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Will Real Estate Prices hold in 2023? 

Monday, May 20, 2024   /   by Matthew Lawson

Will Real Estate Prices hold in 2023? 

When you’re looking to purchase a home there’s usually a specific reason. Whether you need more space due to a growing family, you’re relocating for work or to be in a better school district, or you just want to be in a bigger home, there’s usually a specific reason for your move. But, what happens when 3 years later that perfect home no longer fits your family’s needs?

Typically, the last thing a homeowner wants to think about is moving. It’s a hassle, it takes a lot of time, and there’s expenses involved in selling your home. Usually you’ll go through the process of trying to make your existing home fit via reorganizing or purging things you don’t need, but that doesn’t always work out if you have a growing family or need a second office to work from home. So, what are your options when you simply just need more space? Either you move to a larger home, or you add on. 

I’ve discussed the moving process, statistics and costs in my previous blogs, see Here for more details about the process. Instead of talking about moving and the in’s and outs of selling and buying, I wanted to take some time to discuss home additions and if it really makes sense to add on to your house. 

Today interest rates for new 30 year mortgages are approximately 7% compared to 3% this same time last year. From 2020 – 2022 we had an insane housing boom and just about every homeowner I know either purchased or refinanced their home with a 2-4% interest rate. What happens when those homeowners need an extra bedroom or want a bigger kitchen or family room, but realize moving means spending more money and loosing that low interest mortgage in favor of a 7% rate? Additions. 

Over my career I’ve shown and toured approximately 7,000 – 8,000 homes and less than 5 percent of those homes had a true structural additional. A structural addition isn’t the conversion of an attached garage to living space or finishing a basement, but actually blowing out a wall and building a new living space that previously didn’t exist. Of that 5% (350-450 homes), I can count on one hand how many of those additions were done correctly and added actual value to the home.

Home additions can add amazing benefits and value to your home, if done correctly. The most challenging aspect of any home addition is that your current home was never designed to accommodate a new living space. Additions require a lot of thought and design since no element of your home can accommodate new living space, each element needs to grow. You’ll need new structural plans and supports, new wiring, plumbing, and HVAC as your existing systems may not be able to accommodate the addition. You’ll also need to make sure that the addition compliments the house and wont take away from the overall flow and feel. This is usually where I see additions go wrong as the materials or craftsmanship doesn’t match that of the original structure and it stands as an obvious addition, whether done poorly or not. 

So let’s say you’ve added an amazing addition and everything matches and compliments the home perfectly and it’s design and craftsmanship are spot on.  You spent $100,000 to add on to your home previously valued at $500,000, so now your house is worth $600,000 right? Not necessarily. 

Home values are based on market sales, commonly referred to as comparables. Comparable sales are taken into account when a home is appraised, and appraisals are typically done when mortgage lenders are trying to determine the value of your home. An appraiser is going to search for homes like yours that have recently sold, and this can be easy in suburban neighborhoods when there are multiple homes with the same floor plan throughout the neighborhood. But what happens when you’ve added and addition onto your home and you’re now the unicorn of your neighborhood? 

An appraiser prefers to find like for like comparisons when conducting an appraisal because it means they can validate the value of a property based off a similar sale. When a home has a custom addition that no one else has it can become very difficult for an appraiser to give an accurate value of the addition because they have nothing to compare it to. In some cases, additions can Over Improve your property beyond that of the neighborhood norms. When this happens, you tend to get less in appraised value per dollar than what you spent. 

If the appraiser can’t find a comparable sale with enough square footage or a comparable addition, they are likely to look at the cost per square foot of homes in the area to get an approximate value. If your addition costs more than the average price per square foot of the neighborhood, you’re only going to be able to recoup a fraction of what you spent in actual value. Simplistically, you may be spending $100,000 on that addition, but only getting $50,000 in actual value and therefore losing $.50 per every dollar spent on the addition itself. 

Until we have some relief from high interest rates, additions are going to become more popular in our area. If you’re considering an addition, it’s important to consider all of the options available to you as well as the financial burden and impact. If you want to discuss how an addition will impact the value of your property, I would be more than happy to speak with you. I can be reached just about any time at 980-250-2795 or matt@briggsamerican.com

Check out my latest client testimonial! “My wife and I were delighted with the service we received from our Briggs American broker, Matt Lawson. He handled both our sell and buy transactions with complete professionalism and integrity and allowed us to achieve excellent results. The marketing effort he put together for our property was exceptional. We know we weren’t his only clients but the responses we received made us feel like we were.” M. Edwards

Matt Lawson, MBA is the Owner and Broker in Charge of Briggs American Homes, a real estate team at REAL Broker, LLC. Matt lives and operates his business right here in Waxhaw, NC and is passionate about all things Real Estate.

Briggs American Homes at Real Broker, LLC
Matthew Lawson
5960 Fairview Rd Ste 400
Charlotte, NC 28210

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