Real estate reality shows featuring singles, couples and families buying homes, renovating homes and selling homes has no doubt had an influence on people buying houses. Doesn’t everyone want granite countertops? What about stainless steel appliances? Or those lovely, open concept spaces that are always created whenever someone on HGTV slings a sledgehammer. Maybe you’re the opposite, and DIY shows have convinced you that some paint, elbow grease and a dumpster can turn a house with “potential” into your dream home, allowing you to expand your house viewings beyond the typical move-in-ready set up.
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But how “real” is the process? Can you, too, get a kitchen renovation with a $15,000 budget? What about the seemingly short process of picking from three houses and having your realtor secure one? Will finishing your basement really increase the value of your home more than the cost of the renovations?
Finding a Home.
One criticism of real estate shows is that they make it look too easy to find a home, especially in fast-paced and expensive housing markets. Occasionally, a buyer will mention having seen dozens or even hundreds of homes prior to being on the show! Sometimes, they’ll mention having missed out on purchasing one or more homes after submitting offers in the past. So what are the odds they will choose from only three homes and are also guaranteed to get the home they want? Well, they’re not very good! Which is why on shows like House Hunters, producers pick buyers who are pretty far along in the process – usually they are under contract on a home or have recently closed.
For some people, finding the perfect home takes much longer – and that’s okay! Working with an agent can shorten the process and make going through it as easy as possible.
The Ease of Financing.
Have you ever wondered how that graduate student and kindergarten teacher can afford $750,000 for their first home? You’re not alone. Most experts recommend spending only 35% of your income on housing. New federal lending guidelines mean that lenders don’t want to see your total debt payments making up more than 45% of your income. But lenders often don’t factor in costs like homeowner’s associate fees, taxes, utilities and maintenance. You should! Banks are eager to give you the most money you qualify for, whether or not that payment fits your own lifestyle and goals.
And what about the large amount of money buyers spend on renovations? Real estate reality shows are eager to say that if your total budget is $500,000 and you spend $400,000 on a house that needs some work, you have $100,000 for renovations! But not so fast. $100,000 built into a 30 year mortgage with a 4% interest rate means a little under $500 per month. $100,000 in renovations today mean coming up with the money today! Unless you have some pretty hefty savings (since you’ll be spending some money on a down payment and closing costs, too), there’s one specific way to get money to spend on renovations: an FHA 203b rehab loan. This type of mortgage will loan you money to purchase the house, plus extra to complete renovations. There are some requirements, such as using specially qualified contractors and making sure your house appraises for the correct amount when the renovations are finished. You’ll need to work with an experienced agent and mortgage broker for this option.
The Financial Value of Renovation.
Television shows that focus on opening up your first floor, adding a bedroom and bathroom, or turning your basement into a separate apartment like to report on how the additions add a lot of value to your home. In all of these cases, the homeowner ends up with a home that has a market value that is worth more than the original value of the home combined with the cost of home improvements. But most home upgrades don’t work that way. We’ve already discussed some of the improvements that earn the best return on investment in the Philadelphia market. A new fiberglass door will increase your home’s value more than the cost of the door in installation – and that’s it. Replacing other items will not return 100% or more on your investment.
The only way to increase value in a home by that much would be adding additional square footage, legal bedrooms or bathrooms. Some of the shows remove walls and open kitchens, but more often, they run out of money before creating an in-law suite.
Are there certain shows you think are more “real” than others? What are your favorites, and do you even care if they show a real story? Let us know in the comments!
If you are looking for your dream home – or a fixer upper – here in Philly, please contact me. And remember: friends don’t let friends buy or sell homes without Agent Lady!
About Agent Lady: Cherise Wynne is a leading real estate agent in Philadelphia, helping home buyers and sellers navigate the City of Brotherly Love, with a special focus on first time home buyers. To chat about getting started with your first time home buying experience, click here.
