HGTV Watch: Why 'My House is Worth What?' is worthless

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HGTV Watch is a new series devoted to the obsessive viewing of HGTV. . . and an examination of the show's advice and how it can be hazardous -- and occasionally helpful -- to your wealth.

HGTV describes its show My House is Worth What? this way:

My House Is Worth What? gives you the lowdown on the high stakes of home ownership. Go behind closed doors each week as three homeowners in three different parts of the country strategize on maximizing their homes' value. After a professional assessment and evaluation from local market experts, they'll get the bottom line on how well their efforts will pay off, with big surprises often awaiting the homeowner in the final number.

I'd describe it this way: A mildly entertaining show that could have a terrible effect on your life if you follow its advice. Here's why: "Investments" in your home, contrary to popular HGTV belief, very rarely generate a return on investment that justifies the cost of the project.

Earlier this year, Remodeling Magazine published its annual Cost vs. Value Report which examined what percentage of the cost of a project could be recouped upon sale:
  • The Three Projects with the Highest Return on Investment
  1. Deck Addition (Wood) recoups, on average 81.8% of its cost. If you spend $10,000 adding a deck, it will add $8,180 to the value of your home -- meaning that you would have been better off saving the money.
  2. Siding Replacement (Vinyl) recoups 80.7%.
  3. Minor Kitchen Remodel recoups 79.5%
  • The Two Projects with the Lowest Return on Investment
  1. Home Office Remodel recoups 54.6%.
  2. Sunroom Addition recoups 56.7%.
  3. Backup Power Generator recoups 57.2%
What this means is that the very premise of My House is Worth What? is completely wrong. In one recent episode the "local market expert" advises the home owners that their $35,000 kitchen remodel will "get that back and then some." The problem is that according to the data, a high-end kitchen remodel recoups just 70.7%, leaving them $10,255 in the hole. If My House is Worth What? were based on actual data, the "local market expert" would tell the home owner in every case that "It looks great, but you'd have been better off, financially, putting the money in a savings account." Of course that doesn't make good TV, and it certainly wouldn't be pleasing to the home improvement companies that are the network's major advertisers.

One of the problems with My House is Worth What? is that the "local market experts" are real estate agents. Why is that bad? Because real estate agents make more money in less time when your house is easier to sell at a higher price. So even if a home office remodel costs you money, it's worth it to the real estate agent if it makes it an easier sell. They are simply not a reliable, unbiased source of advice on remodeling projects.

Perhaps the most troubling part of the show is that many of the home owners are having their homes appraised in the hope of pulling out home equity loans to embark on more remodeling projects. The real estate agents even offer advice on what projects would add value.

One Las Vegas couple was excited that their equity had increased by enough to allow them to invest in rental properties. Given that most of these episodes are a few years old, I shudder to think about how that worked out.

Taking out home equity loans to pay for remodeling projects on homes that are declining in value is not a good idea. Perhaps it's time for a spinoff of My House is Worth What?, featuring home owners from past seasons who spent lavishly on more improvements with home equity loans taken out at the height of the real estate bubble. That show could be called How Much Would I Have to Pay the Bank to Get Out of This Dump and Where is the Nearest Food Bank?

What can home owners learn from this show? Not much. The wisdom provided by the real estate experts doesn't mesh with the reality of home improvement returns on investment. When it comes to remodeling, only remodel if you're planning to stay in the house for the long-term, and consider the return on investment to be the improvement in your quality of life. Look at the Remodeling Magazine guide to get an idea of what projects are the best investment, but remember: None offers an average return of 100% so you are always better off, on average, saving instead of remodeling.

If you're prepping your house for sale, do not spend lavishly. Opt for quick fixes instead. Declutter, declutter, declutter. Give your kitchen a quick update by replacing dated hardware on cabinets with new knobs. Barbara Corocran has suggested replacing one dated appliance with stainless steel because it only takes one nice, new appliance to give a kitchen a fresh, modern look. Give key rooms a fresh coat of neutral-colored paint, and make sure the house smells good.

And if you're a home owner, please do not try to rationalize granite counter tops and a home theater as investments.
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