Harney: Owners often overvalue their homes

Top of the list: Unrealistic expectations about how much the improvements you’ve made to the house will add to its resale value. Because you’ve paid the bills, you know precisely how much you sunk into the kitchen remodeling, bathroom upgrades, landscaping and the new roof. Tom Horn, an appraiser in Birmingham, Ala., says consumers “may think they can get back what they put into” the improvements they’ve made over the years. “But it doesn’t work that way.”

Annual real estate surveys consistently show that dollar-for-dollar returns are rarely the case. The 2015 “Cost-vs-Value” study by Remodeling Magazine and members of the National Association of Realtors in 102 markets found that many high-ticket improvements don’t come close to paying off what they cost. For example, based on national averages, a major kitchen remodeling costing nearly $57,000 would return just 67.8 percent — $38,485 — in resale value. A backup power generator returned just 59.9 percent and a home office remodeling less than half, 48.7 percent.

A closely related issue: Over-improvements of your home compared with the neighborhood norm. Don Boucher, an appraiser in the Washington D.C. area, says he sees it all the time: Owners sink tens of thousands of dollars into a super-premium gourmet kitchen in a neighborhood where nobody else has installed such a luxury. When you renovate a kitchen or other feature of your house to a level typically seen only in communities where homes cost double what they do in yours, you’re not going to recoup that extra expense, Boucher says.

Another example of where owners get off track, according to appraisers: They install highly personal but costly items — features they love passionately or need, but most potential buyers don’t. Say you spend thousands of dollars to install an elaborate indoor lap pool or spa. It may be just what the doctor ordered for your health, but prospective buyers may not want it. They may even plan to remove it if they purchase, giving you zero in added value in their offer. Ditto for expensive, special-taste items such as all-glass conservatory rooms, over-the-top backyard “environments” and, in some northern markets, swimming pools. Gary Crabtree, an appraiser in Bakersfield, Calif., says lush landscaping that requires large amounts of water isn’t adding as much to value as it previously did, given the current severe drought conditions and water restrictions.

Finally, appraisers say owners may not understand the valuation dynamics of their local market. Glen Kangas, a Los Angeles appraiser, says owners frequently estimate value based on the square footage of the house. Yet “in my area, land value is really high,” he said. “So sales with larger lots have a higher price per square foot,” which owners of below-average-sized lots erroneously apply to their own home values.

Bottom line: Without access to key data — recent sales comparables, accurate information on appreciation rates over time — it’s tough to know exactly what your house is worth. If you really want to know, consider hiring an appraiser to perform an independent valuation — they work for owners, not just lenders — or talk to multiple realty agents who specialize in your neighborhood.

Kenneth R. Harney of the Washington Post Writers Group is a past member of the Federal Reserve Board’s Consumer Advisory Council and is currently on the board of directors of the National Association of Real Estate Editors. Reach him at KenHarney@earthlink.net