“Mr. Harris, welcome to our home! Come out here and take a look as this fabulous deck I built myself over a couple of weekends! I found out how to do it by watching a video on YouTube. Easy as pie! What a beauty, right? What does something like this add to value – $10,000, $15,000? Just look at that view!”
You’ve been there and done that, right? Anyone who has been in real estate appraisal very long has had an experience like this, or one highly similar to it. The homeowner is proud of what he has done! He thinks he has increased the value of his home, while increasing its livability at the same time. Boy! Two birds with one stone.
But then, because we are real estate experts, we suffer two horrors, because we know he, while well-intentioned, is wrong. The first is that decks are generally personal preferences. Depending on the neighborhood, if the market demanded a house have a deck, it would already be in place. Second, you know more-or-less how much a deck contributes to the value of a property. Usually, it is not very much, and it is always less than its cost. You already know the retail cost of the wood and material at the hardware store has nothing to do with what it will contribute to the property’s value.
Oh, yeah! Then there is the issue that, despite the retail cost of the deck’s materials and the great and time-tested information that 20-minute YouTube video imparted, the deck looks like a totally inexperienced carpenter, over two weekends, built it (perhaps with the help of his neighbors and a lot of beer).
Yes, you’ve been there and done that! Which is why I want to bring up a point: It is not likely small amenities will add much, if anything at all, to the overall value of the property. If those amenities are not something the market demands, they may have a negative value. How so? The buyer of the property will have to pay to have them removed.
What are some amenities that, all other things being equal, will not add value equal to the cost? Well, a big one is a swimming pool. Assume its costs $250 to keep and maintain it. Assume you are going to own the house for 10-years. And assume a two percent (2%) discount rate Under those conditions the pool will have cost you an extra $25,000-ish by the time you move. Wouldn’t that go a long way toward a kid’s college tuition? As they say, a pool is just a hole in the ground into which you throw money.
How about that shed in the backyard? A great place to store equipment, you say! Likely true. But unless that shed is permanently attached to the ground, it is personal, not realty. And even if it is realty, how much value can an uninhabitable shed in the backyard contribute to the value of a habitable single-family residence? And if it is not realty, how can it contribute to real property value? You might as well say your house is worth more when your car is parked in the garage. It is not.
So a great lesson for real estate appraisers is that small amenities may bring a property owner great joy. But they may not contribute significantly to the value of the real estate.
For more information on this subject, please download and listen to The Appraiser Coach Podcast Episode: