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Before you start gold-plating your sinks and creating an over the top man-cave in your basement, remember that not everything you do to your property adds value to the home, and that the law of diminishing returns is always at work. So whether your clearing out a garden, or putting in a retaining wall, remember that curb appeal does not convert one to one with home value.
Here is a short list of things that may not convert dollar for dollar to the overall value of your home.
- Gardens and landscaping — A healthy yard or garden add to curb appeal and yes, it’s something that’s included in the appraisal report, but in the end it does not add value to your home. This is because for the most part, a garden after winter is no longer a garden. The overall contributory value of gardens and landscaping are included in the aggregate when evaluating the overall condition of the property
- Retaining walls and fences — Although these items may contribute to the big picture of the property as a whole, retaining walls and fences may only contribute to value in the aggregate.
- High-end kitchens and bathroom installments — Gold-plated sinks may look cool, but they aren’t going to get you a return on your investment. When you are making improvements, especially if you are planning on selling, make sure that you aren’t overdoing it. Kitchens and Bathrooms go a long ways, but there’s a difference. between what may appeal to the individual and your return on investment (ROI). An example would be if you are considering using man made materials, standard granite, or exotic space aged materials. Your ROI could be much greater with granite than with exotic space aged materials due to the price point.
- Over improvements on finishing touches — The same goes with and light and faucet fixtures. There is value added when you go from an installment in poor condition to one that’s brand new and made with quality. But again, there’s a difference in the return from something that’s priced for quality vs. exotic or fancy and overpriced. When these expensive final touches are in a home, you may not reap the rewards you might be anticipating. We’ll get into the why of it all soon enough.
- Outlandish remodels — In your mind, adding a lair in the basement that’s equipped with surround sound and projectors with a tunnel to your garage might sound like a solid investment, and maybe for you (Bruce Wayne), it may be. But when you go to sell your house, it likely won’t provide the average buyer with any added value.
The Caveat: All buyers are different, and there are exceptions to every rule, but when looking at the market as a whole putting $20,000 worth of landscaping doesn’t necessarily convert to a $20,000 increase in the value of your home.
What makes all of this true? The law of diminishing returns.
Every neighborhood is unique and different. What appeals to buyers in one neighborhood may not appeal to buyers in another neighborhood. That level of appeal is determined by everything from the school district, to the value of the houses surrounding the property. Once a house, no matter how nice, exceeds this price range, the “average” buyer could choose to go to a different market. So when someone takes an average house in an average neighborhood and spends $50,000 creating a mancave the value simply does not keep up. If the neighborhood’s max value is around $200,000, the house with a tricked out mancave would likely not sell for $250,000, as the average buyers looking at that price-point could be shopping in a different market.
The law of diminishing returns states that with every input (renovation, upgrades, and mancave) the return on that investment decreases. Thus, by improving your property with each project, you inch towards the glass ceiling of the market price for that neighborhood.
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