How much value does landscaping really add? Nothing. A minor amount. A huge total. I’ve heard it all when it comes to what people think landscaping is worth. Today let’s kick around some ideas from an appraisal standpoint. Anything to add?
5 things to remember about the value of landscaping
1) The myth of no value: I’ve heard the sentiment from some real estate professionals that landscaping does not count toward the value. My take? Landscaping is often very important to buyers – especially when it is extensive or highly expected in certain neighborhoods.
2) Front vs back: My sense is front yard landscaping does not sway buyers like the backyard does. I’m not saying it’s not important or curb appeal doesn’t matter (it does). I’m only saying the rear yard tends to make a much more significant impact on value since people spend more time there.
3) One size doesn’t fit all: The value of landscaping will vary significantly depending on the price range and neighborhood. For instance, a few years back during the height of home flipping activity, it was common to see flippers at the lower end of the market do very basic cosmetic landscaping in the front yard while doing almost nothing with the backyard (seriously, rear yards were at times just dirt or bordering on unkempt). In contrast, higher priced homes were getting full-service attention in both the front and backyard. Why? Because the market had different expectations by price range and the investors’ sense was spending the money was worth it in some neighborhoods and not others.
4) On par after huge money spent: Sometimes owners will spend good money to redo an unkempt yard only to expect a huge price premium. The problem is post-landscaping the owner is now basically on par with other homes in the neighborhood rather than in a position to command a premium. This is not easy to swallow, but it’s important to recognize in order to avoid overpricing.
5) Dollar for dollar: While we like to get a “dollar for dollar” return on our improvement projects (at the least), that’s not always possible in real estate. So when an owner says, “I spent $125,000 in my backyard” and otherwise similar homes are selling for $700,000, can we really expect this property to be worth $825,000? That’s probably not realistic, right? Most of all though, let’s find comps with incredible landscaping and let those properties tell the story of value. That way we are letting actual market data speak to us to set the tone for what buyers have been willing to pay for similar landscaping. Isn’t that better than shooting from the hip about what landscaping may or may not be worth?
Case-in-point for an incredible backyard: While appraising in the Natomas area of Sacramento I came across a house with an incredible backyard. I ended up NOT using it as a “comp” because this property sold about 10% higher than others because of the built-in pool, custom covered patio, built-in BBQ, outdoor fireplace, and everything else in the yard. I’m not calling all of these things landscaping of course, but at the same time let’s be realistic to think buyers may lump some of these items in the same category. Anyway, at times it’s tempting to give a token $10,000 upward value adjustment when we see a nice rear yard because that’s what a mentor taught us to do, but sometimes the market is willing to pay more like 10%. In this case otherwise similar homes seemed to come in around $450,000 and the subject sold for $495,000 (there were 7 offers). There was one other sale at $485,000 and it also had a sweet backyard. As you can see on the graph, the incredible backyard seemed to really matter.
Here is what the rear yard looked like. I could live with that. You?
Remember, let’s find a few examples of extensive rear landscaping (or an amazing backyard) if possible so we don’t base our perception of value on only one sale. After all, what is that one sale sold too high or too low?
The Washington Post: Two weeks ago I wrote a post about the ugly side of appraisal fees, and as a result Ken Harney of The Washington Post interviewed a handful of appraisers (including me) for a piece that went live today. Ken is a nationally syndicated columnist, so the conversation that took place here is going to be moving to a much bigger level. Thank you everyone. Here is Ken’s article.
Questions: What stands out to you most about what I mentioned above? What is #6? Did I miss something?
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Answer: There really isn’t a standard bedroom or bathroom adjustment. Well, I will say appraisers often give $5000 for a bathroom and $5,000 to $10,000 for a bedroom, but those are often just filler adjustments that may or may not really reflect the market. Ultimately it depends on the neighborhood as well as the overall square footage. For instance, the difference between a 2-bedroom and 3-bedroom unit can be substantial depending on the neighborhood and sometimes easily $20-30K+ (not just $10,000). The same holds true for the distinction between one and two bathrooms as the price gap is often much wider than just $5,000. It seems like the price variance between three and four bedrooms depends heavily on the size of the property. A four-bedroom unit is usually larger in size than a 3-bedroom house, so it naturally carries a value premium. However, that’s not always the case. For instance, an 1100 square foot 4-bedroom house might not sell for more than a 1100 square foot 3-bedroom house because the 4-bedroom house probably has a tiny Living Room.
Other non-model match examples & built-in pools: It would be a simple world if we only dealt with model match sales, but that’s not always the case. Say we found another rehabbed sale that had a GLA (Gross Living Area) of 1450 and sold at $167,500. We could then compare the renovated house above with a GLA of 1322 and a price at $160,000 to determine that 128 square feet (1450 minus 1322) is worth $7,500 – assuming there are no other differences. If this pattern kept showing up in the market, the appraiser would probably be making square footage adjustments at 55-60 per square ft since the difference here was 58.60 per square foot. The same holds true when comparing the number of garage spaces, bedroom count, lot size, or location. Appraisers analyze other sales and data in the neighborhood to decipher what buyers are willing to pay for a certain feature. You may have noticed I keep mentioning what buyers are willing to pay rather than the cost of something. That’s a key point in how appraisers should make adjustments since they are essentially interpreting how buyers in the market respond to various features (as opposed to the cost of something or simply making up numbers- which I know happens). A last and perfect example would be a built-in pool with an adjustment in the appraisal report that is often somewhere around $10,000 (despite a much higher cost to install a pool). Buyers are simply