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The Pain of Home Over-Improvement

Aug 7, 2008
Upgrade your kitchen and master bath and you will instantly see a high financial payout is the common wisdom in the home improvement market. But putting in high-end appliances and upgrades to your home does not instantly ensure a full recoup of the costs plus profit. There are other factors involved in a smart home improvement plan.

Updating a kitchen with all of the latest high-end materials like granite countertops and cherry cabinets used to be a sure-fire way to improve a home, and its price on the market. Nowadays, however, home sellers are discovering that they might have taken on too many home improvements and priced themselves out of their neighborhood.

There is much more inventory on the market currently than there was during the real estate boom. For this reason, home buyers are less and less impressed with granite countertops and custom design work. However, for the sellers who have spent thousands with the hope that the improvements would help them sell their homes fast and for more money, a nightmare awaits. Upscale renovations are now returning roughly 70% of their initial costs, giving many home sellers a startling shock. Sellers who have thought their upgrades to be a sure thing are instead left wondering what went wrong.

The danger and pain of over-improving a home is growing. Fewer and fewer high-end projects are seeing the profits that were promised and investors are not seeing the return they expect.

An upscale bathroom renovation can cost an average of $50,590. However, analysts estimate that only $34,588 can be added to a home value, making only a 68.4% return. In 2006, bathroom renovations would show a 72.8% return. Kitchens can have a better return overall with roughly 74.1%.

If a homeowner is making the changes only to help with the home sale and price, the results might not be what they expect. However, if the homeowner wants to upgrade the kitchen, bath or overall layout of the home for themselves as well as future home sales, these renovations are the smarter move. These homeowners can enjoy the upgrades and recoup their costs in future sales years after the renovations have been completed. In other words, if you do upgrades for your home for yourself and your family, you are making the smart investment. If you are making these changes only for a no-name sellers increased interest, you will not see a big return on your investment.

The impact of these reports on negative returns on upscale improvements has shown a decline in the demand for high-end materials. The demand for luxury appliances declined from 65% to 47% in 2007. Items like wine refrigerators decreased from 53% to 49%.

Where are the upgrades that make the most sense for your property? Increasing curb appeal is always a smart move. With a strong curb appeal, the property is more apt to get serious buyers who are interested in the home. The return on these investments can be up to 88%, but if the curb appeal secures your future sale, it is worth every penny.
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