Over-improvement

We had my husband's parents in town last week, and it is always fun when they come to visit. Went to Whistler for a couple of days and hiked around, watched crazy mountain bikers...it was lots of fun.

While they were in town, we got to talking about the house they just built. It's a beautiful log home, built overlooking a river and 200 acres of federally protected original prairie that the family owns. My parents built the home for a retirement house, because it's near their parents and brothers and sisters. The area has great pheasant hunting as well, so there is some business potential for using the house as a hunting lodge.

Sounds great, right? The only downside is that building costs overran their original loan and when they went to the bank to try to get a second loan, the bank would not lend them any more, since they already had a loan out for about the max of what comparable properties in the area were selling for. It had nothing to do with whether they were good for it or not, or how nice the house was, it simply had to do with the bank being unwilling to take the risk on further improvements to the property in a market that might not support it.

People over-improve their homes all the time, and that's okay as long as they are clear that the improvements are for their enjoyment and that they may not recoup their costs. It's important to remember that there are improvements the market will bear, and ones that it won't. If you have the nicest home in the neighborhood, that may not mean that you can sell your home for significantly more than your neighbors. The value is in the enjoyment of the property while you live there.

To know if your improvements are over-improvements, it helps to make sure you understand whether the local market will pay for the work you have in mind. Talk to a real estate agent or appraiser that specializes in your neighborhood and ask what the value of your planned project will be when completed. Then decide if you want to do the improvements for your own enjoyment or not.