Do home improvements benefit buyers OR sellers more?

Home owners willing and/or able to fix up before selling will find it interesting that making improvements on the exterior pays off more within the warm weather states.

Remodeling Magazine has released many of the results of its "Remodeling Cost vs. Value Report" and there is a lot be learned from it. Many home owners think that doing even a small remodeling or home improvement job will automatically increase the resale value. Not always the case.

The study shows only one project, which is exterior, actually brings a higher direct return upon the investment upon sale, and this is primarily within warm weather states. Only a "steel entry door replacement" shows better than a 100% recoup of cost upon sale, showing an estimated 102.1% "return" upon resale.

Exterior improvements made more of a difference in the "return" along the west coast (Washington, Oregon, California) and along the South and Southeast corridor extending north only to Virginia and West Virginia.

As with most statistics, there are a number of ways to look at the impact. Sellers who think that by spending $5,000 on a home improvement they could then raise the asking price by $7,500 or more are going to be in for a disappointment.

Among the next highest exterior remodeling projects were upsacle fiber cement siding replacement recouping approximately 80% of the cost. Upscale vinyl window replacements and a wood deck addition each showed an approximately 72% of costs recouped upon the sale of the home.

A "minor" kitchen remodel finished among interior remodeling or improvements at around 72% of cost.

In other words, this annual study again shows that an improvement or remodeling project does not automatically increase the actual value of the property. Rather, (and generally speaking) its purpose is to accelerate the sale process of the property.

If your house shows with more quality, upgrade, or improvement work done recently when compared with similar houses within your community, the chances are better that the one buyer you need will be more willing to make an offer on your home first.

Since the vast majority of buyers and sellers are not aware of this study, learning about its findings could be a nice benefit for either situation.

A buyer, when told of or noticing an interior or exterior improvement or remodeling now has the means to point out that it does not mean an automatic raise in the value of the property, and maybe shouldn't be (in effect) "charged" $10,000 more in the asking price based on a $5,000 remodeling job.

Meanwhile, a seller can use this to point out that he/she recently spent "$5,000 on this project" while not raising or having the asking price reflect this. Show potential buyers that if they do go ahead and purchase you are providing them with additional value for a feature the buyer obviously likes.

Please keep in mind that I have been using some lower than realistic figures for the sake of example. But there is a lot more at stake in upgrading a home for sale. The study shows that a full basement remodeling has an average cost of more than $64,000 and recoups approximately 70% within the sale. Going by that, the seller "loses" $19,200 on the project. Or, if the seller expects to not only have the costs covered and perhaps clear some extra, it really means their asking price could be $20,000 or more higher.

Furthermore, the study shows that improvement projects such as a sunroom addition and installation of a backup power generator recoup less than 50% of the cost at sale.

My take from this is that it shows why so many properties have an asking price above their actual value. I don't know of any seller who goes ahead with a remodel, addition, or interior or exterior improvement who then does not increase the asking price.

If I were a seller, I would point out any such work I had done and its value, and then show how it has not impacted the asking price. In addition, I would become aware of opportunities to upgrade the property to be able to point out to my buyer what he/she could do to increase the long term value of the property.

I might say something like "I learned that for $40,000 we could add another 200 square feet to a finished basement. But it's an option and by not doing that I can keep this home priced at $xxx,000 for you." If my potential buyer does not know about this study, they will probably think that they could spend that $40,000 at their convenience over the coming months and then add at least $60,000 to the resale value. Maybe or maybe not. But I would not have mislead them in any way nor promised anything. Just pointing out future potential "profit centers" they may want to explore.

For those of you currently or looking at trying to sell, this study is worth thinking about before seriously considering spending on an upgrade, addition, or remodel. On one hand, it could mean you can present a more significant value to a potential buyer without spending a penny more. On the other hand, it could be worth comparing improvements you could make and how your home would compare to other similar properties in the area. If your situation allows you to "lose" a few thousand dollars to have the work done, but would help your home to sell faster by offering more benefits, it is also worth considering.

These are the statistics you should be reviewing, instead of the home sales comparisons (which are usually negative) from past years. All you care about is buying or selling the property today.

More reasons not to buy?

Oh sure. People aren't buying in a stagnant real estate market. So let's take a quick break from real estate associations and offices pumping out the negative statistics to consumers.

Now let's look at cities which have decided to increase the property taxes by as much as 9%:


http://www.mainlinemedianews.com/articles/2010/12/06/main_line_suburban_life/news/doc4cf69ed785ba5886372746.txt


http://www.mainlinemedianews.com/articles/2010/12/06/main_line_suburban_life/news/doc4ce4206fb4c61428550764.txt


OK, you get the idea. It's called "Let's tax those homeowners who haven't been foreclosed upon and/or can't leave the neighborhood even more."

And now back to regular programming. The Memphis TN real estate market has been among the more depressed ones over the last couple of years.

How does the Memphis Association of Realtors, which consists of local agents paying their dues, react?

They want us all to know that home sales in that area for October were down 29% compared with one year ago. Now there's a reason to stop whatever we are doing and look into buying property there. If fewer and fewer people are looking there, why should we?


http://www.memphisdailynews.com/editorial/Article.aspx?id=54662


Heck, it's only the local governments and realty associations pumping out the reasons to keep the real estate market at a standstill.

Let's keep the home sales market looking bad......

Another example of how it depends on where you read to track the real estate market.

At least one realty office understands the need to only report positive statistics:


http://www.mainlinemedianews.com/articles/2010/11/29/main_line_suburban_life/news/doc4cd1a06d79004599608009.txt

Yet, still another realty association keeps the NEGATIVE market statistics coming. Amazingly, it's the New York (state) Association of Realtors, which somehow thinks that reporting home sales dropping for the 4th consecutive month is necessary:


http://poststar.com/news/local/3d5c09d6-fbf4-11df-b44e-001cc4c002e0.html

Oh my. If they are going to remind us that fewer people are buying homes, how do they expect the market to get any better?

Revisiting renting vs. buying

The debate continues about the advantages of renting vs. buying a home in the current economy.

To me, the debate should be continuing within the real estate community about how realty associations and organizations continue to add sparks to the fire instead of constantly going for a positive spin.

Here is another set of media examples:

First, here is a story about a realty association reporting a "mixed bag" of news, including the statistics showing the severe drop in home sales compared with one year ago.

As I keep pointing out, potential buyers at this moment don't care what happened one year ago, especially when it makes the current market look negative. If someone thinking about purchasing a home right now sees that sales are 35% less than one year ago, they might give up their idea, thinking that there are plenty of reasons not to proceed. There is no way this information is positive for local realty agents as a result.

The kicker is that the facts in this media story were provided by the Association of Realtors, which includes hundreds of realty agents paying dues only to have this negative publicity distributed to the media:

http://www.foxprovidence.com/dpps/news/local_news/region_3/warwick-single-family-home-sales-down-in-oct._3663498


Then, from the same day, this story about how in some cases (including this busy area of Southern California) it could cost a family MORE to rent an apartment than to own a condo. That might make some renters want to contact a local realty agent.

The crushing blow is that this is a reporter's story, and not released by a realty company or realty association:


http://www.the-signal.com/section/36/article/37263/


If realty agents and associations are not going to be aggressive and serious about taking steps to improve the marketplace, how is the market going to get any better? Isn't it in their best interests to do so?