Just a few years ago, home improvements were considered strong, sound investments. A $50,000 kitchen remodel could easily add $75,000 to the value of a home. However, in the challenging real estate market we are experiencing today, this is no longer the case.
For a homeowner who needs or wants to sell in the near-term with recent major home improvements in place, it is possible for them to find that they have actually overimproved their home and may be unable to recoup their costs in the sale of their home.
Materials & Finishes Luxury, top-of-the-line materials and finishes used in home improvement projects during the past few years were in high demand by buyers who were willing and able to pay the price. This is no longer the case as more buyers select homes with quality, but not over-the-top materials and finishes.
Additions Home improvements that are inconsistent with other homes in the neighborhood are considered an overimprovement. For example, the addition of a $50,000 swimming pool to a $300,000 home in a neighborhood of $300,000 homes would be considered an overimprovement.
Home improvements that are relative to other homes in the neighborhood are still considered safe, but be watchful of overimproving your home beyond the general value of your neighborhood such as adding a third bath if all other homes have two baths.
Appreciation Being the most expensive house on the block is considered an overimprovement. For example, the owner of a $400,000 home in a neighborhood of $250,000 homes will see the value of their home hindered by the more affordable homes. The $400,000 home in the $250,000 neighborhood will appreciate at the same 5% per year like every other home in the neighborhood though a nearby $400,000 neighborhood may be appreciating at 8% per year.
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