When Home Additions Hurt and Help Resale

Daily Real Estate News | Wednesday, October 26, 2016

Your clients shouldn’t automatically assume that adding extra square footage to their home will raise its value at resale. In the case of a 1917 Cotswold-style Craftsman in Pasadena, Calif., the owner actually hurt her chances of a sale with an 800-square-foot addition. The addition didn’t take into account the historical details of the home, and its protruding window didn’t match the home’s thatch-like roofline, brick chimney, and “whimsical wood details,” The Wall Street Journal reports.

“It was just all wrong,” listing agent Matt Berkley of Crosby Doe Associates in Pasadena told the newspaper. Home owner Annie Yan paid $30,000 to demolish the addition and sought to restore the home back to its original state. She is now selling the home for $4.78 million — more than $600,000 than what she purchased it for in 2014.

Aside from considering the downside of additions, your clients should also know that restoring a home to its original size can bring some tax breaks. In Yan’s case, the city granted a tax break on the property through a preservation program known as the Mills Act. The home’s property tax was reduced from $50,000 a year to $13,000, and that tax break will remain in place for at least 10 years.

Bret Hirsh, who owns a four-story, 3,900-square-foot townhouse in New York’s West Village, is trimming about 200 square feet from the building. He is reducing the size of an upstairs dining room to create a double-height area in the downstairs kitchen and great room. In markets where every square foot counts, his project could add $800,000 in resale value, considering prices in his neighborhood are about $4,000 a square foot.

Many buyers complain that brownstones in Hirsh’s neighborhood don’t get enough natural light. In these cases, remodeling projects that sacrifice floor space for more light can attract more buyers, says Jim St. Andre of CORE Real Estate. He notes that one of the priciest sales in the West Village was an $18.96 million townhouse in 2012 that had undergone a similar remodel to Hirsh’s.

“We don’t live and die by square footage,” says real estate appraiser Jonathan Miller. However, removing too much square footage may hamper resale value, but Miller notes most projects are replacing square footage with something more appealing, such as the addition of outdoor space.

Source: “When to Subtract a Home Addition,” The Wall Street Journal (Oct. 20, 2016)

“Copyright National Association of REALTORS®. Reprinted with permission.”

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