How your $35k kitchen makeover gets reduced to $10k max

 

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Being a price analyst was ingrained when I worked as an analyst for a bank, and as a marketing manager for a construction contractor.  I never got away from excel spreadsheets.

Now I use my spreadsheet-toting, sales persona as a Realtor.  The latter is exciting, but the former can be a let down to homeowners.

Like the listing that just popped up on the MLS today: the homeowner purchased the property in 2015 for $475k (good price, very nice home), and just listed it at just under $600k because, I assume, he wants to get back all of the money that he spent in landscaping, kitchen, and painting updates.  Another home in the sub is doing the same, sitting at the same price for 18 months now.   Will the real agent agents educate them? All around these two there are new homes in the same price range selling like hot cakes.

I recently completed a very interesting appraisal update seminar, and though not much of the data was a surprise, it didn’t paint a pretty picture for home values like all of the articles home sellers have read  — 4 percent home value increases YoY and an extreme sellers’ market.

So you won’t harm the next Realtor who prices your home for sale, I wanted to let you in on some of the truths that we have known for years, but most have trouble breaking to clients in this “extreme sellers’ market” in Michigan.

  • That beautiful, wooded 10 acre property you purchased in which to build your dream home can only hold 30 percent of the total market value since you built a home on it.  Take for example, the 11 acres bought for just under $600k, then 15 years later sold for $345k with a house.  I had a client that tried to sell his home on over 30 acres for several years but no one wanted to pay the price.  We split the property into tilled farm land and 5 acres for the house. He sold the farmland immediately at a good price, and he may make about $50k more on the two deals over the full 30 that he could not sell.
  • Your stunning, spa-like, master bathroom that cost $20k to put together with a contractor, will get only a $2-$3,000 increase in value appointed to it by the bank appraiser. (The other homes in your comps have updated bathrooms too.)
  • The kitchen that cost $30k in new cabinets and ceramic flooring will get a maximum of $10k value increase.  This is why we say to have your cabinets painted (the new trend) and put in new appliances (about $4,500 for stainless).
  • Buyers love that third garage!  All $5,000 of it.
  • The fully finished in-law quarters you built in the basement will get only $10-$15 per room square foot, but the full bath can get the $2-$3k as mentioned.
  • Remember how golf course properties seemed higher in value?  They’re not.
  • Placement of the property may have “external obsolescence” issues such as next to a busy road, cemetery, school or a busy shopping mall.  One luxury home in my sub just lost about $30k in value because it backs to a busy road.
  • Your home will be compared to others in your neighborhood, and then up to one mile as the crow flies, unless you have a very unique home or home sales are almost nil.
  • There is no comp value on schools or their districts.
  • Favorite homes to mortgage by banks include #1) ranches #2) colonial # 3) bi/tri/quads. Surprised? You shouldn’t be since ranch homes are the hottest selling homes on the market (millennials and downsizers love ranches).
  • Pool? No value unless the property is in an affluent subdivision, so maybe $10k value add. It does not matter that you have a cute dolphin tiled on the bottom.

I could go on, but sarcasm runs strong in this one as I pay a $4,500 tile bill and look at a $10k deck replacement estimate on my own home.

Yet I want to remind you of the 2006/07 crash, and what it did to banks. From what I am told, appraisers value properties conservatively for banks or they risk losing their jobs.

As the old adage says, build what you will enjoy, but don’t expect a return value.

So when you meet with a Realtor for a market value price to sell, don’t sling shot the messenger.

Ruth Berklich is a buy/sell Realtor with Keller Williams Rochester/Troy Michigan. She can be reached at (248) 609-8000.

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