Appraisal House Blog

Over-improvements and what remodeling to do when selling
April 25th, 2008 9:09 AM

A lot of people have the mistaken impression that if you spend $20,000 redoing your kitchen, you have just increased the value of your house by the same amount.  Unfortunately, that is not the case.  While there are some rough standard percentages (inground pool = 50%, bathroom remodel = 70%), it really all depends on your specific area.

If you are thinking about remodeling, take the time to think about why you are doing it.  If you want to spend $50,000 remodeling a kitchen on a $150,000 house, understand that it will be quite a few years (and maybe many more depending on how the local real estate market is doing) before you ever regain that investment.  My wife and I recently spent what I consider to be a small fortune (I'm cheap by nature) to do a major kitchen remodel - moving walls, custom cabinetry, high end fixtures and appliances, and granite counters.  However, we plan to be in our house for quite a while, so we wanted to do it the way we wanted - something we would love and be happy with, regardless of the cost.

Conversely, if we wanted to update the kitchen to sell, we would have approached the project differently.  Our kitchen was pretty dated, and it would have been a hindrance in the selling process.  So if we had wanted to update it to sell it, we would have left the footprint the same, but re-tiled the floors with an attractive (but less expensive) tile, chosen a slightly lower grade granite for the counters, and installed new (but less of a premium) appliances.  This would have saved us literally tens of thousands of dollars, and would have helped the house sell quicker and for more money.  However, even in this scenario I doubt that we would have recouped all of our money.  But in our neighborhood, buyers have an expectation of what shape the house should be in, and anything less gets a lowball offer or is the last one chosen over other active listings. 

So when are you doing too much?  To appraisers and real estate professionals, the concept is known as a "super-adequacy", or "over-improvement".  For example, an air conditioning system in a house at the north pole is a super-adequacy.  A 4-car garage on a 1,200sf ranch house in a low end subdivision.  A 6-bedroom house in a neighborhood of 3 bedroom homes.  Anything that is over and above what a typical buyer in that market is looking for is a super-adequacy.  So if your master bath has a double shower with travertine tile and $700 fixtures, an oversized roman jetted tub, and granite counters with a decorative above-counter bowl, and all of your neighbors have a basic bathtub and Home Depot construction grade vanity, consider yourself to be over-improved. 

If you are preparing to sell your home and you have the money to do some work on it, your first step is to understand what your competition has.  Your realtor, or various on-line sites that list properties in your area, can show you what those homes have in them and what has been done to them, and this will show you what you need to do to get a similar price.  For example, if your house is in average shape - well-kept but no major updates or improvements recently - and you see that the active listings in your area are all pretty similar, but have been freshly painted, then you know you have to at least paint.  Additionally, you might consider a relatively small update that will get attention from potential buyers, such as installing new ceramic tile in the kitchen and bathrooms.  A simple tile job can be done for as little as $5/sf by a professional installer ($2/sf for tile and $3/sf for the install).  If you have 200 sf of baths and kitchens, you would likely easily recoup that $1,000 investment and sell your house quicker.  But if you spent $15,000 on (for example) hardwood flooring, bath and kitchen remodels, etc., you may have priced yourself over what buyers are willing to pay for a home in that area.  

The bottom line is that it is in your best interest to get help from a qualified real estate professional.  They will know what you should do to get your home ready to sell at the most effective price.  Also, there is also nothing wrong with consulting with a realtor well in advance, as long as you are upfront with them that when you finally get ready to sell you will be interviewing different realtors to decide which one to use.   Finally, if you are not particularly skilled in home improvement projects, keep in mind that a poorly done tile job is worse than just leaving the old sheet vinyl.   Pay someone to do it right! 

Posted in:General
Posted by Mike Lay (Austin Area) on April 25th, 2008 9:09 AMPost a Comment

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Thank you for taking the time to write REAL information about the decisions involved in deciding whether or not to update and whether or not it is necessary, or prudent, or unlikely to return the investment.

Posted by Austin Real Estate Appraiser on September 3rd, 2010 12:58 AM


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