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Love it or List It

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I'm thinking today about the HGTV program, "Love it or list it." In each episode, a designer (Hilary) and a real estate expert (David) offer competing solutions to the move-or-stay issue of a couple with gripes about their abode.

The couple (and sometimes children) is presumably out, and staying at a hotel while Hilary and her team gut their house and re-work it to spec so the owners will 'love it' again and want to stay. If they don't want to stay after all ... well, at the worst Hilary's work will have improved its value, so they can list the property, get more money from it than they otherwise would have, and buy the nice new home that David has found for them.

I find the economics of Hilary's work intriguing. David's search for a new dream home is a distraction at best.

Near the end of each show, the hosts present four numbers. The fascinating one, the one NOT on the list, is what I think of as "value added," and one gets it by subtracting the fourth from the second.

Here are sample numbers:

Original listed value:     $100,000

Renovations budget:       $20,000.

Post renovations value: $150,000.

Additional Value:            $50,000.


After Hilary's reno work, that is, someone does a market based assessment and that value is invariably higher than the original listed value. How much higher varies from episode to episode.

What the show calls the "additional value"is simply the difference between the first and third lines. This is misleading. Obviously, if a couple gives Hilary a reno budget of $20K to work on their $100,000 house, they would expect the value of the house after those renovations to be greater than $120,000. You can make a $100K home worth $120K simply by leaving a sack of $20K worth of cash inside it. No design genius is required.

The intriguing figure to me, then, is the one they don't give. I think of it as "True Added Value." The number that tells us how much better off the homeowners are than they would have been had they simply kept the home and cash. One gets that number by subtracting the first and second number above from the third number. In the hypothetical I've presented, the couple  is $30,000 better off.
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