The Truth About The Mythic Million+ Dollar Home
Do you think you own a home—or contemplate buying or improving a home—that is likely to be worth over $1 million? Homeowners’ perception of how many houses actually sell for that amount tend to far exceed the reality. Let’s consider the numbers, starting with recent data on single-family home sales in the Twin Cities 13-county metro in general, then Edina in particular.*
Reliable sources show that 63,514 single-family homes sold in the 13-county metro in 2018, for an average price of $297,640. Of that entire pool, just 678 homes sold for over $1 million—comprising only 1.06% of total home sales.
Now let's look at Edina: Less than 1% of metro sales (591 homes) were sold at an average price of $703,514. 98 of those homes sold for over $1 million. Those 98 homes comprise 14.45% of all homes that sold for over $1 million in the entire metro area. For areas like Edina, the higher proportion of $1 million+ homes makes them seem less of an anomaly than they actually are.
If you build new construction in Edina—as opposed to buying an existing home—you are operating in even rarer air, in terms of enhancing equity. That’s because going in, the average tear-down site cost is $399,418, with average building costs of $980,704. This puts average new construction costs in the $1,380,000 range: the stratospheric peak of the pyramid when it comes time to sell and recoup your investment. 2016 Edina sales statistics show a whopping 80% of new homes purchased since 2005 and resold in 2016 had an average $217,000 loss.
Why and how do such losses happen? Instead of researching—not an easy task, since there is no Consumer Reports that tracks home values—homeowners fall prey to confirmation bias. They observe the higher percentage of homes selling for over $1M in their neighborhoods and assume a statistical anomaly is a norm they can bank on. They hire yes-sayers who execute plans without challenging the customer’s underlying, often erroneous assumptions. And once they start digging that hole, there’s typically no course correction.
For people who care about home as an investment, it is extremely important to plan for changing circumstances. You may need to sell sooner than expected for one reason or another, so the time to think about the financial impact of building or improving is before, not after. Even in a highly desirable area—and we all know the mantra “location, location, location”— the higher your costs, the higher your risk.
HGTV, lifestyle magazines, and the Parade of Homes, enjoyable as they are, don’t deliver these numerical truths. The media mythologizes the $1M home to the detriment of people’s financial wellbeing, and the building and design industry pockets the profits.
So give MasterWerks a call before you put any money on the table, and let us help you crunch the actual numbers. It costs nothing to talk to us and can cost plenty when you don’t.
* Statistics from reliable sources but should be seen as representative and not absolute.