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Although it is difficult to put an exact price on the resale value of a particular remodeling project, for most of us the real value of remodeling is the comfort and pleasure it adds to the years we spend living in our home. As I stated in my first blog on Remodeling Month, despite everything you might be reading about the current housing market, historically housing has proven to be a stable and sound investment compared to conventional financial investments that rise and fall with regular frequency,
Although few of us purchase a home strictly for its investment value, in practical terms it represents an asset that can pay high returns when it comes time to either refinance or sell. Of course, a home that is well-maintained and offers up-to-date systems and amenities will have a higher value than a comparable home that is poorly maintained or lacking the conveniences and extra living space that today’s buyers want. Remodeling, then, becomes the key to protecting and enhancing the investment value of your home, not to mention its many other benefits.
“What improvements will add the most value to my home?” To answer that question, it is important to understand that remodeling – and your home for that matter – is different from other investments that are primarily financial in nature. What’s unique about housing is that you, the “investor” receive the immediate benefit of being able to occupy and enjoy your investment; to live in it, all the while it is growing in value. Stocks and bonds don’t deliver on this aspect.
During the housing boom of the past few years, some remodeling projects would recoup as much as 90 cents on the dollar or more. But the resale value of improvements in general is sliding. According to a Remodeling magazine survey of real-estate professionals conducted late last year, returns for all major home-improvement projects nationally are around 70 cents on the dollar, down from 80 cents in 2004. But it is important to remember that these are national averages and remodeling, like all real estate, is local.
This doesn't mean all remodeling is a waste of money. If you are planning on selling your home and are thinking about remodeling simply to increase the resale value or decrease the time on the market, consider improvements that will help your home stand out - improvements that will make the outside of your house look great so that people fall in love with it when they first drive up and get out of the car. New landscaping, including well-manicured trees and shrubs, can help your older home compete against new ones that lack mature vegetation. New windows and doors, a new entry lockset, new siding, and fresh paint can help your home look well-maintained and add that all important curb appeal. Improvements that make your home more energy-efficient will give you a definite advantage over other homes. These are the improvements that are most likely to pay off in the short term.
The real estate appraiser will determine the financial return of any remodeling you do through the price he or she assigns to your home when you decide to refinance your mortgage or sell your home. However, real estate appraisals are more an art than an exacting science. If you are planning on selling your home, remember that ultimately it is the new buyer who will determine the value.
The price of your home will largely depend on the prices that comparable homes recently sold for in your neighborhood. The value assigned to the improvements you made to your home depends on a number of variables but depends heavily on the location of your home as well as its overall condition. Some remodeling projects can lift the value of a home by the entire cost of the remodel and sometimes by even more.
Despite the limitations of the appraisal process in allotting what you might consider fair value for all the improvements that you proudly made to your home, there are certain rules that you should consider to increase the dollars you get back from your remodeling investment.
- Maintaining your home in good repair is the most critical of all investments that you can make to your home. The shape it’s in matters as much if not more than what other attributes your home may have.
- Kitchens and bath remodels are the two most popular remodeling projects year-in and year-out, no matter where you live. Minor kitchen remodels tend to recoup more of their costs than major kitchen remodels. Bathroom remodels also vary on how much they add to resale value, depending on the extent of the makeover. These two rooms carry the most weight when it comes time to sell your home. Attractive kitchens and baths fully outfitted with popular features will not only help sell your home faster, they also can drive the price a buyer is willing to pay for your home.
- The quality of the work you have done on your home is another factor that can’t be ignored, if you are looking to make a good investment. Shoddy workmanship, low-grade materials and inferior products will wipe out any value the remodeling might have added to your home.
- Extra space in the right place offers a high rate of return since existing homes tend to lack the roominess of new homes. New family rooms, larger master bedroom suites and eat-in kitchens are all examples of spaces that most buyers value highly.
- Remodel for yourself and your own family, not the next owner. It is a gamble to predict what the likes and dislikes of the next owner might be. Keep in mind, however, the more your tastes stray from the norm of most of your neighbors, the
less likely you are to get maximum return from your improvements. Stay with styles, colors and features that have broad appeal.
If you intend to stay in your home for awhile, consider how much you will enjoy that new kitchen or master suite or family room. Consider the savings in your utility bills you will realize from upgrading your heating and air conditioning system, adding insulation, and replacing your old windows with energy-efficient windows or whatever improvement you make. Consider your increased comfort and the safety and health benefits. Consider the reduced maintenance. These factors will carry more weight and contribute to your overall return on investment.
In my next post, I will provide some tips on budgeting for your remodeling project and how to come in on or under budget. For more information on the remodeling services we provide, visit our website www.chuckmillerconstruction.com
Chuck Miller GMB CGB MIRM CMP MCSP CSP
President / Builder – Chuck Miller Construction Inc.
(208) 229-2553
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