Value of Design

What is the added value that good design can bring to a homeowner?

Architects feel they are adding value but generally don't have any hard numbers to back it up.
Using Ames, Iowa as a case study, I am investigating what a designer can do to create better designs and maximize a home's value for the client.

The median home price in Ames, IA is $162,500.

The average construction cost is about $119.08 per square foot and the average home size is 1450 square feet.

That gives an average construction cost of $172,666.

As soon as a client pulls the trigger to design a new home, they are already in the upper price range.

What can a designer do to maximize value for their client?

Correlation to Sales Price

I started by cleaning the data set, removing outliers and checking to see which features correlate highly with Sales Price.

Overall quality (ranked), living area above ground (sq. ft.), garage area (sq. ft.), basement area (sq. ft.) all have a high correlation to sales price.
Basement quality (ranked) has a high negative correlation to sales price.

I first used a linear regression model out of the box and while the RMSE was around $30,000 I wanted to eliminate some features that were not strongly conributing to the model.

I used Lasso style linear regression in order to zero out some of the features. I then took the features that were not zeroed out and used only those in a standard linear regression in order to get the performance of regularization (achieved an RMSE of about $23,000) and the added benefit of keeping interpretability.

Coefficient Interpretation

One step up in Overall Quality will increase the value of the home by about $27,000.

Locating the Kitchen at ground level adds about $15,500 to the home's value.

Adding a fireplace adds about $8000 to a home's value.

Conclusions and Recommendations

Since clients start the process in the upper range of average sales, designers and architects need to be precise when designing.

Locating the kitchen above ground and adding a fireplace are simple layout recommendations that an architect can make that will add value to the home.

The upper range of constructions adds about $34,000 to construction costs. However, taking a house from average quality to excellent will increase the value of the home by about $54,000.

That is about a $20,000 potential profit for a client that may be pushing back on upgrades.

If you would like to learn more about my process and see the full project and code please visit the following Github link.

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