Can you over-improve a house? (When ‘a la mode’ is too much ‘mode.’)
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The personal stories of one Realtor’s battles and triumphs in the highly-competitive Bay Area Real Estate Market, seeking to illuminate and humanize the very real ups-and-downs of homeownership.
I’m doing something I rarely do where The Perspective is concerned, but earlier this week I had a few enlightening conversations that I thought were worth passing along. . . . so instead of starting from scratch, I’ve repurposed my email (with permission, of course) for your consideration.
The first topic comes from a colleague I admire tremendously. Alison Teeman, of Yovino Young, who is my “go-to person” for appraisals. Whether for purposes of a sale, a refinance, construction, or a reassessment of a property value upon death or divorce, Alison knows her business like nobody else.
So when she brought up the concept of “super-adequacy” (a term I’d never heard before), I asked for more clarity. Here’s what Alison had to say: “Super-adequacy,” in real estate, refers to improvements or features on a property that are more extensive, expensive, or of higher quality than what is typical or desired for the area. This can lead to a situation where the added value of the “over-improvement” is LESS than the cost of the improvement itself, potentially decreasing the property’s overall market value when compared to similar, less extravagant properties nearby. Essentially, it’s an improvement that doesn’t translate into a proportional increase in market value. (Aha, that I understand!)
Definition:
Super-adequacy is a type of functional obsolescence where a property has features that exceed the market’s expectations or typical preferences for that specific location.
Example:
Imagine a large, luxurious kitchen in a neighborhood where most homes have modest, functional kitchens. The expensive kitchen upgrades – although fabulous – might not be fully appreciated or valued by typical Buyers in that area, making the Sellers’ higher expectations difficult to meet. (Think $35,000 ranges, warming drawers, wine refrigerators, built-in espresso machines, etc.)
Impact on Value:
Super-adequacies can actually reduce a property’s market value because Buyers may NOT be willing to pay a premium for features that are not considered standard or desirable in the area. If you’ve developed a $2 million home in an area that trades for $1 million, you’ll probably be taking a substantial hit come time to sell.
Other examples include:
- Swimming pools (put them in if you must, but these NEVER pay for themselves)
- Tennis courts
- Wine cellars
- Highly personalized dressing rooms/baths
- High-end kitchens
- Multi-car garages with lifts, where 2-car parking is the norm
- Expensive architectural detailing that is not tasteful or relatable, ie, stylized mosaics/shining marbles/mirrored walls/stylized finishes . . .
- Too many bedrooms or baths (yes, you actually can have too many; few families require 6 or 7 bedrooms anymore)
- Elaborate skylights
- Home theaters
- Expensive sound systems
Related Considerations:
- Sauna, steam showers, and hot tubs often bring NO additional value (other than personal peace of mind)
- Gyms may be neutral since they are often not expensive installations and can be converted easily.
- Converted garages may be a push depending on available storage and/or alternative driveway or street parking.
The reality is that improving your property, keeping it current, and making it more functional, stylish, and desirable are all worthy intentions, but if you throw the budget out the window to create your ultimate “fantasy,” understand that the next owner is UNLIKELY to pay you for your lofty choices or ambitious taste.
However, if the goal is to stay in your home indefinitely, AND if you have unlimited funds, by all means, do whatever you like. But if you intend to sell the home at some future date, you’re better off making affordable, timeless choices that improve the property without “over-improving” it. In short, find reasonable, measured, attractive choices and leave the exotic and outrageous designs to those who couldn’t care less about the “value” or the costs. (Throwing caution to the wind is never going to be my recommendation).
To recap: “super-adequacy” is essentially over-improving your home with the false notion that every dollar spent is a dollar (or two, or three, or four) returned. A return on investment (ROI) doesn’t necessarily follow, especially if the improvements are too expensive to carry their weight. In such cases, these over-enhancements should be considered aesthetic choices, not financial ones.
Full disclosure: there ARE necessary home improvements that do NOT pay you back in whole, which typically have to do with the infrastructure of the home: foundations/drainage, roofs, pluming, new electrical, updated HVAC systems, tankless water heaters, electric generators, back-up battery walls, solar panels, new windows, driveways, sidewalks, sewer laterals, etc. All of these are important to the health, safety, and comfort of your home (and to insurers!), but they don’t necessarily translate into higher returns come time to sell. (They do remove hurdles, which is an important distinction to recognize.)
To be sure, Buyers desire and appreciate such improvements, but if you had done ALL of those things but failed to paint, refinish the floors, or stage your home prior to marketing, you’ll have a far more anemic response come the offer date. In short, Buyers respond to and pay for what they can see: kitchens, baths, gardens, decks, courtyards, lighting, floors, etc. Which is to say, renovate, remodel, rehab, and do the work, but keep the expenses under control to the extent that you can (There are always going to be surprises, so budget for those as well.) Then avoid the tendency to overreach and add on. Believe me, good choices can be made for less.
Because if you’ve created a French profiterole when the market will only support a humble apple tart, you’ve probably over-improved the house. Me? I personally LOVE a home-baked apple pie way more than any of those fancy, rich desserts in a patisserie.
How can we help you?
PS – My thanks to Alison and the entire Yovino Young team for this conversation. They can be reached at Yovino Young.
Julie Gardner & Sarah Abel | Compass Realty
Not just Realtors, but consultants in all things house and home, we’re here to educate, explore, examine and refer . . . In short, you may count on us to take care of your home as if it were our own and anyone who knows us, knows we take pretty darn good care of our homes.
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