Which home improvements give you the most bang for your buck, come selling
time? The answer has to do with the term "ROI," or "Return on Investment," in
other words, what you will get out of what you put in. ROI is important because
you want to recoup at least the same amount of money you put into your home when
you sell it, or as close as possible. But it's not a simple equation to work
out. To maximize your payoff, read on.
According to Remodeling
Online's 2000-2001 survey of 300 real estate professionals in 60 cities across
the country, the home improvement with the highest return nationwide is a minor
kitchen remodel. Other top projects include a second-story addition, a bathroom
remodel, a bathroom addition, a family room addition, a master suite addition
and a major kitchen remodel. See the box for specifics, but know these are
nationally averaged prices and percentages.
Watch Out for
"Over-Improving"
Before you start tackling that high-yield
improvement, know that there's a chance you could "over-improve" your home. That
might sound crazy, but it happens most often when the project just doesn't fit
the neighborhood or the home's value. For example, if you own a $125,000 home in
a neighborhood full of three-bedroom, two-bath homes, and you decide to add on
another garage or another floor, you might never recoup the cost of that work.
Why? If the project costs you from $25,000 on up, then you'd have to sell your
home for at least $150,000 or more just to break even. Are like homes in your
neighborhood selling for that? If not, you're out of luck, because your
expensively remodeled home might not fit in with the value of other homes in the
surrounding area. Thus it may not be as valuable to potential buyers, since
house prices are often ruled by location, and who's to say they might not
inherit your quandary when it's time for them to sell?
Drop That Toolbox
You
might be willing and able to do just about any home improvement project around
your house, but before you tackle any major work, consider two things. First,
ask yourself if you can do the job right. Saving money is one thing, but are you
knowledgeable enough about the task at hand so you don't encounter major (and
costly) problems?
Second-and perhaps more importantly-put yourself in the shoes of a potential
buyer, even if you're not likely to sell for years. You might be proud of all
your home improvements, but the homebuyer may ask lots of questions about the
work. Like it or not, there is an inherent skepticism about homegrown handymen,
no matter your talents. Professionally done work, on the other hand, tends to
have a certain "seal of approval" that assures the job was done properly. Plus,
most pros guarantee their work for an extended time, which gives buyers even
more confidence.
Location, Location,
Location
It might be surprising, but where you live actually
has a lot to do with the value of the improvement. In other words, improvements
in different parts of the country can have different ROIs. Most regional
differences have a lot to do with climate. For instance, if you live in Buffalo,
New York, where the summers are short and the winters are notoriously long and
cold, an outdoor deck might not have the same value as an extra or larger
garage.
Costs are also substantially different from region to region and city to
city. Consider this: A major kitchen remodel in 1999 in Denver cost an average
of $30,468 and recouped 53% of the cost on the home's sale. But a major kitchen
remodel in Cleveland during the same time cost an average of $33,888 and only
recouped 29% of the cost on a sale. This is why, especially if you know you'll
be selling your home within a year or two, it pays to consult a REALTOR® before
you pick up a hammer.