Will My Summer Project Add Value to My Home?

Will My Summer Project Add Value to My Home?

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Last summer, my wife and I decided to build a wood-fired pizza oven in our back yard.  It was a very long and expensive process, but we love to entertain and eat delicious food, so it was worth it to us.  The oven turned out amazing and the pizza is even better! 

At one of our first pizza parties, we had numerous friends ask the question: “so, how much value does this pizza oven add to your house?” Truthfully, the answer is: probably little to nothing, but it can be hard to determine for sure.  It all depends on how much the market would be willing to pay for that one unique, non-essential feature.  The problem is, there are so few homes with custom-built pizza ovens; in the thousands of appraisals I’ve done in Nevada County, I’ve only encountered a handful. Furthermore, it's going to be very difficult for a real estate professional to prove the market is willing to pay anything more for a feature like a pizza oven. Did Bob Buyer make a top-dollar offer just because the house had a backyard pizza oven, or was it something else? With so few data examples to draw from, it can be very difficult to pinpoint.

Personally, our goal in building the pizza oven wasn’t to increase the value of our home. We enjoyed the satisfaction of building something with our hands and sharing the fruits of our labor with friends and family. And to eat the most delicious pizza ever. However, it can be a real shock and disappointment to sellers when they find out the fill-in-the-blank they worked so hard on and invested so much money in doesn’t actually add much (or any) value to their home. In this post, I’ve laid out some things to consider before you embark on a summer project.

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So why doesn’t the fancy pizza oven necessarily add value to our home? To further illustrate, I’ll use the example of the Kohler Numi toilet. Imagine a homeowner decided to outfit their otherwise average condition house with the Cadillac of toilets- a Kohler Numi Elongated One Piece toilet (MSRP $10,400).  According to their website, ‘Kohler's most advanced toilet now offers personalized settings that let you fine-tune every option to your exact preferences, from ambient colored lighting to wireless Bluetooth(R)* music sync capability to the heated seat and foot warmer.  Other upgrades include Power-Save mode for energy efficiency, emergency flush for power outages, and an intuitive touch-screen remote.’  While this might give the homeowner ‘The Coolest Toilet on the Block, award’ it’s probably not adding any additional value to the home.

A family with a budget of $400,000 looking for a 3 bed, 2 bath house is not going to be willing to pay $20-30,000 more, exclusively for toilets that will dim the lights and play Beyonce every time you go number two. Or at least this is something that would be very difficult for an appraiser to prove. In homes that are very high-end, however, this type of amenity might be expected as part of that existing high-end price tag. In this case, a home with a $10,000 toilet probably also has the best finishes and amenities throughout the house. You aren’t typically going to see the Kohler Numi perched on 1970’s linoleum. But more importantly, just like the case of the pizza oven, there is so little data to draw from.

Consider your home and the current market. Just because you spend a lot of money or time on a project or amenity, doesn’t mean it will add monetary value to your home. If, however, your personal happiness will be made greater by a ten grand robot toilet with a name like a Kentucky Derby racehorse, knock yourself out.

Homeowners, Investors, and Agents ask me all the time about specific features adding value to a home.  Here are some common items:

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Kitchen – A kitchen remodel is one of the most common upgrades homeowners make.  The cost can range from $15k to $150k.  Typically, a kitchen remodel has a good return on investment.  Remember paying more for that one super high-end model of stove probably isn’t bringing that cost back in value.

Bathrooms – Probably the easiest and most inexpensive remodels in a home.  A bathroom remodel can bring a very dated home into the modern world and buyers will notice this.

Paint – A coat of paint can go a long way.  Neutral colors can give a home a fresh look and paint a blank canvas for buyers to envision their new home.

Floor Coverings – Soiled and stained carpet can really turn off buyers.  Even the brown shaded carpet from the ’80s can be a real turn off for buyers.  New floor coverings spruce up an older home. 

What about a golden toilet? (Side note - supposedly one was offered to the White House, but Trump turned the offer down). If a toilet weighs as much as a normal porcelain one (70-120 pounds), a golden toilet would cost anywhere between $1,374,266 - $2,355,936. Based on the price of gold in Sept 2016, the toilet (actually the gold) would have decreased in value $100,326 or 6.8%. Pretty crappy if you ask me!

What about a golden toilet? (Side note - supposedly one was offered to the White House, but Trump turned the offer down). If a toilet weighs as much as a normal porcelain one (70-120 pounds), a golden toilet would cost anywhere between $1,374,266 - $2,355,936. Based on the price of gold in Sept 2016, the toilet (actually the gold) would have decreased in value $100,326 or 6.8%. Pretty crappy if you ask me!

Pizza Ovens and Expensive Toilets – In the appraisal world, its called a super adequacy item.  Imported roof tiles from a church in Italy and marble from the desert of Egypt (both items I have run across before) probably aren’t going to add any more value than materials that are available locally.  Buyers just typically aren’t willing to pay for these little luxuries that are personal to the seller.

Landscaping – Here’s where things get a little less black and white.  While some landscaping is more valuable than no landscaping, the extent of the landscaping and water irrigation probably means very little when determining the value of a home.  It's great to look at your brand new $80k landscaped back yard, but is the market paying more than the average landscaped property next door? Maybe a little, maybe not.

Additions – While adding to the square footage of a home is definitely going to increase the value of the home, the cost typically greatly outweighs the increase in value.  Most cost of new construction I see ranges from $200-$300 per square foot, but the market typically reacts between $65-100 per square foot of additional living space.  The addition may not be the best return on investment. 

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Pools – An average in-ground pool in Nevada County can run between $40,000 - $200,000.  The market reaction to pools can be quite different.  Demand is key.  If you lived in Palm Desert where the average high temperature during the summer months is 102-105 degrees, the market would demand almost every home have a pool.  Compare that to an average temperature of 80-87 degrees during summer months in Grass Valley.  When I’m appraising homes throughout Nevada County, I typically see a market reaction of $5,000 - $25,000 depending on the quality of the pool.  The cost will always outweigh market reaction for pools, but they sure are fun on those hot summer days!  ***Reminder – An above ground pool is typically considered personal property because it can be easily broken down and moved.  Similar to an above ground hot tub or spa, these items are not taken into consideration when establishing a market value for a property even though they may be included in the purchase of a home.

Barns/Outbuildings – Market demand is going to be another key factor with barns and outbuildings.  In Lake Wildwood there is very little demand for a large workshop or an eight stall barn.  In South County and McCourtney areas, a barn is a must.  I’ve seen the market willing to pay anywhere from $5,000 - $50,000 for these types of structures.  

Granny Units / Accessory Dwelling Units – These types of structures can range from a detached guest bedroom and bath to a 2-3 bedroom home with a full kitchen and garage.  I’ve completed an extensive analysis of ADU’s and found the market is willing to pay of 5%-25% for an ADU on a property.  For a $600,000 home that’s $30k - $150,000k.  Again, the cost is a key factor in ADU’s.  Typically the cost outweighs the return.   

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Smart Home Upgrades – Smart home accessories have become a huge industry.  There is everything from wireless learning thermostats, remote locking doors, video doorbells, automatic interior lighting, voice-controlled window shades, and a refrigerator that live-streams a camera so you can look inside from the grocery store.  While these gadgets are cool, technology is growing at such a rapid pace, these individual upgrades can be obsolete in a few years, so probably won’t add much additional value too the home. However, when many smart home items are put together, they can add a cool techie vibe to the home which may sell your home faster than a similar home that you have to write down your grocery list physically. 

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Solar – I could (and probably will at some point) write an entire blog post on solar electricity, so this is going to be pretty concise.  Overall, I would say the Nevada County market is willing to pay more for a home with solar electricity than without solar electricity.  This makes sense as the PG&E bill is going to be less on a home with solar. Each system is uniquely designed specifically for that home and can have so many different factors: How large is the system, when was it installed, how efficiently is the system oriented towards the sun, do trees obstruct the sun at parts of the day, etc.  Right now, a real estate professional doesn’t have the answers to those questions for every home they appraise, nor every comparable, so an exact analysis is impossible to complete.  An analysis completed in 2015 by Sandra Adomatis, SRA, LEED Green Associate and Ben Hoen, Staff Research Associate at the Lawrence Berkeley National Laboratory found “the average premium for all study areas is $14,329, which is 3.74% of the average sales price and equates to $3.78/W … this premium is considerably lower than the average gross cost estimate of $5.48/W.  ***Leased vs. Owned – Leased equipment is almost always considered personal property and won’t be considered in the market value of a home.  Most lenders require that leased solar systems not be included in the value of a home. 

In Summary

The common theme throughout this list of upgrades and remodels is the cost is usually going to outweigh the return on value.  I know HGTV makes it tempting to install a water feature or the latest tech upgrades, but in reality, there are very few upgrades that will give you a dollar-for-dollar return on investment.  When considering upgrades or amenities, it’s best to first ask yourself if you are doing it for personal pleasure and use, or to increase the value of your home. If your answer is the latter, consider the tips I have laid out, as well as the current market.   Otherwise, make some dough, fire up the oven, and enjoy the personal touches and luxuries you have added to your home!

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The Accuracy of Zillow

The Accuracy of Zillow