Adding value or Aiding Marketing?

And what’s the difference?

With this whole “Social Distancing” thing going on, I swear one of the only places people seem to gather any more is at The Home Depot or Lowe’s.  So, with cabin fever hitting it’s peak, you see more and more people tackling the “honey-do” list.  After all, Ozark only cover’s about ten hours of what seems like an infinite amount of time right now.

I often get clients – past, present, and future – talk to be about “improvements” to their home.  I am often solicited for advice on what are the best options; quite simply, “Where should I spend my money?”

The response to this question has many layers, like home improvements, you’re peeling an onion… where do you stop?

The first response is easy.  How much money do you have?  I am not asking about net worth, and there’s no reason to start handing me 401k statements.  What is the budget you have for home improvements.  This is often the difference between Adding Value vs. Aiding Marketing.

Let’s talk about Adding Value.  There are many things you can do to add value to your home, and none of them come cheaply.  Most everyone is aware that Kitchen’s and Bath’s are the most popular home renovation project.  While nothing offers a 1:1 dollar-for-dollar return, these items typically offer about a 70%, or better, return on investment.  Basically, if you spend $100 on the project, you’re going get about $70 back in increased resale value.

Take a look at some of these home improvement projects and their associated ROI.

In looking at the 15 projects above, one could easily get caught up in the pretty pictures, and not notice that the average cost for these improvements was over $34,000!  The average return in resale value, $17,000.  And, these are the 15 projects with the highest return. This would be why I ask “How much money do you have?” when you want my opinions or ideas.  Adding value to your property is not cheap.

Most often, when someone is chatting me up about “doing home improvements” they’re really just improving the marketability of their home.  These are the inexpensive weekend warrior tasks that any basic handy fella can undertake.  Things like, painting a room, pressure washing the outside, sealing your driveway, or replacing the carpet don’t add value to your home – directly.  What they do is make your home much more marketable and easier to sell.  This translates to more foot traffic, more offers, and hopefully a higher sales price.

The difference between the two is simple.  One will impact your appraisal, and the other won’t.  Appraisers don’t care if your laundry is put away, a buyer may interpret that as someone that doesn’t finish projects.  Appraisers don’t care if your home hasn’t been painted in 15 years, a buyer sees someone that doesn’t keep up with maintenance.

After assessing your budget, and whether a true “improvement” is feasible, I often ask “What are your plans?”  If you tell me that you want to get this ready for market and get it sold – we are talking about marketability.  If you tell me that you’re not going anywhere, you just want to invest in your home wisely, we’re talking about adding value.  If you’re somewhere in the middle – which I find most people to be – you’re looking at a conversation.

Increasing marketability is the most common goal I hear.  It makes sense, if you’re talking to me, we’re talking about selling a home – either now or in the future.  The future means something different for everyone.  If you had to get a root canal “in the future” or go on vacation to the islands “in the future,” there would be two very different expectations.

When adding marketability, check out my post “The eyes eat before the stomach.”  That’s the idea.  You want to make the home look turnkey, the best you can.  That may involve repainting your kids rooms – because pink isn’t on the hot colors palate this season.  I don’t ever recommend taking on a project at this point.  Your carpet’s are banged up – get them stretched and shampooed.  They don’t have to last long – just until closing.

Ideas for increasing marketability:

Exterior:

• Clean up landscaping
• Remove debris/de-clutter yard
• Seal Driveway
• Pressure wash exterior, including walkways
• Make sure all exterior lighting is secure and working
• Paint trim, if necessary
• Clean & Clear gutters

Interior

• Fresh paint
• Have carpets professionally cleaned
• Thoroughly clean bathrooms and kitchen
• WD-40 door hinges
• De-clutter counter tops and closets
• Organize basement/storage areas
• HVAC serviced & cleaned

Any of the projects you take on to assist marketing your home should be done in a professional workmanlike manner.  Too often I see the “lipstick on a pig.”  There was an effort on a shoestring budget, done by someone that shouldn’t be doing these things.  That – to a buyer – shows that this home is going to start off with major projects – most notably, fixing your projects.

When a sale isn’t the immediate goal, my conversation is often the same.  Whatever you’re going to choose to do – understand that you’re doing it for your enjoyment while you’re in the home.  Don’t go into the project expecting it to change your financial standing in the community.  If you’re looking at new flooring, a new kitchen or bath, etc.  Do it for you.  Unless you have a crystal ball, you don’t know the tastes of the next owner of the property.  I have seen carpeting replaced throughout a home, only to be removed immediately after settlement.  The shame is that no one was able to enjoy the brand new carpets.  Furthermore, the buyer went into negotiations with the mindset that the carpets needed to be removed – and therefore, it was an expense!

The other side of this is something called Over Improvement.  This is when someone does too much to their home that the comparable homes in the neighborhood can’t justify the price/expense.  This is another time to talk to an agent.  You need to understand what price range your home is in, and what is the expectation at the price point.  For example, counter tops – in the Berks County area, a $400k home would be expected to have solid surface counter tops (Corian at a minimum); however, if you’re down closer to Philadelphia, a $400k home could have laminate/Formica counter tops.  This is not to say that a $200k home in Berks County can’t have granite in the kitchen, it’s not a ridiculous expense.  But, if you add a spa shower to that home, you’re not going to get that money back out of it.

The bottom line – talk to a Realtor®.  Know what you’re getting into and what to expect when buying and selling.