Four reasons to track home improvements

Reader Question: We recently listed our home for sale. A potential buyer wants us to give them a list of expenses to explain why our list price was higher than what we had paid. Is this a reasonable request, and how should I respond?

Monty’s Anwer: As a homeowner, you should keep a list of expense receipts, contractor bids, and other information that demonstrates your capital investment after your purchase. Some items on such a list will be more critical than others. For example, if you installed an epoxy finish to the garage floor and paid thirty-five hundred dollars to have it professionally installed, that receipt may influence a homebuyer as they consider what price to offer as opposed to an eighteen dollar receipt for a new handle on a storm door.

Real Estate Information Is Public Record

The price you paid for your home and any mortgage you acquired is public record. Recording legal documents is a necessary component in our society. One of the significant reasons is to prevent fraud. The value of real estate has always made real estate an attractive target for bad actors. It is human nature for a homebuyer to be interested in the sale price as a potential negotiating tool. The older the improvements, the less value they represent, so if you bought the home in the mid-eighties, the early purchases are of little significance to a potential customer.

Valuable Information

There are four reasons to keep a file of your improvement expenses in your home. Here are the reasons that motivate most homeowners to keep such records:

  1. Perhaps the most important reason is for keeping track of your cost basis for income tax purposes.
  2. To be able to minimize the original purchase price as a reason for a buyer to make a lower offer.
  3. To keep track of what you have invested in evaluating your actual cost of ownership when you sell. Many people keep track of expensive purchases for insurance purposes or to keep score. Any sale at a profit is a source of pride for many of us.
  4. The care homes show influences buyers. There is a subtle message that the house has been well cared for when they see such a history. The other idea a home buyer may pick up on is they likely will not have significant expenses early in their ownership.

A Caveat

The only time it may not be the best idea is if your improvement does nothing to help your value argument. Spending twenty-grand to enclose your backyard hot tub may not impress the average homebuyer. No offense intended to anyone who did enclose a hot tub, as there are many more egregious missteps in homeownership.

What will a potential customer think If you turn them down? The overriding piece of information that trumps expense receipts is recent comparable sales to support your asking price. If you have not kept records, the next best tactic may be to show current sales with improvement similar to yours.