Over-improvement

Definition of "Over-improvement"

Written by

Wilma Rochelle McFadden

Keller Willams

The term over-improvement in real estate defines a substantial and somewhat exaggerated land improvement compared to other properties in the area. For example, an individual builds at a higher construction cost than the neighborhood’s average assessed valuation. 

An over-improved land refers not only to private property. A further example is the construction of a commercial building that is larger than its business operations can justify. The resulting vacant space can be a net liability.

Let’s see what the term over-improvement involves and its consequences! Though it may sound prolific and efficient at first, a particular land’s over-the-top development doesn’t make the best use of the property. In other words, said land or building will look excessive, disproportionate, and redundant compared to similar adjacent properties. Moreover, it often results in a decrease in the property’s value. Namely, its market value will drop.

Over-improving can be counter-productive at house-flipping

Suppose you wish to buy a house as a real estate investor. Your objective is to make impactful home improvements to the property and then sell it for a profit. We call this practice house-flipping. And it’s still trendy. However, you might reconsider investing too much money because you might lose more, and you won’t get back those costs in the long run. Overspending on renovations, space expansions, and futile upgrades is a real financial threat you should avoid!

For sure, there’s no tangible measure to decide whether a home refurbishment is an overkill. Although inexpensive and DIY home renovations will undoubtedly increase your home’s value, you still have to pick features that indeed add value to your property. 

Respect conformity with other properties in your neighborhood!

Let’s take a real-life example! You have purchased a property for $300,000. In the meantime, you discover that the adjacent (refurbished) houses on the housing market sell for $350,000. Then, you’ll know that you can afford a maximum amount of $50,000 to spend on house renovations without risking over-improving.

Adding too much square footage to your living area may not bring the expected return on your investment compared to other listed homes in your area. Over-improvement can occur if you wish to customize your house according to the latest interior and exterior design trends. 

Upgrading your house into a structural-stylist extravaganza could prove less profitable than expected. For this reason, you must consider the general dimensions of the other homes in your region! Additionally, you may enjoy the expensive luxury kitchen, bathroom, or small living decor (fancy and polished mosaic marbles and tiles.) Yet, your buyers might not be willing to pay extra for these features.

Get in touch with a local real estate agent to avoid over-improving your property before the sale! They will provide you with real estate comparables!

A neighborhood’s over-improvement

Over-improvement is a phenomenon present not only in private properties but in large-scale commercial and residential areas. See improvements more extensive and pricier than the neighborhood’s typical ones.

A 5,000 square foot residence situated in a community with apartments and houses no more than 2,500 sq feet is, by all means, excessive. Lavish pools are also an over-improvement in areas where homes don’t usually have such amenities. A house appraiser is responsible for reporting over-improvements. Besides, they must also emphasize the improvements related to value in the SCA, Sales Comparison Approach grid. This approach contrasts real estate to similar ones newly sold in the neighborhood.