What is "over-improvement" in real estate?

Over-improvement in real estate refers specifically to making renovations or enhancements to a property that exceed what is typical or expected in the local market. This can lead to a scenario where the amount of money spent on improvements does not yield a proportionate increase in the property's value. Essentially, the enhancements may be too extravagant or specialized for the surrounding area, meaning they won't attract buyers willing to pay the increased price.

For instance, if a property is located in a neighborhood where homes typically sell for a certain range, spending significantly more on high-end finishes and features could prevent the owner from recouping those costs when it comes time to sell. This scenario highlights the risk involved with over-improvement, as it can negatively impact the return on investment. Understanding market standards and making renovations that align with them is key to successful property investment.