Remodeling Your House
The Mistake of Overbuilding
Have you ever driven through a neighborhood of basically similar homes, only to pass one that stands out from all the rest due to its size or amenities. You may have said, as many people have when seeing the same thing, “wow, is that house out of place!” The owner of that house is probably very comfortable, has spent a lot of time and money improving their home, and perhaps even looks down on the rest of the neighborhood of smaller, less “stately” homes.
There is nothing inherently wrong with expanding and remodeling your house to suit your needs. The problem only comes when you build and expand beyond the general range of the neighborhood around you…and even then it is not a problem until you go to sell your house.
Throughout North America, the vast majority of neighborhoods and subdivisions have a general price range into which most of the houses there will fall. It is rare to have a neighborhood with, for example, five or six houses in the $60,000 range, several more in the $100,000 range, a half dozen worth $200,000 and a few more valued at over $250,000. In general, most neighborhoods will have a 10%-15% swing–meaning homes in one area may sell for between $100,000 and $115,000 while homes in a different neighborhood will command between $250,000 and $275,000. The mistake of overbuilding comes when a homeowner, usually for very good reason (although sometimes it is a case of ego gratification), makes additions to their house that puts it well out of that 10%-15% range.
Example: The Wilson’s live in a 3 bedroom 1 1/2 bath house in a neighborhood of similar homes where the average selling price has been near $95,000 in the last six months. Deciding that their home is too small for their growing family, they make additions to their house that include a fourth bedroom, a second full bath, an enlarged kitchen with a family room, and a two car garage. Total expenditure for the project is in the $42,000 range. They now believe that they have a house that not only meets their needs, but is also worth around $135,000. (The Wilsons believe they are realistic–they don’t expect to recoup all of their investment, only about 95%!)
Again, there is no problem until it comes time to sell. Should the Wilsons decide to put their house on the market for $135,000 (remember, houses in the neighborhood have been selling for around $95,000–over 40% less) they will have a tough time getting their listing price. Why? Because for years Real Estate Agents and advisors have been telling their customers that they should “always buy the lowest price in the neighborhood. Never buy the most expensive in the area. If you do, the lower priced houses will pull your value down.” The Wilsons may sell their house for close to the listing price, but the Wilsons (and you) should know: the odds are against it.