The concept of what adds “value” to a home is, at best, subjective.
One buyer may place a high value on a pool while another may see that as a reason to eliminate the home from consideration. Price and cost does not always equal value, and there can be any number of reasons why that’s the case.
The most common reasons reinforce a basic truth found in all real estate: This is not an exact science, and a number of variables — especially the motivations and desires of buyers and sellers — can be very difficult to account for. While data analysis provides a benchmark for value trends in an area, that data must be blended with the variables present in each situation.
“Value in use” has a number of real estate-specific definitions. It also has a much simpler real-world residential application — does the home suit a specific requirement of the present owner or buyer?
There are a myriad of simple examples: a master on the main, an in-law suite, a single-story home or a handicapped-accessible floor plan. Occasionally, a setting or locational appeal can be the impetus — views, lot appeal, schools or proximity to mass transit. Quality of construction and design, craftsmanship and similar upgrades can also increase appeal.
There’s no shortage of people willing to “pay more” to live in a desirable school district, or for a home with certain design features. The question of what a home is “worth” really has two answers — what the data indicates, and what role it serves for the person who lives in it, whether it’s the present owner or the buyer.
The challenge comes when trying to reconcile the hard data that appraisers rely on with those intangible or specific appealing features a buyer values. This is often the basis for appraisal issues, especially in a lending environment with hyper-underwriting processes.
Challenging an appraisal in a situation like this can be difficult; underwriters don’t typically like to think outside of the box. In some cases, this can also undermine the confidence of the buyer if potential appraisal problems are not detailed to a buyer or seller.
While a home may contain highly desirable features, the problem of functional obsolescence due to overimprovement may be a genuine concern. There can be instances of properties with features so unique that their cost is not close to supported by the local data.
While some buyers or occupants may still find a home like this appealing, they might be considered “white elephants” because they are so uniquely equipped. That could become a headache for both sides when it’s time to sell.
Most place a high value on garages. A two-car garage is nice. For some, space for three or four cars is better still. But what about six?
What about a garage equipped with a lift system that allows for cars to be stacked in a garage? Or a garage with a “pit” that allows access to work on vehicles from below? Is a cavernous garage that’s tall enough to accommodate an RV or fishing boat worth the expense?
For select buyers, these might be “must-haves.” For others, they may be features that cannot be justified with a higher price.
Outdoor improvements like pools and barbecues routinely enhance appeal, especially in warmer markets. How much will the market recognize pool features like gunite and pebbletech instead of vinyl? What about hot tubs, waterfalls and vanishing edge designs? What’s more desireable: salt water or chlorine?
Will the market pay more for a fully equipped outdoor kitchen with high-end appliances, media and audio systems, and fire pits or fireplaces featuring real stone or brick?
What about uniquely designed and constructed walks, walls and landscaping? Does something like this, especially if a community has a pool and recreational facilities, return the cost of installation and maintenance when offered for sale?
Another example seen more and more is the trend toward athletic equipment in homes, in some cases rivaling what’s found at professional gyms and training facilities. There are homes with full-sized indoor batting cages, complete with pitching machines and netting, homes with racquetball and basketball courts, bowling alleys and even shooting ranges.
Indoor pools are not nearly as unique as they once were, nor are full-sized gyms with professional-grade equipment. While many buyers might enjoy a gym or target shooting, how many want them in their home, and are willing to pay extra for them?
Some homes serve a general purpose for a limited time. Others serve a specific role that may last for many years.
Real estate is a highly personal business and there are an infinite number of variables at play. But answering the question of “Does this home work for me?” is the most important one to control.
That answer — the “value in use” to the occupant — may not be supported by the market data. Which is why an understanding of these terms is so important when making sound real estate decisions.
Hank Miller is an associate broker and certified appraiser in Atlanta, Ga. The lead agent for HMT Atlanta, he’s known for his candid opinions and real estate expertise.