I sit and I watch and I listen to them debate. And I wonder to myself “Can one of these guys really be President?” And then I catch myself and remember “There are as many points of view as there are people because everyone’s different. And just because someone thinks a certain way today doesn’t mean they’re going to think that way tomorrow. Who am I to question how people think?”

I’m not necessarily a Democrat or a Republican. In fact, I’m neither. I’m a Canadian. I’d probably be a Democrat if I lived south of the border, but who knows? One of my very best friends lives in the U.S. and is a Republican. We’ve been friends forever. Went to the same school every day from kindergarten until we graduated high school. Ate the same bagels. Cheered for the same hockey team. Hung out with the same guys and girls. I spent so much time at his house that I still call his mom “my other mother”. And yet he’s a Republican. Go figure.

It’s not unusual for me to find my mind relating things back to real estate given how much time I spend thinking and talking about it. In this case, I started thinking about renovations and valuing properties. Probably because a lot of our clients are trying trying to determine whether it makes financial sense to buy an already renovated home or if they’d be better off buying an unrenovated home and renovating it themselves. Just like in politics, there are different opinions on this subject. My own opinion has actually changed over the years. (See Why You SHOULD Renovate, So You Want to Renovate, Where’s the Value and What’s Value.)

First off, let’s take a look at this title – Are You Overpaying? There are so many factors at play in every situation and so many ways to estimate price that there often isn’t a definitive answer. I suppose the best way to determine if you’re overpaying is to compare your price to the fair market value of the property (if there even is such a thing, as we discussed in Has Fair Market Value Disappeared?). If you don’t want to overpay, don’t pay too much more than fair market value.

But that’s not what I’d like to focus on today. Today I’d like to focus on a method to help you determine if you’re overpaying when you buy a home to renovate.

Let’s start by looking at an example. Dan and Sue see an unrenovated home they like. They can buy it for $1,500,000 and will have to spend approximately $400,000 on renovations to get it to where they want it. They’d be all in for $1,900,000 so they ask me the smart question as most of my smart clients do: “How much would we be able to sell it for after the renovations?” I answer “If the market stays the same and if we find a buyer with the exact same taste as you who falls in love with your renovations or who’s extremely motivated for some other reason then we may be able to sell it for $1,900,000, but the most probable outcome is that it’ll sell for approximately $1,800,000.” Some buyers will pay for your renovations and some won’t. Some may like them and some may not. Some may be willing to pay for the extra quality you paid for and some won’t. It’s like buying a new car. You choose the colours and options, but as soon as you drive it off the lot the value goes down because another buyer probably won’t want your colours and options.

I used to advise my clients to proceed with extreme caution when undertaking this kind of project because they could be losing value right from the start. Why pay $1,900,000 and spend tons of time and effort on something that’s only going to be worth $1,800,000?

But my thinking on this subject has changed somewhat over the years. There are definitely good reasons to undertake this kind of project (see Why You SHOULD Renovate) which is why I’m now more likely to say something like “Well, it may not make strict financial sense to do this, but there are other factors you should consider. How much value would you attribute to having your home exactly as you want it? How much pleasure will you get when you look at your cabinets, floors, tiles, etc. and say ‘I love those!’ How long will you be in this home?” If you’ll be there for a long time, the added cost of doing your own renovation and getting exactly what you want is spread out over more years. If you’re paying $100,000 extra as Sue and Dan would be, you might be more inclined to do it if you’re staying for 20 years so the additional cost for your perfect home is $5,000 a year as opposed to if you’re staying for only 5 years and the additional cost is $20,000 a year.

Every situation is different and every person is different so there are no hard and fast rules to follow. Look at the facts and make the decision that’s best for you under the circumstances and at that point in time.  Because things can change. But I don’t see myself voting Republican.

As always, if you know anyone who’s interested in learning how the market works and who’d like to receive the kind of help that involves honest answers, straightforward advice, no pressure and being treated like family, please let me know the best way for me to connect with them because I’d like to offer them this kind of help. And as always, don’t be shy if you have any questions or comments about this post! Thanks for reading.