Knowledge is Power
Updated: Aug 13, 2019
In home revitalization–as with everything else in life,—knowledge is power, while ignorance and arrogance set the stage for disaster. So, our goal in this Perspective series is to combat ignorance and relax arrogance, by imparting useful knowledge that helps you avoid financial loss and navigate your way to smart equity growth.
Briefly, ignorance in home revitalization means a lack of understanding about how market forces work and numbers stack up. Arrogance enters the equation when homeowners don’t fact-check their decision making or don’t care. They convince themselves that market forces, rules, and facts don’t apply to them; they are smarter, richer, and their ideas will prevail over reality.
However, public records of house sales don’t lie about disastrous outcomes, when ignorance and arrogance reign. At MasterWerks, when we dig into the financial history of revitalized homes and assess the magnitude of losses and the reasons behind them, it’s distressing to imagine the destruction of the owners’ financial serenity and long-term effects on self-esteem and optimism.
So why isn’t this problem more widely recognized?
Quite simply, the facts are inconvenient—bad for business, bad for appearances, and bad for those directly involved. People in the supply chain are making money and don’t want to rock the boat. And if you’re the homeowner, you’re embarrassed by a situation that may point to poor judgment and could trigger possible credit damage, a major hit to life savings, and loss of respect in your community.
Thus, the facts get buried. Let’s unearth them.
Breaking numbers down: Three Edina homes that suffered major losses
Here are three examples of homes with differing formulas that were purchased out of ignorance, arrogance, or both. Each owner suffered a staggering financial loss when the time came to sell. The losses were not even partially offset by inflation and appreciation gains in neighborhoods that quickly rebounded and recovered from the 2007-2008 housing debacle. Nor does our math include the payments, improvements, and repairs made during their ownership period. Unfortunately, these owners were not alone; many others suffered a similar fate, as detailed analysis shows.
What exactly went wrong? For starters, the homeowners purchased from merchant builders, who provide no cautionary advice and are primarily concerned with maximizing profit while minimizing exposure. Other contributing factors include ignorance of price ceilings, design considerations, amenity shortfalls, construction faults, neighborhood compatibility, and excessive profit taking. Another major issue is often design appropriateness. Architecture needs to be timeless to find a market, not a fashion statement that can quickly change with tastes. Finally, the requirements of buyers change over time. These are easy mistakes to make if you don’t do your homework on the new rules of revitalization.
(Of course, while it’s no comfort to the sellers, the flip side of these staggering price reductions is that the new buyers were particularly astute, acquiring properties in great neighborhoods that they could then own more affordably. One person’s disaster became another’s good fortune. But that’s a subject for another time.)
Adding numbers up: The MasterWerks home that outperformed the rest
Knowledge is what makes the difference between huge losses and big wins. Consider the outcome of this recent resale of our client’s home. There are a host of reasons for the difference, but they boil down to knowing what works and what’s risky or downright dangerous.
Success at this level is the result of through research and planning, timeless design and amenities, exceptional construction quality and integrity—in addition to the feeling of completeness that is the MasterWerks hallmark. Since we don’t cut corners, your home delivers dependability, predictability, liveability, and resaleability. In short, you gain value enhancement and protection for longer-term positive outcomes. Having done the research, we apply these rules and tactics to everything we do. That’s why our clients enjoy the highest average resale gains in Edina.