How to add value to residential property?

Question

If the After Repair Value of a Single Family house is $120,000 and I want to add value to it, how do I determine how much value is added to it if lets just say I add a 3rd bedroom to a 2 bedroom house. If I spend an extra $4000 to make the house stand out so that it will sell quickly, how much value am I adding to the house. Is there a chart or a formula to figuring this out?

Account Closed · Answer

Mike has provided some great advice.

Answering this from another angle. You want a formula or model. There is none. Mostly because the value of a home is determined by what a person would buy. No two home can every be exactly alike so variations in value will happen.

Each home is an alternative to all the other homes on the market with the same major features. School district and number of bedrooms. Square footage and type of neighborhood. Some things you can control and some things just come with the area. If you add an extra bedroom you likely are pushing the home into a new group of comparable. People looking for a 2 bedroom place will generally focus on that size or larger but not too commonly will they go down to a 1 bedroom.

If someone needs a 4 bedroom and you add a 5th they may not even look. Or they might look but still compare the price to the alternatives that they are happy buying.

A bottle of water in the winter when there is no shortage has a value. A bottle of water when you are in the desert and there is no other source of fluid for miles will have a different value. Context matters. Location, style, schools, condition, size, etc.

There is no specific formula. As Mike says know the competing product on the market. If they are all 3 bedroom places you have have a 2 does it help or hurt your changes? If they are all 3 and you have a 4 does it help or hurt? What are the worst features of the place? What are the best? Can you reduce the negatives for a small investment or should you just adjust the price to get it sold?

John Corey

Michael Rossi · Answer

How much value you add is determined by the local area.  You need to learn your market.  Get out of the house and look at 100 or 200 houses that are for sale.  Acceptable prices are determined by the market (which is not good and getting worse in most areas).  Putting $4,000 may or may not add any value.  For example, putting a marble countertop in a low income rental wouldn't add a penny to the value.

Good Luck,

Mike