Super-Adequacy

Have you heard this term before?

Do you know how it’s used when discussing real estate?

I might not use the word all the time, but I do like to point out where and when super-adequacies are present and what issues they can cause when examining the value of a house or condo…

superlogo31.JPG

I’m not quite sure how to define a “super-adequacy,” so instead, I’ll just explain how the term and the subsequent idea for this blog post came up today.

My colleague and I were standing in a ridiculously long line at Tim Horton’s today, as we do every morning, and the subject of kitchen tile came up in our conversation (yes, we really are that exciting!).

I mentioned that I was also going to be re-doing my kitchen tile with a very chic, rich slate, and I mentioned that while I was at it, I’d decided to install slate flooring in my laundry cupboard as well.

Lauren’s eyes opened a little wider as she said, “I’m sorry – you’re putting slate tile in your laundry cupboard?”

(Large double double with milk please) “That’s right,” I said.  “I figure if I have a guy there installing slate in my kitchen, I may as well spend the extra forty or fifty bucks and put it in the six-foot-deep laundry cupboard.  When it comes time to advertise my place for sale, I can market this as ‘the condo with every conceivable upgrade‘ since I’ll have a goddam slate floor in my cupboard!”

That’s when Lauren said, “Hmmm….somewhat of a super-adequacy, wouldn’t you say?”

I stared her down for a moment and waited for the serious look to slowly blend into a sheepish smile and I said, “Super-adequacy, eh?  Did you just come out of a real estate course or what?”

Regardless of whether we know the correct term for the issue, spending money where you won’t see a return is something that all home-owners must consider at length before they go ahead and do it.

A super-adequacy is a feature of a house or condo where the cost of the product and labour exceeds the value-add to the house from a purely monetary point of view.

In more simple terms, it is an over-improvement.

If you derive pleasure from your $50,000 living room mosaic, then good for you.  But if it doesn’t add $50,000 of value to the house, the it’s a super-adequacy.

There are many examples of super-adequacies, but while the obvious ones are easy to spot, the smaller ones are mistakes that many home-owners make and never realize.

For example, if you’re in Home Depot and you see that in addition to Ralph Lauren paints, the popular band Coldplay has also decided to delve into the home renovation industry, you’d be best advised to steer clear of their product.  Coldplay is an awesome band, and Ralph Lauren makes great clothing, but is it really worth paying 3-4 times as much for their paint just based on their brand name?

At the end of the day, nobody cares if you used Ralph Lauren paints on your walls or if you used Behr, Dap, or Freshaire; they’re probably still going to pay the exact same amount for your house.

Maybe Ralph Lauren polo shirts sell for more than Jockey, but I don’t think it’s fair to compare the brand worthiness of clothing and paint…

A prime example of super-adequacies that we see all the time is the presence of “solid core doors.”

Most houses feature hollow doors and majority if not all of the doors in the dwelling (bedrooms, bathrooms, office) will be of the same make.  But solid-core doors are thicker, heavier, more durable, and potentially ten times the cost.

Can you explain to your client why they have to pay $40,000 more for the house because the doors are thicker?

They serve the same function as the cheaper doors – they open, and they close.

Turn the handle, and push.  Voila!  The room is open for entry, regardless of whether that door was $150 or $1,500.

Perhaps if you design, build, and inhabit your own home, you’ll derive more pleasure for having “the finer things” such as solid-core doors.  But when it comes time to put your own dream home on the market, don’t be surprised if buyers won’t pay a premium for things that you valued.

I jokingly used the example of a $50,000 mosaic above, but a colleague of mine actually encountered this situation!

His client purchased a townhome for about $600,000 in pre-construction, and then proceeded to make the most ridiculous changes to it.  She put in a top-of-the-line chef’s kitchen, which is all well and good except that the builder’s finishes were exceptional to begin with.  If the builder’s finishes are worth let’s say $10,000, and she paid $30,000 for her own finishes, then the way I see it – she’s losing $10,000 since the $600,000 she paid included those finishes in the purchase price!

Had the builder deducted the $10,000 in kitchen finishes from the $600,000 she paid, AND had the $30,000 kitchen added exactly $30,000 in value to the condo, then the work was worth doing.

But anything less is a super-adequacy.

As for the mosaic, that was just stupid.  She had a “renowned” Italian designer fly in from Italy and spend three weeks creating this “masterpiece” in the front foyer of her townhouse.  It was a complete and utter waste of money, and everybody watched in awe as this stupid woman spent a stupid amount of money on an ugly (and stupid!) mosaic.

After spending about $250,000 on “upgrades” on her $600,000 condo in the space of two years, she decided to sell the condo for over $1,000,000.  My colleague went into the townhouse, looked around, and said, “I think we should price this at about $849,000.”

She said something to the extent of, “I respectfully disagree,” only with far more curse words and personal insults, and my colleague and his now-former client parted ways.

She listed the property for $1,099,000 and after six months and two different real estate agents, the property still sits on the market.

My colleague figured that the condo had increased in value about $175,000 since the time she first purchased it for $600,000, but he also figured that the significant upgrades she chose only added about $75,000 despite the fact that she paid $250,000 for them.

Her condo was full of super-adequacies, and she would never recoup the money she had wasted.

Now, had this woman lived in the condo for 10-15 years, then it could be argued that she would get her money out in the form of enjoyment.  But there was simply no way she could achieve anything close to a dollar-for-dollar trade-off between the purchase price and her super-adequacies.

So what is the best way to ensure you don’t become the next owner of a house full of super-adequacies?

Your best bet is to examine what other houses in the surrounding area have, and try not to stray too far from the blueprint.  If you live on a street with zero swimming pools, and you decide to put in a pool, chances are it won’t add much value to the house.

If you decide to install a wrought-iron gate in front of your house, yet not a single one of your neighbors has one, then perhaps it too is a super-adequacy.

Or, it could be argued that the house is “unique” or even “one-of-a-kind” and thus it’s worth more!

I guess that’s why opinions were created and why debates rage on.

But it all depends on what the market demands, and if $50,000 mosaics are NOT in high demand among condominium townhouse buyers, then you’d be well advised to leave the nice Italian gentleman back on his native soil and just throw down an IKEA rug instead…

1 Comment

Post A Comment

Your email address will not be published. Required fields are marked *

  1. BobbyV says:

    great read as usual ….. some great points in there that all home owners should make note of when renovating.

TWEETS