One of the more fascinating things I am seeing in the residential real estate market is this scary strategy of over improving a home for a neighborhood.  New homeowners should be really careful with over improvements.  Let’s go over what’s happening and ways to look at your decisions when it comes to home improvements.

The Value Of Your Home

I work with many home buyers to help them understand value.  Value is not necessarily always in line with price.  For example, just because someone paid a stupid amount for their home doesn’t mean you have to.  Similarly, because there are three offers already on a home doesn’t mean that you have to be the fourth.  Let’s use a two home example.  Two homes are right next door to each other.  House A has a 25 year old roof, a 20 year old air conditioner unit, and the paint colors on the interior walls are perfect.  It’s priced at only $250,000.  House B has a brand new roof, a 1 year old air conditioner, and the colors of the interior walls is khaki from the 90’s.  It’s also priced at $250,000.  What is the better value?  It’s house B.  What do home buyers after home buyers actually buy?  That would be House A.  Why is house B the better value?  Well, the roof replacement for house A is coming soon, so that will be around $10,000, and the air conditioner will also need replacement soon, so add about $12,000 for that system.  This is money that you are likely never going to get back.  House B needs the walls painted to your preference.  And, that can be done whenever you choose, unlike house A.  If a roof leaks or an air conditioner dies in the summer, you are probably going to have to get that fixed immediately.

The Most Expensive House In The Neighborhood

The thing I see that I think is dangerous to home buyers is this.  A home in a particular subdivision is priced $40,000 or more over what any house has sold for in the neighborhood.  For whatever reason, a new home buyer comes in and buys that house.  They’re already underwater should the housing market cool.  But then, the house either hasn’t been fixed or flipped with good construction habits (not a surprise), or they decide to add many more thousands of dollars to get the house “just right”.  This is absolutely crazy!  When you are looking at $50,000 to $100,000 in upgrades and the neighborhood doesn’t support those improvements, you’re in for a world of hurt should the market turn.

One Understandable Over Improvement

Some senior citizens have decided to downsize as they see the end of the horizon.  They have plenty of money saved up and they don’t care about the value of their home.  They just want a place that they can live out their remaining years together.  In this case, over improve away and let someone else find a great deal after you’re gone.  For the rest of the general home buying public, please stop with the madness!

What Is The Buyer’s Agent Responsibility In This?

As I see this happening with homes for sale in Affton, I wonder how much the buyer’s agent is culpable for these terrible financial decisions.  As long as the home owner has been given relevant comparable sold properties, and they still decide to make a purchase, I don’t think the buyer’s agent is doing anything wrong.  Many people argue that real estate agents are no longer necessary.  The things I see on a daily basis in real estate sales daily tells me that there’s definitely a need for real estate agents, provided they are providing a service.  I’m pretty sure every real estate agent has had a client where they’ve told the client that a house is overpriced, or that the construction of the house appears to be somewhat sketchy and the homebuyer went ahead and bought it anyway.  I’m also sure there is a segment of the population that wants to take the time to educate themselves on the intricacies of the real estate market in St. Louis, and for those people maybe real estate agents aren’t necessary.  However, a large portion of the population definitely needs solid guidance because they have no idea what they are doing.  I submit that making over improvements to a home without the chance of ever breaking even on the sale as just one piece of evidence.

What Is A Homeowner To Do?

Let’s assume for the moment that you are a great homeowner and that you feel like your home needs some improvements.  What should you do?  At Deerwood Realty, we are often called in to help come up with what an improved value could be.  This could get you into a spot with an annoying agent in some real estate brokerages as once they get your contact info, they will hound you daily about selling your home, but we look at this as a service to our community, so that’s not how we handle it.  It’s not fun to tell a client bad news when they go to list their house for sale, and home sellers learning that they aren’t likely to get back the $100,000 or more they may have invested into their home is definitely one of those cases where we’d prefer not to have to tell them.  Better to have the home improvement conversation BEFORE the money is spent.

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