With the summer housing market heating up, a sparkling pool or comfortable outdoor kitchen may seem like the key to closing a sale. However, backyard amenities may not live up to expectations, for buyers or sellers, particularly when it comes to completing the transaction.
Appraisal Process
If you’ve bought a home before, you likely understand the importance of the lender’s appraisal process. In short, the bank will have an independent appraiser confirm that the home is actually worth the agreed-upon price. If it’s not, the buyers may decide to walk away absent a reduced sale price.
For homeowners who have put money into notoriously expensive outdoor projects like an in-ground pool or top-of-the-line entertaining area, it’s common to expect a return on that investment when selling. For them, disappointment might be in their future.
Limited Value
In the case of the appraisal, the value of a swimming pool or similar backyard improvement will probably be just a fraction of the original cost. While it may attract buyers’ interest in the home, don’t expect a dramatic impact on the sales price.
Home shoppers can also see their excitement curbed due to overvaluing a beautiful backyard space. It can be tempting to pay a premium for an outdoor oasis, but if your offer strays too far from what comparable sales in the area indicate the home is worth, it could mean walking away or making a bigger down payment to close the gap.
The concept can also be critical for those considering a renovation mortgage like the Fannie-Mae-backed HomeStyle loan. While exterior upgrades can be completed, their limited ability to increase the value of the home may become a barrier.
A Sensible Approach
Not all financial decisions are about ROI. While you may not end up being fully reimbursed for this particular type of renovation, it may still be worth considering. The best approach to outdoor improvements is to keep the focus on you and your family. Designing a backyard that is functional and enjoyable will undoubtedly be a good investment for as long as you live in the home.
Likewise for buyers, paying a higher price for a home that is as stunning outside as it is inside can make sense if they plan to spend a lot of time outdoors and want to make it a priority. Just be sure to have a solid understanding of the neighborhood and how the value of those features may affect your ability to get to the closing table.
Open Mortgage is standing by to help you make the most of your home loan options. Whether you’re buying or refinancing, let one of our Loan Origination Specialists partner with you.