When Enough is Enough - The Moneypit Home

 When Enough is Enough - The Moneypit Home

Being invited into a homeowners living room to talk about listing their home is a common activity for most real estate agents. Selling your home in Washington can oftentimes mean timing the market to maximize your return after years of sweat equity and real expense. As a homeowner you’ve often replaced many systems, made repairs and upgrades during your time owning the home, and you’re looking for some return on your investment. But how much spend is too much?

Recently in Federal Way, I had the opportunity to meet with homeowners who had spent years touching every corner of their property, making upgrades to flooring, stairwell railings, paint, appliances, room additions, landscaping and more. They showed me their new water heater, new power panel, water filtration system, new furnace, extra storage in the garage. On and on they went, pointing out the amazing work they’d done to their home. And it truly was great work. And now they want all their money back and more. 

In the world of real estate, their is often the law of diminishing returns, meaning the more you spend, the less you get back. As a homeowner, you must take into account your neighborhood and surrounding area. Are you over-improving for the area around you? If your neighborhood is pricing between $600,000-$700,000 and you’ve added $250,000 more in upgrades to your home to make it the nicest home in the neighborhood, you’ll find that appraisers will have a hard time finding comparable homes to use to ascertain your value, because you’re in a specific neighborhood. If you are in a custom lot on your own, with a great curb appeal and unique lot characteristics, you’ll have an easier time making that leap. 

There are two important factors here. First, all the other neighbors “average” home values will tend to drag your value down as the nicest home in the neighborhood. Conversely, if you’re the worst home in a neighborhood, you may benefit from all the better homes pushing your value up simply by being in a better neighborhood. 

Second, million dollar buyers want to be in million dollar neighborhoods. They understand this rule of scarcity and demand. They want to move into neighborhoods with a higher value ceiling to get a better long term return on their investment. No buyer will pay a million dollars for a home in a $600,000 neighborhood, because their value growth is immediately limited by how quickly everyone else’s home is increasing in value. It’s also natural to think that homeowners with more financial resources are going to make upgrades that conform to the neighborhood sensibility. 

Here in Tacoma, Washington and Gig Harbor, we have neighborhoods full of custom homes that are vastly different from one home to another. In my neighborhood alone, we have 5,500 square foot homes next to 1,300 square foot cottages. They were all built post World War II with each homeowner having unique needs. They will not be comparable to one another, but the desirability and attractiveness of the neighborhood absolutely plays a role in value to an appraiser. If you have a great home in a declining neighborhood, you’re going to lose value. While older neighborhoods experiencing gentrification, can see upticks in value based on improvements. 

In summary, don’t over-improve your home beyond the neighborhoods perceived value. You’ll generally always get value back and more for sensible kitchens and bathroom upgrades/updates, but be careful beyond those - you could get less back in the future than you realize. 

For more questions, please reach out to me at (206) 643-8845 or register at https://erikmolzen.bhhsnw.com 

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