Top 8 Home Improvement Myths

1)   Any Remodeling Will Add Value:  Not true!  While many remodeling projects will add value to your home, some can be seen as a negative for buyers.  For example, combining two smaller rooms to make a bigger room might better fit your needs today, a future buyer may prefer having more bedrooms.

2)   The Highest Quality Materials Attract More Buyers:  Not true!  Installing the highest quality materials always seems like a wise decision, but it can backfire.  For example, using the most expensive tile in a bathroom may impress your friends, but value conscious buyers might opt for a more affordable home if you have over-improved the home (in comparison to the rest of the neighborhood).

3)   Adding Square Footage Always Adds Value:  Not true!  A better way to think about this statement is to insert the word “useable” into the sentence.  Square footage in attics and basements might not be attractive to a buyer if the space is sub-standard compared to the rest of the home.

4)   Colors and Textures – Safe and Simple is Better:  Not true!  Keeping a home vanilla so that buyers can choose their own style and décor sounds like a safe bet, but it ignores the fact that most buyers lack the ability to visualize the home differently.  Without splashes of color and mixtures of texture, you could lose value to other sellers that have taken the time to consult with designers and/or decorators.

5)   Inside Improvements Are Better Than Outside Improvements:  Not true!  If a home buyer cannot get past the exterior of your home due to neglect, all of the work you do on the inside won’t get you the exposure that you need in order to get top dollar.  It’s better to start OUTSIDE first, and then make improvements to the interior.  This will ensure maximum exposure to your home.

6)   Adding a Bedroom is Better Than Adding a Bathroom:  Not true!  This actually depends on your starting point.  If you only have one or two bedrooms to begin with, then adding a bedroom before a 2nd bath is probably a wise decision.  But, if you already have three bedrooms and only one bath, then your next investment would probably be in a new bathroom.

7)   Paint Hides a Multitude of Sins:  Not true!  As a matter of fact, hiding dry rot, fungus, mold, termite damage, etc with coats of paint not only violates disclosure laws, but could also set you up for liability after the sale of the home for many, many years after the transaction is closed.

8)   Converting a Garage to Living Space is a Great Trade-Off:  Not true!  A garage conversion is almost always viewed negatively by future home buyers, unless you replace the lost garage with another space of equal amount of storage space.  If you are planning to convert a garage into living space, make sure that the space can be easily converted back to a garage at the time of the sale.

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What Will Happen to Real Estate in 2014?

It seems like everyone I talk to predicts a great year for Real Estate in the coming year.  I hear all kinds of reports from the Media that we have gone up double digits since Jan, 2013 and that there’s no reason for prices to fall……..

For my predictions, I use the S&P/Case-Shiller 20-City Composite Home Price Index, which measures the value of residential real estate in 20 metropolitan areas of the U.S.  I have been tracking this Index since 2004, right in the middle of the Economic BOOM!  Like the traders in the book “The Big Short”, I expected a major crash at some point.  Unfortunately, I didn’t have the guts, nor the know-how, to put my money where my mouth was.

The thing I like about the Home Price Index is that it tracks data all the way back to 1891.  That gives us an excellent sample size to create an accurate Standard Deviation Range, which is indicated within the red lines on the following graph.  It is also an index that is adjusted for inflation so that makes it a very REAL indicator.

House Price Index Graph 91-13 with StDev

From 1891 to the year 2000, every single reported value falls within this range. You can see peaks and valleys and almost pin point events such as World War I, The Great Depression, World War II, the Post-WWII Recovery, etc.

Nothing could have prepared us for the BOOM that happened with the invention of the internet.  Look at what happened to Real Estate Prices between the years 2000 and 2007.  It almost immediately broke through the roof of the 109 year-old Standard Deviation Range and only INCREASED momentum until it crossed an ADDITIONAL STANDARD DEVIATION RANGE.  Real Estate prices were out-of-control, but that’s not where it ended.

Banks started qualifying people for loans without even verifying their jobs or income.  These were called “Stated Income Loans”.  Believe it or not, the banks asked people how much they make, and whatever the people “stated”, the bank put down for the qualification requirement.  This caused Real Estate prices to skyrocket, as people were all-of-a-sudden qualified to buy much bigger houses and competition became fierce.

Houses that were $250,000 only 5 years ago were now being bid up into the $600,000’s.  And that went on for 6-7 years until the bottom fell out.

The Great Recession, as they call it, began and prices immediately started to correct.  If you look at the graph, the correction looks a lot worse than the Great Depression and I think they should’ve called it the Great, Great Depression, as it’s STILL going on 6 years later.  More on that another day.

My point is this.  Even though we experienced a small increase in Home Prices (the first increase since it began falling 6 years ago), we are still above the ceiling of the 109 year-old Standard Deviation Range.  That concerns me because I believe there are still many artificial (and temporary) fixes in the Economy that won’t sustain us through the Long-Term.

I believe that one of two things will happen.  Either (1) Prices will remain flat until the ceiling catches up to the Index or (2) Prices will fall back to within the original Range.

Until Next Time,
Todd Kroepel
Real Estate Professional

If you have questions or comments about the topic of Real Estate, please contact Todd at: Todd@ToddSells.com