Renovations that can add sales value to your house

Nation's Housing

February 08, 2004|By KENNETH HARNEY

HOW MUCH does an extra bathroom really add to the sales value of a house? What about a garage? Another bedroom? An island in the kitchen?

Answers to such questions tend to be matters of opinion by appraisers, realty agents and remodeling contractors - highly variable from area to area, highly subjective, and frequently suspect.

But now economists and statisticians are plunging into the "value-added" arena to come up with hard, numerical evidence based on analyses of thousands of home sale transactions.

In what appears to be a first of its kind study, two researchers have examined the physical and locational characteristics of nearly 29,000 properties sold in a four-state metropolitan market during an eight-year period. Using regression analysis, they identified the "marginal value" contributions of dozens of specific characteristics from bathrooms to garages, fireplaces, bedrooms and a lengthy list of others.

Some of the results confirm widely held real estate valuation tenets, but others are surprising.

For example, most appraisers and realty agents can confirm that full bathrooms virtually always add value. The study by professors David A. Macpherson and G. Stacy Sirmans of Florida State University found that full bathrooms have a far more substantial impact on selling price than is generally believed, with "each full bath adding about 24 percent" to the price of a house in the 29,000-dwelling sample.

Put another way, if you had two otherwise identical houses, but one had a single full bathroom and the other had two, the second house would sell for 24 percent more.

The sophisticated "hedonic regression" statistical model used by the researchers is designed to isolate each physical or locational attribute of a house, and quantify its relative effect - positive or negative - on the selling price of the property.

All the 29,000 sale transactions in the study took place in 21 counties in Pennsylvania, Maryland, New Jersey and Delaware during two separate time periods - 1996-1999 and 2000-2003. The sample covered a broad range of price brackets, architectural types, new and old construction, and locations.

Though some of the physical characteristics of the houses are not found in all real estate markets around the country - basements and heating systems, to name two - the study's overall findings have relevance in most parts of the United States.

Among some of the highlights:

Location, location, location. Everybody knows that mantra, and it's a statistical fact. A house with a "water view" commands about 8 percent more at sale than an identical house without such a view. But a "waterfront" location increases the market value of a house by 18 percent. Even a "golf view" - a lot that faces part of a golf course - boosts selling price by 8 percent.

Lots on cul-de-sacs boost homes' selling values by 1.5 percent, but corner lots are slight negatives - cutting sales prices by nearly 2 percent.

Garages are big value-adders - 12.9 percent on average. Status-symbol luxury items such as tennis courts, on the other hand, boost selling prices by a more modest 3.1 percent.

In-ground sprinkler systems for lawns and landscaping are in high demand, especially in the upper-bracket segment of the market. On average, they add a surprising 8 percent-plus to the selling price of a home - often well beyond the cost of the system itself.

Built-in appliances and islands in kitchens are hot. An island adds 5.3 percent to sales value but, perhaps inexplicably, a built-in refrigerator adds 8.4 percent.

Family rooms boost selling prices by 7.3 percent, separate dining rooms add 6.2 percent, and a security system adds 5.6 percent. But for some reason a "utility/mud room" adds just 1.1 percent.

Laundry rooms or separate areas for doing the family wash are important if you want to maximize selling price. A house without one sells for a surprising 15 percent less than an otherwise identical house that has one. But make sure the laundry room is on the first or second floor if you want the highest price. Basement laundries, while far better than none, lower selling prices by 2 percent, according to the study.

If you're putting a pool in the back yard, dig deep. An in-ground pool adds 7.9 percent to value, whereas an above-ground pool is a negative - knocking 2 percent off the selling price.

Never market your house as a "fixer-upper" if you want to maximize price. Buyers penalize you for that label even more than you might imagine. Houses advertised and sold as "fixer-uppers" in the sample sold for 23.6 percent less.

Ken Harney's e-mail address is kharney@winstarmail.com.

Value-added study

The full study can be viewed at www.realtor.org/research under the national Center for Real Estate Research. The center is an affiliate of the National Association of Realtors.

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