How To Increase a Homes Value

Signs Of The Times


In this era of economic turmoil the populus not only wonders what company will fail tomorrow or when we will hit the bottom of this financial roller coaster but what constitutes an asset and a liability with regards to real estate.  In fact homeowners that once regarded their homes as their greatest asset increasingly regard them as their greatest liability.  The basis for this logic lies not only in accounting, but in perception and the necessity of inventory movement.  In other words, the homeowner cannot view a home as an asset, regardless of its book value, unless it can be sold in a reasonable amount of time and for a reasonable price.  To be clear this article is less directed at the appraised value of a home by independent appraisers, real estate agents or taxing authorities than it is at the actual value of the home to the homeowner that needs to sell it due to financial necessity.

What Is "Home Value?"

For the purpose of selling a home, its appraised value is determined by looking at its ammenities, square footage, location, perception, etc., and then comparing it to comparable houses in the same area that recently sold. This process of determining a homes value works well in a good market. However, in a market which inventory far outweighs demand the homeowner must use an additional variable in their calculation of home value.  This additional variable is time on the market.  In other words, a homes value may be $200k if the owner can afford to hold it for six months, or only $125k if they need to sell it next week.  Not only is everything for sale if the price is right, anything can be sold if the time is right.

In most cases the homeowner does not have the ability to change most of the variables contributing to home value.  Homes are not easily and inexpensively relocated so location is set, the square footage normally cannot be changed without spending a large portion of money and most homeowners cannot control the sales price for houses surrounding theirs.  Despite this, there are a few things that a homeowner can do to increase a homes value.

Time-The Most Important Variable Contributing To Home Value

The most obvious way a homeowner can achieve their desired home value is to be patient.  As stated previously a home is worth whatever the homeowner needs it to be worth if they are willing and able to wait.  If you don't believe that statement then look at the thousands of small two bedroom houses in San Francisco that sell each year for $400k, $500k or even $600k when their original construction price was $30k-$40k. Realizing that most homeowners are more concerned with short term gain/loss than they are with the long term does not change the fact that time is as much a contributing factor to home value as is any of the other variables stated.

Alternatives To Waiting For Home Value Appreciation

Since most homeowners do not wish to or cannot wait long periods of time to sell their houses there are other things that can be done to increase a homes value.  These projects fall within the perception variable. Buyers want many things but the things that consistently make the difference as to how fast a house sells can be narrowed down to a very short list.  First and foremost is location, then curb appeal, followed by neatness, novelty and finally price.  At this point you are likely having to think about price being a factor contributing to home value since you probably regard them as two in the same.  Despite the fact that price is a major component of home value, it is not the same as home value.  Value encompasses the entire package whereas price is merely the exchange rate (e.g. 1 house for $X).  Major retailers like Wal-Mart realized long ago that value trumps exchange rate almost every time. This is why they regularly show their prices as $/oz, $/ct, etc. when selling products packaged en masse.  When dealing with products such as milk that are sold in standard quanitites such as quart, gallon etc. it is easy for the consumer to compare prices among retailers.  However for products such as potato chips that are sold by the bag with no standard size or weight the consumer must determine their best value by calculating the price of the product divided by the quantity of the product.

Home sales are only slightly different.  When purchasing a home it is still necessary to determine what is being bought for the price but the calculation is far less methodical and far more intuitive.  The consumer almost always compares price/square foot but their quantification of ammenities is more of a mental note of the ammenties that catch their eye.  As a seller, the homeowner must maximize the number and quality of such ammenities.  As a general rule there are three main areas to concentrate on for ammenity upgrades in order to sell a house.  These are the kitchen, the baths and the living room.

Kitchens

Though there is no set formula to determine which kitchen upgrades a homeowner should choose to increase their homes value there are a few items that are almost always found in houses with higher home values.  These are custom cabinets, hard surface countertops (quartz or granite), tile floors, professional series appliances and undermount sinks.  In order to determine where to concentrate, a homeowner should look at what they have and determine which of these items is in most need of improvement.  For example, if a homeowner can only perform one of these upgrades and the choice is between replacing carpet with tile and replacing 10 year old appliances with professional series appliances, replacing the carpet would have the greatest impact and would cost far less for that matter.

Baths

Baths are similar to kitchens in that they need to look up-to-date and consist of relatively maintenance free items.  Again, tile is a must, hard surface countertops are a plus and the plumbing and light fixtures should be in style.  For the master bath a walk-in tile shower is great but is likely too costly to add if not already in place.  A whirlpool bathtub can add value despite the fact that most buyers state that they will use it very little.  Additionally, glass shower doors are preferred in lieu of curtains by most buyers. Shower doors are not as costly to add as a walk-in shower or a whirlpool but shower doors are not cheap.  The least expensive way to increase the value of a home by adding ammenities to the baths is to place wood frames around existing mirrors. This task can be performed by most cabinet makers and trim carpenters and in most cases the perception value gained far outweighs the minimal investment required.

Living Room

The living room is perhaps the easiest place to make home improvements and thus increase home value since there are generally few facets to be changed.  In general the best living rooms are spacious and make the occupant feel comfortable.  This feeling is attained by design, colors and furnishings.  If a seller is trying to sell a house that they live in, they probably don't want to rush out and buy a whole new set of furniture to help sell their house and if they are trying to sell a vacant house they probably don't want to invest in show furniture that may or may not make the buyer feel comfortable so furniture is not the best option for increasing a homes value.  Paint, on the other hand is relatively cheap and with a coat of warm/neutral wall paint, the perception of most living rooms can be changed drastically.  The homeowner should be careful to control their own preferences when picking paint colors to increase a homes value as neutrals may not be their preference but will likely make the home appeal to the largest portion of buyers.  Flooring is currently a toss up.  Many consumers state that they will never own a house with carpet in the living room while others state the opposite citing the cold feel that tile and wood have.  It is the authors opinion that wood or wood-look laminants sell better than carpet.  Additionally, laminants can be installed by homeowners with minimal skill and for a relatively small investment.

The Entire Package

In summary, a homes value is not just a snapshot valuation at a given point in time.  Valuations change constantly.  Sometimes a homes value trends up and sometimes it trends down.  In difficult financial times homeowners are often forced to sell their homes to keep their finances in check and doing so requires that each homeowner evaluate their home on the basis of both valuation and time.  With increased time on the market and in the absence of vacancy most home values will ultimately appreciate.  That said, a homeowner that can stand to hold their house for a greater period of time can demand a higher price regardless of the variables contributing to home valuation.  If the buyer must sell their home in a short period of time, they are often forced to evaluate the potential upgrades which will increase the value of the home by decreasing the amount of time on the market.  Kitchens, baths and living rooms are the best places to focus upgrade efforts when trying to decrease time on market since these are the areas that are both controllable and affect the buyers perception of the home.  Curb appeal, neatness and novelty are other areas that should not be overlooked, as the buyers first impression will largely determine whether they seriously consider the home.  Despite this if the house is clean and neat, has beautiful floor tile that nobody else has and a buyer loves the facade yet abhores the kitchen baths and living room, the house will most likely not sell to that buyer.

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