When homeowners contemplate making changes to their homes, they often think, as they should, about how the changes will affect the property's resale value. Certain upgrades, such as spiffing up your kitchen, can net you nearly 90% of the cost of the improvement upon resale. But establishing a home office will recoup just 55% or so. Making the kinds of changes that Herman Munster might make to his house could actually reduce its value. (Read Dayana Yochim's article on Upgrades that Pay.)
Many of our non-home purchases are also made with resale values in mind. When you buy a car, for example, you might consider various models' resale value if you plan to trade the vehicle in or sell it at some point before it dies.
If you're a collector, you likely think about the resale value of all those comic books or board games or baseball cards or silver spoons. Don't count on them providing much in the way of income, though. Many collections turn out to be worth far less than expected. [Hey, speaking of board games, permit me to introduce you to modern family strategy games -- they're more fun than you might expect.]
At MarginalRevolution.com, economist Tyler Cowen offered some interesting thoughts on the concept of resale value, noting, for example, that, "I, like many others, have occasionally been tempted to buy a house that looked interesting. I've also been tempted to have huge and beautiful murals painted on the walls of my house. I did neither. Why? I feared for resale value." While it's indeed important to keep resale value in mind, it's also useful to think creatively. An unusual house may indeed be hard to sell -- but murals on walls should be viewed as much less of a problem. They can always be painted over, though it may take a few coats.
Cowen explains that, "If you do not have to worry about resale, simply buy what you want. But the buyers of modern America often will be moving on to another house within three or maybe five years.. So they are led to appeal to mainstream taste." He goes on, suggesting that, "A world with easy resale is a world with many buyers, which can encourage innovation. But holding the number of buyers constant, a higher demand for resale may well lower innovation."
If you'd like to chime in with your own thoughts on this topic, click over to our Behavioral Economics discussion board and chime away.
And for more on behavioral economics, a related and fascinating field that studies why we often make irrational decisions about money, check out these articles:
Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.
