This is a question that many people are faced with: Should we add-on to our existing home or should we sell our house and buy a new home? The question can be perplexing but with a little analysis, a logical solution can be arrived at.
There is a principal in real estate appraisal called conformity that says that all homes in a given area should be of similar size and value. If you add-on to your home and in effect, over-build the neighborhood, the value of the smaller homes will bring your value down regardless of how much you have invested in the property.
If you plan to stay in your home for a long time, then you should be able to enjoy the addition and thereby recapture the cost regardless of whether it brings any additional value to the property when it sells.
Another difficulty that homeowners face when making an addition to their home is creating what appraisers call functional obsolescence. For example, if an additional family room or bedroom being built causes an unconventional floorplan, the new room could be functionally hampered and thereby affect value.
Contractors will advise people that an addition has to be of significant size to spread the cost of possible additional heating, air-conditioning, and foundation work. Many times a small room addition may cost as much as a larger one.
Certain room conversions can actually lessen the value of a property. For instance, converting a two car garage to a family room will usually penalize the value of a home and could hurt its marketability. People expect a home to have a garage an even though the additional living space is nice, it still needs a garage.
Once a home gets to a certain size in square footage, prospective buyers expect different types of amenities in the kitchens, bathrooms and all throughout the home. Unless updating occurs at the same time the addition does, these things will be outdated.