why you can’t believe everything on HGTV

I finally got satellite a few weeks ago.  About the only channel I watch is HGTV.  One of the shows that I get a kick out of is called “Bang for the Buck.”  It is where they feature 3 home owners who have all spend about the same money on a similar improvement.  They bring in a realtor and a designer to evaluate what percentage of the money spent translated to an increase in the value of the home.  Sounds simple, right?

There is more to figuring out the return on investment than just evaluating  the design and materials used in the projects.  Believe it or not, the neighborhood these houses are in play a more important role in determining the “Bang for the Buck.” 

Why is that?  The main reason is that appraisers and Realtors base a house’s value on 3 similar houses that have sold within the past 6-12 months that are ideally in the same neighborhood, or a similar one within a mile radius.  We do that because that gives us an idea about what buyer’s consider a fair price.  It is all about tracking recent buyer behavior.

Here is an extreme example to demonstrate my point.  Homeowner A has a 1300 square foot ranch in Masterson Station.  He spends $50,000 to update his kitchen.  Homeowner B has a 3000 square foot house in Beaumont and spends $50,000 to update his kitchen…….Which one will surely get the highest percentage back on that investment?  The dude in Beaumont will.  Why?  It is easier to convince a buyer for a $350,000 house to pay the seller back for doing the improvement than it is for a buyer of a $130,000 house.  Would you want to pay $180,000 for a house with a pimped out kitchen surrounded by $130,000 houses?

Something else they fail to mention when they talk about adding value is the timing of the sale.  The homeowner’s in my examples are really only going to get a maximum return if the updates are current and in good shape. What happens when all the new flashy stuff is outdated and/or worn out?  It decreases the value of the house.  Think shag carpet, paneling, mirrored walls and gold bathroom fixtures.  People spent good money on all that stuff when it was the latest fad.

~John

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