We’re always talking about what adds the most value to homes, but what about things that DON’T add much value? In other words, what can you do to your home that will help you get you very little return? I asked colleagues in the 100% Appraisers Group on Facebook to pitch in some thoughts about items that don’t tend to add value, and here’s what they said. Anything to add to the list? I’d love to hear your take in the comments.
First, some general principles:
1) Just because it was expensive doesn’t mean it’s valuable.
2) Buyers don’t often pay the cost of what the owner spent (except on HGTV).
3) Some features are more valuable depending on the price range and location. There isn’t one list of upgrades that can apply everywhere equally.
4) Appraisers don’t actually give value. Instead they recognize it in the market.
5) Buyers tend to focus on the total package of a house, which means they aren’t looking to pay for each specific upgrade.
PLEASE READ: Just because something is on the list below doesn’t mean it adds nothing. The issue is the contributory value is often much less than the cost of the item. So from a cost perspective we can generally say owners are probably not getting the most bang for the buck with many of these features. The problem though with any value list is that in some situations and markets any of these items could be a big deal for value (like parking spaces in a big city or a pool in the luxury market). So just read this generally as it is intended, check out the comments, and pitch in your thoughts. Please also see principles 1-5 above. This paragraph was added later on 09/27/17 to help clarify.
Improvements that don’t get much value from appraisers:
- Water softener.
- Walk-in bath tubs (like this one).
- Whole house vacuum system.
- Built-in pool (buyers rarely pay the same as the cost).
- Over-the-top expensive landscaping.
- Expensive repairs for something that is working fine in other homes.
- Highly-upgraded granite vs standard granite.
- Really thick granite compared to standard granite.
- Fruit trees.
- Expensive blinds or window coverings.
- Chicken coops.
- Extra outlets.
- Radiant barrier.
- Reverse osmosis system.
- Whole house humidifier.
- Ceramic vs porcelain tile.
- Solar panels (nobody pays the full cost of a system in one instance).
- Leased solar panels (they’re considered personal property).
- Upgrades that were in style in 2002 (might not be in style now).
- A previously remodeled kitchen a couple of decades ago.
- Specialized heat and air systems.
- Foundation repairs (buyers expect a solid foundation already).
- Having too many garages for the market.
- Above ground hot tubs (considered personal property).
- Above ground pools (considered personal property).
- Anything that is too personalized.
- 4-Car vs 3-Car garage.
- Tandem garage.
- Cabinets in the garage.
- Epoxy flooring in the garage.
- Phone jacks in every room.
- Guesthouse (adds value, but probably costs way more).
- Christmas lighting package from the builder.
- Lot elevation premium from the builder.
- 6 ceiling fans vs 5 ceiling fans (so minor).
- 4-inch vs 5-inch baseboards (so minor).
- Over-the-top outdoor kitchens.
- Blue bathroom paint (ask Zillow about that one).
- Oversized parking pad.
- Really expensive outbuildings or custom shops.
- Brand new fencing (buyers won’t likely pay the full cost).
- Retaining wall.
- Designer paint.
- What else?
Key questions for home owners when upgrading a home:
1) Do other homes have this feature?
2) Are other homes commanding higher prices because of the feature? If so, how much higher?
3) What are investors doing in their flips to get the most bang for their buck?
Thank you again to the group of appraisers who pitched in some thoughts. Appraisers, if I used something you said, please comment below, introduce yourself, share some thoughts, and let us know what you said.
I hope this was helpful or interesting.
Questions: What else would you add to the list? Does anything on the list surprise you?
If you liked this post, subscribe by email (or RSS). Thanks for being here.
I would rephrase that question Ryan. Should read “Things that do not recapture their cost in the residential market”.
And, this is all market sensitive. In higher end markets, a guest house may recapture all or more than cost in my area. Solar photovoltaic systems do add value but not to the full cost.
Paint? Really?
Anyway, this is market sensitive and price range sensitive stuff. If the aesthetics are up-to-date for the current market and the quality level meets market standards, items such as built in swimming pools, outdoor kitchens, quality landscaping, etc. can recoup cost or nearly recoup cost. That is at least in some of the market areas I work in.
Thank you Tom. That would have been a great title. I hoped to capture your sentiment in the beginning of the post in the valuation points and the “Note”. I completely agree with you that it’s impossible to generalize about value and think that is going to apply to all markets. That’s why I spoke to that in the beginning of the post. It’s really one of the dangers of a post like that that we can walk away thinking, “Well, there is no value for solar then….” when that’s not at the heart of what I am hoping to communicate.
Ultimately it’s often easy for an owner to say, “Hey, I spent $16,000 on window coverings and I paid someone $3,000 to put epoxy on my garage floor, so my house is worth $19,000 more.” And paint absolutely matters. It’s just when someone says, “I spent $8,000 on a custom paint job,” that may not be recaptured in the market. It’s not that it doesn’t matter for value, but buyers probably aren’t going to pay anywhere close to that amount.
Tom,
On all of the sales I have had in my own market, I have never even come close to recouping the cost of a built in pool. I was just curious what market you were in? It sounds like it would be fun to sell!
Always appreciate your take Barb. Thanks.
Ryan, this a fantastic list. Principle #3, “There isn’t one list of upgrades that can apply everywhere equally.” is probably the best bit of advice.
Thank you so much Heidi. Yes, that is a huge point. I hope onlookers read through those points before going to a list that really cannot apply to every price range, neighborhood, or market.
Just this morning I gave a presentation at a real estate office and someone asked what the adjustment was for a built-in pool. I then asked agents what a pool is worth in a particular city in Sacramento. They said 10-15K, so I said, “Great, then if I take a listing in ________ (a lower-priced area), it’s worth 10-15K there, right?” Then I said, “Now that I know the adjustment is 10-15K, I can take a listing in Beverly Hills with a pool and price it accordingly, right?.” The clear answer was the market is not the same in every neighborhood or price range…. It sure would be easy if it was.
Hey, Ryan, great list here. I’ve seen real estate agents count tandem parking spots in the garage, however, I tell them that will not be recognized in an appraisal. Another one I thought of was personalized sports themed improvements like carpeting or flooring with the owner’s favorite team. Here in the deep south where college football is like a religion, many people think that buyers should place as much value in their home customizations as they do but it isn’t like that. Like anything else you really have to find the right buyer for something like that, however, the majority of people are not willing to spend extra for it.
Thanks Tom. I always appreciate your take. Interesting about not counting the tandem. I would count it. I would generally think a side-by-side is more preferable. I actually have a 4-car tandem and the 4th tandem space is my wood shop. I like my wood shop probably more than I like the house. 🙂
I agree on sports teams. Why limit the marketing of a home?
Fantastic list Ryan. Way more comprehensive than I was expecting.
Now that I’m getting into luxury homes, I’m starting to hear about some extremely unique features. Some that are ungodly difficult to value.
For example, my broker once had a listing he had where there was a full indoor-shooting range in the home. How the heck do you value that?
We recently went on a listing appointment for a $12 million dollar home… and the front door alone cost more than $250,000! It was absolutely ridiculous.
Thank you Wes. Wow, I have never seen a door that expensive in person. I’ve seen some nice “used car doors” at less than 10K, but nothing that substantial.
I think your comment underscores the reality that the luxury market may be far different than entry-level price ranges. This also reminds us that any list cannot apply across the board to everything (which hopefully I made clear in the post). How do we value something like that? Well, we have to be in tune with the market first of all to know if its a real asset. For instance, Lebron James built a mega-mansion with a full basketball court, barber shop, etc… Will the market in Ohio pay that amount? I can’t answer that question because I don’t really know because I am not in touch with what the market expects and pays for in that location or price range. In this case, will the market pay anything for an indoor shooting range? I think being in touch with the market is the first step. Then ideally from a comp perspective we’d be able to find something else in the market that is competitive to help tell the story of value. It might not be the same, but maybe there is something that is somewhat similar. At the same time I think we have to be realistic that sometimes sellers do things that are really so personal that they won’t appeal to others.
Stole my thunder with the blue paint. Issues at every price range. We might put some of these upgrades in to help a property sell faster, enjoy while we’re there, house grandma or the smelly teen in the ADU…. hard to put it in an appraisal but is already realized value to the owner.
If only we were discussing cars… people might need the utility of a 2 passenger or a pickup, but are willing to pay 2-3x for luxury, brand, status whether it’s in price or monthly payment, they work harder to afford it, without the screening of an appraiser to somewhat protect FNMAE or FHA.
Great minds think alike. That blue paint example needs to live on for many years. It’s such a great gem. 🙂
It does get tricky to assign value because we are always asking, “Is this something the market will pay for or is it just one buyer.” A friend toured a house where the owner put in a koi pond in the crawl space. So there was plexiglass on the floor in portions so people could walk above a pond. Definitely not something you see everyday.
I like your car analogy.
You went out on a limb with this post. You’re totally right, the stuff on your list largely does not add much value in relation to cost, generally speaking, but everyone could argue something. I think you should add a 25 foot tall scale model of the Statue of Liberty set on a concrete foundation to your list. I’ve seen that one.
Yeah, I may be explaining this one for some time to come Gary. I think the list has to be seen in the overall context of it being a very general list (does not mean no value, but not usually as much as an owner thinks).
Wow, that is wild. I cannot believe you’ve seen a statue like that. On a related note I really hope to see a Star Wars statue one of these days. Yoda, Luke, Vader…. any of the above.
Hi Ryan,
Love the list! Question though: I’ve seen 4 car garages still get an added value over 3 car garages on appraisals my clients have received. Can you clarify that?
Thanks so much!
Hi DeeDee. Thanks so much. I would actually think the 4-car does get more value too. That wasn’t my original thought, but someone else in my appraiser survey mentioned that, and I thought it was worth including. I actually own a house that in my mind I paid more for because of the 4-car garage. The appraiser in my case gave a typical $5,000 per space adjustment. I wasn’t surprised because that’s what a typical canned adjustment might look like in Sacramento. It was probably worth more than $10,000 compared to a 2-car garage, but you know, after a while it’s like splitting hairs to argue otherwise.
Anyway, I think the idea here is that owners might think a house is worth substantially more because of an extra garage space when in reality it’s probably not going to sway the market much. Is there a positive market adjustment? Probably. But is it substantial? Probably not. That’s basically what I am attempting to communicate with a list like this. Does a pool add to the value? Yes. Does it add anywhere close to the cost of the pool? Probably not in most cases.
A list like this can be very dangerous because it is really general and cannot apply in every situation. For instance, the value of an extra garage space in San Francisco or New York could be very substantial. I think in this context generally speaking we’d say a 4-car garage isn’t going to be an enormous uptick in many areas. Of course in some cases it could be a really big deal for value. The same thing would hold true for a built-in pool. While it might essentially lose money in most places, an incredible pool might be a huge asset in Beverly Hills. Know what I’m saying?
Great list, Ryan! I really like your point #4 : Appraisers don’t actually give value. Instead they recognize it in the market.
Each market is different and different items have different contributory values in different markets. For instance, some of our markets we see outdoor kitchens that do have a positive market reaction compared to similar homes without outdor kitchens thus market extracted contributory value. In other markets, an outdoor kitchen would have little reaction with little contributory value.
Thanks Shannon. I appreciate hearing that. I was actually a little surprised to hear in my Facebook survey that outdoor kitchens and such didn’t mean more for the value. I see backyards that have all the good stuff tend to easily command a price premium in most areas. I recall one that looks like it commanded a good 10% at around teh 450K mark in town. Though is that really more value than the cost the owner spent on everything? Probably not.
Value to a “chicken coop” depends on the coop. I just appraised a farm with 12 houses 55′ x 600′. Income over $1,000,000 year ?
That makes sense. Like I said, these are very general items. Let’s imagine a standard ranch house in a typical subdivision tract. That’s more in line with a list of items like this that we can probably expect don’t recoup their cost in the resale market. But in your situation, clearly that is a different ballgame. Thanks for sharing.
I did not read all of the comments, but wanted to offer that although someone may “over-improve” their property by adding some of these features, the market may only pay a percentage of the cost, applied to contributory value, it does not necessarily mean they are not getting the full value of the amenity. The difference in what is being applied to contributory value and cost may actually be recouped in the overall quality. Every house has to have the basics which are part of investment, a kitchen for example, the remodeled kitchen gets a premium over an inferior kitchen, however not at the same rate as the cost, because the home still has to have a kitchen,
Excellent point Gary. I’m glad you mentioned that. Thank you. I think you are right that buyers look at individual features, but they are also looking at the big picture of quality.
Great list, Ryan, and the blue paint is spot on (doesn’t matter what shade it is!). In my market area, the debate rages on over wood burning versus gas fireplaces. In most of the appraisal area I service, it comes down to personal preference, but I’ve had sellers and buyers alike argue with me over which adds more value. I need to tattoo “cost does not equal value” on my forehead.
Thanks Faith. I really appreciate your take. That’s a great example too. If you end up getting that tattoo I will devote a blog post to you. 🙂