Author: Brinn Miracle
A concept that is both prevalent and relevant, especially due to the current economic conditions, is the idea of value. The concept of value is applicable to how we spend our money, and the perceived worth of what we receive in return. It is especially important when it comes time to decide on whether to pursue a design project. Design is very subjective, so it makes it quite difficult to determine the value of a design project. Even if a project is deemed necessary and makes good economic sense, how does one make a value judgement concerning the most detailed decisions? Something as (seemingly) insignificant as choosing between a fluorescent light bulb and an LED bulb can all be traced back to the initial value proposition: is this product, service, event, decision, etc. valuable?
We all want to get the most bang for our buck, and stretch our money as far as it will go. Recently, Todd Vendituoli wrote a post
concerning the way houses have often been treated solely as financial assets instead of homes for nurturing our lives. This often leads to an over-simplification of how we evaluate a design project’s value. In order to properly analyze a decision to build, remodel, hire a designer or spend the extra money for granite instead of laminate, one must fully understand the concept of value.
Value has many facets, but two important concepts are Return on Investment (ROI) and Utility. To explain these concepts, I’ve asked my husband, David, to detail them in layman’s terms. David received his bachelors degrees in economics and finance and his masters of science in finance. He currently works as a portfolio manager assistant. I thought he’d be better qualified than me to explain these concepts.
Return on Investment (ROI) is a simple concept that can be used to gauge an investment. If I was to spend $20,000 renovating my kitchen, and an appraiser valued the work at $40,000, my ROI would be 100%. This is pretty simple; however, concepts begin to get muddy when you introduce “utility”. At the risk of oversimplifying, utility is economic jargon for the value of happiness. ROI fails to capture this aspect of economic value that can be critical when it comes to something as personal and every day as your home.
Let us analyze two situations. In both of these scenarios you will be renovating your home. The goal is to realize some ROI on the eventual sale of your house. The operative word is “eventual” since you will be living with these updates for some time. For these renovations, let us say that you will spend $20,000. Scenario A, your goal is to maximize your ROI at 100% ($40,000 of end value). To do this, you’ll need to create the most appealing renovation to the general populous: granite counters, builder beige walls, white trim, hardwood floors, etc. Scenario B, your goal is to balance ROI and your tastes with ROI at 80% ($36,000 of end value): Quartz countertops, plush carpets, modern finishes. At first glance, one may choose Scenario A. But, we have failed to capture the utility generated by the renovations from the homeowner’s perspective, i.e. the enjoyment you will get out of selecting finishes you love compared to finishes you ‘settle for’ for the sake of broad resale appeal. Let us say that scenario A creates utility equivalent of $5,000, while scenario B – which better suites your tastes – generates $15,000 in utility. Essentially, scenario B makes you three times happier than scenario A. At this point, it makes more sense economically to go with the personalized renovation using finishes you love. It creates a total value of $51,000 (Compared to the $45,000 alternative). Value is still being generated, even though it isn’t money in your pocket.
These concepts may seem intuitive and even overly simplistic. It makes sense that one would want to be happy with a renovation that they must live in. However, it’s far too easy to bypass the value of one’s enjoyment since it’s not “hard cash”. You must ask yourself though, what’s the point of the hard cash? Most likely, the end goal is to spend it on something that makes you happy (vacations, dream home, philanthropy). Few people have the goal to die with a lot of cash and never spend it. By maximizing our utility AND ROI, we maximize our utility and overall quality of life.
Now that we see the difference between ROI and Utility, we can read between the lines and understand that everyone simply wants value added to their projects. Whether they are building an office tower, designing a master-planned community, or remodeling an outdated kitchen, everyone wants their project to have value – from the overall form to the last nut and bolt. There are many ways to add value to a project that may not always be apparent.
Hire a Design Professional
Hiring an architect or residential designer can add value to your home in multiple ways. Not only are architects trained to evaluate multiple value propositions simultaneously throughout the design process, but the end result can be appraised at a higher dollar amount and often sell faster than comparable structures. In addition to monetary gain and a shorter sales timeline, a custom designed home will bring a higher utility since it will be exactly what you need and want. Imagine that all of the frustrating aspects of your current home were adjusted to your tastes – isn’t that something that is valuable? Hiring a design professional adds many facets of value to your project. To find out how to choose the right designer, read this recent article
Add a Unique Feature
Another way to add value is by incorporating a unique feature in a standard design. Green features and systems, special design elements, unusual finishes, or amazing vistas can all add value to a project. All homes will have the basics: gathering space, cooking and eating space, and sleeping space; however, adding unique spaces to a home through renovation can be a way to add value. Spaces like sun rooms, landscaped outdoor areas, or flexible multi-purpose spaces can be the feature that sets your home apart from the rest. Whatever you add, be sure that it is appropriate and that it maintains the integrity
of the overall design.
Strive for Quality
By using only the best materials, products, and professionals for your job, you can ensure a higher value for your project. Everyone knows cheap materials won’t bring a premium when it comes time to sell, and may even cost more money in the long run due to maintenance or poor installation issues. It is always important to balance high quality with monetary cost while being mindful of whether the selections contribute to the project’s integrity. For example, while hardwood floors may be a premium product, adding them to a renovation in a neighborhood where linoleum and carpet are more common could result in less value added than if an engineered or laminate floor was selected.
Create Multi-Purpose Spaces
Another way to create value in a project is to designate multiple activities for a single space. By adding an element of flexibility, you can create a wider market appeal. Think of it as diversifying an asset by exposing it to multiple purposes. If you provide a space that can double as both an office and guest room, future buyers will have options as to how they use the space. A dual functioning room can also save you future time, effort and money when your own needs and desires change. By allowing a design to serve multiple purposes, you are embedding flexibility into your future, and that can equate to savings. Another cost saving measure can be found by decorating with furnishings rather than semi-permanent finishes. Decorating your home with colorful paintings, textiles and objects is much easier and cheaper to change than floors, cabinets or walls. Avoiding costly renovations in the future definitely adds value to a project.
Remember that while any one of these suggestions can add value, they should not be considered in isolation. The best materials can be poorly installed, or used in an illogical design that detracts from a project’s value. It is always important to consider each of these elements and how they relate to one another. For this reason, your project will get the most value from hiring a design professional who will be able to recognize and address these factors from start to finish. Consider bringing on a design professional for consultation on your next project to see how they can add value to your design.