same in every single neighborhood, price range, and market. Thus we have to research to discover how much buyers are willing to pay. What is the present value of the future benefits of solar? That’s the reql question. We have to remember the value of solar is realized over 20 years, so it doesn’t make reasonable sense to see a buyer pay for all that value in one instance anyway. On top of that, it might not make sense for a buyer to pad solar into a 30-year mortgage if the lifespan is only 20 years. Moreover, the big national solar studies that have come out might attribute say 2-3K of value for each KW of power. Thus even those studies show clearly the market is not willing to pay the full cost of the system in the resale market. I hope that gives a little more context despite not giving a very specific answer.
Well I bought my house for $118,000 and then painted the outside or the house, the living room, bathroom, dining room, hallway, and computer room blue. (various shades and intensities). I added blue tile to the kitchen back-splash and now my house has been assessed at $200,000 so it must be true.
It must be true Lorelei. It couldn’t also have been the increasing market over the past 5 years either. 🙂 Ha. Seriously though, congrats on your equity. You’ve worked hard for it and I’m happy for you guys.
The main thing to consider is that most of those pitches about increased value are from salesman. The solar salesman, energy guy, contract and landscaper all have something to gain by you purchasing their product. They’re using the increased value angle to try and overcome any objections to pricing. “These remodels practically pay for themselves!” Then pricing is not so much of an objection anymore (when it’s always the biggest).
Zillow on the other hand, is run by a bunch of Monkeys. Well, ok, maybe not Monkeys, but this kind of promise is the exact sort of clickbait that home seller’s drool over.
And before Zillow starts analyzing the color of bathrooms they really oughta try to get that whole Zestimate thing figured out because it’s been years and it’s STILL not accurate.
Excellent commentary. What’s interesting to me is that salesmen make value claims all day long without any real liability (seemingly). Zillow makes value claims all day long too. Yet real estate professionals can make claims and then get sued at some point if value doesn’t work out the way it was said to work. Something doesn’t seem right with this picture.