How Are Houston Property Values Influenced by Home Remodeling

12:27 Sep 2021
Houston remodeling

The fact that a Houston remodeling project can influence the property values in Houston seems to be lost on many homeowners. Although you may come across myriad articles explaining the correlation between Houston home renovation and the rise in property rates, they often fall short of making their argument backed by research. In fact, there are several factors, both subjective and objective, that can influence your decision of home renovation.

A majority of homeowners are content with getting a few Houston home remodeler bids and choosing the lowest one from them. This evaluation process does not produce the best results as homeowners should first acquire knowledge about the subject instead of getting headlong into the project. They ought to get an idea of cost versus value or the return on investment.  

It is advisable to augment your general understanding of major home renovation projects. With this, you will be in a position to tackle some of the challenges surrounding home remodeling. To better understand the positive impact of any Houston remodel project on the property values, you need to take a different perspective of focusing on the motivations of any future buyer of your property. This will help you understand the important criteria defining the intrinsic values of small and major home renovation projects.

Before taking the next step in our discussion, we ought to define values in four different ways and their potential to influence each other. The first two definitions are different in terms of their subjective and objective value and are difficult to define let alone assess a value in dollar terms.

Then we shall discuss the differences in the market value and price as influenced by local and external economic conditions. Each definition of value plays an important role in determining the economic impact of your Houston renovation project.

Houston remodeling

How is a property’s subjective and objective value different?

We take it for granted that any Houston renovation project will add value to our property. We often go about changing the decor of our homes as the motivation behind undertaking comprehensive home remodeling. We are not inclined to consider how our remodeling ideas can affect the market value of our property. This practice exemplifies subjective value, which shall go on to impact the market value of the property.

It may be noted that a Houston kitchen remodeling project can deliver some of the best returns on investments during the first year of any home improvement project. As per Remodeling magazine, the average return on investment on any kitchen remodeling project is about 80 – 85 percent of your investment. And should you stay in your remodeled house for five more years, you are likely to recover your entire investment as well as add market value to your property. This approach exemplifies an objective property value technique.

To understand the concept better, let us consider an example of initiating a Houston kitchen remodeling project worth $100,000 for a home valued at $300,000 with a living area of 2400 square feet or $125 per square foot. Thus, in this particular kitchen remodeling project, the total cost covers around 33 percent of your total property value. Even though this kitchen remodeling project might appear reasonable at face value, it should be ideally between 10 – 20 percent of the property value. So, in the above-mentioned example, the Houston kitchen remodeling project covers 30 percent of the total property value, which even though appears to be fine, the cost to value ratio seems to be out of balance.

So, how do we know about these figures? If we conduct a feasibility analysis of a major remodel work, we will find that our property’s value in the market including the remodeled kitchen would amount to $400,000 or $167 per square foot. Also, by undertaking an objective value technique, we can determine the figures by comparing the expected future market value to the computed future market price. This can put the market price of your property outside the market value range in the future. This would mean receiving considerably less than your normal return on investment.

To arrive at an optimal outcome, we have utilized both subjective and objective value reasoning for this specific case. We have used our subject value discretion to define the kind of home remodel we want and implemented an application to determine the objective valuation.

Now, should we extend this reasoning to our scenario by using an average kitchen remodel budget range, i.e., $300,000 x 12 percent = $36,000, the future market value would represent a unit price of $140 per square foot totaling $336,000. This would ensure the kitchen remodeling project derives an expected return on investment.

Hence, carrying out objective and subjective evaluations are useful techniques when determining the impact of various Houston home renovation cost to value projects. In the ultimate analysis, your family needs to understand and acknowledge your needs instead of the approach of seeking the best value. You may read more on the Houston home renovation process to augment your knowledge and understanding.  

How do property market price and market value differ?

The market price is the dollar amount a buyer shall pay for a property depending on the supply and demand value for the property at a specific time period. Here, the market price formulation is real instead of being theoretic. On the other hand, in market value, the estimated price represents the price a property would fetch in an open market under normal conditions. Also, the market value is calculated on the basis of an appraised value of the property after comparing it with similar properties in the market. It should be noted that property comparisons are done on features such as the number of bedrooms, bathrooms, and the size of the property, among others. Ultimately, the selected properties are compared to their assessed tax value.

As discussed earlier, the owner going for a Houston remodeling project should evaluate the impact his or her project will make on the future value of the property in the market. Further, the owner may increase the area of the property (total square footage). This can reduce the cost of the remodeling project per square foot by the additional per square foot added. Such projects are often called room additions or at best, home additions.

To explain the concept further, let us take the Houston kitchen remodeling example where instead of the kitchen, a 400 square feet room is planned to be added to an existing 2400 square feet home thereby making the total finished area to be of 2800 square feet. The owner receives a competitive remodeling bid of $100,000 to add the room thereby increasing the property’s market value to $400,000. Using the same sales price bracket of $115 – $140, the remodeling project would come to $143 per square foot. Here, the owner may go for reducing the finishing to accommodate the remodeling project into the sales price bracket. This example illustrates how an owner can spend 33 percent of the existing market value of his or her property and yet maintain a value that can be leveraged in the future. This is, however, not applicable to every Houston remodeling project involving additions to the existing space. View our video on increasing the existing space through home additions

How does subjective versus objective value influence the market and price value?

As discussed above, there is a need to evaluate multiple factors when it comes to planning a large Houston home renovation project. But how about small renovation projects comprising beautification tasks such as retiling the shower, getting new hardwood flooring or granite countertops. These jobs would merit more consideration if you want to live in your home for many years.

For an acquired older home, the impact of home beautification needs considerable thought. The relevant factors for a home remodel evaluation include the age, location, and the changing property values in the neighborhood. Knowing about these factors is the key to understanding the future market value of your property.

One of the errors that owners tend to make is not properly planning the Houston home remodel projects for older homes. Older homes of more than 40 years have more factors to evaluate than younger homes. This is due to the aging of critical components in the older homes, namely, roof coverings, windows, and plumbing systems. For the Houston home renovation of an older property, appliances such as air conditioning and exterior siding are expected to be second-generation products. And if they happen to be the original ones, then the expenses in purchasing such an old home will be greater. You may read our resource on home remodeling to get further insights about your home renovation project.

Another mistake that homeowners often end up making is investing in home beautification works that are not likely to return their investments in a future sale. This is because such projects are mainly about decorations and less about core replacements – interior painting, adding a new roof, new flooring, and furnishings. In most cases, such beautification works will deliver very little in terms of returns. Even though beautification works may make your property more enjoyable to live in, they do not add much to the functionality and sustainability of the property. Rather, in some cases, such personalized decorative features can end up decreasing the subjective value of the property in the eyes of the buyer. This is because the buyer may think he or she is going to incur additional costs in remodeling to customize according to his or her taste. Read our detailed blog on how to budget your home remodeling project.  

Hence, it is always advisable to consider the factors mentioned above before planning for Houston home remodeling or changing the decor of your home.  So, in order to reclaim your Houston remodeling cost, the best practices to follow would be;

  • Preparing a five-year feasibility plan for home remodeling
  • Doing the homework on market value
  • Replace products that have reached their shelf or service life.

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