Will your remodel pay off?
Leaning toward a remodel? Don't press
ahead just yet. You'll want to make sure that your project
adds value to your home -- ideally, value
you can recoup when you sell.
"You don't want
to go overboard and make your house the most expensive
in the neighborhood, because, from an investment perspective,
it will be harder proportionately to recover those costs,"
Loren Stiner, a master
appraiser and instructor at the Lincoln Graduate Center
in San Antonio, agrees: "Bring it up to the neighborhood
average. If you get above that, the people who live
in that area don't have the income to pay your price.
You have to look at who are the buyers in your area."
Corcoran agrees. "The
rule of thumb if you're going to improve and modernize
your house is to spend between 20 and 30 percent of
your house value," she says. "It sounds like
a lot and it's usually more than people think they're
going to spend, but by the time they go down that path
of saying, 'Well, if we're going to do this, we might
as well do that,' in the end people typically spend
20 to 30 percent."
Corcoran calls 20 percent
a green light, 30 percent a stop sign: "That's
where people tend to overimprove and make it too personal.
People will make the worst mistakes based on their own
But the work's not
over, yet. Next, you need to estimate what your specific
improvements will add to your property value. Corcoran
says the best way is to attend open houses and shop
your local market with a real estate broker to price
homes with the same amenities yours will have after
the remodel. And check online as well: Zillow.com will even price your neighbor's houses for you.
"If your house
is worth $400,000 and you're thinking of putting in
another $80,000 in improvements, it's really worthwhile
to see three other houses in your township that have
those improvements and are selling for $500,000 or $525,000,"
she says. "That's a green light; you know you can
put that money into your house and get it out immediately.
If you don't find that's the case that may be a cautionary
note to scale back."
It's also a good idea
to check out Remodeling magazine's annual Cost
vs. Value report to see industry estimates of what
you can expect to recoup for your particular project.
Sheehan says putting
money into your home may be the most prudent course
in the current transitional market.
going to stay in the same area, remodeling makes a lot
more sense now than buying, because, if you sell, you're
going to have a transaction cost, and if you buy you
may not have made enough on your appreciation to offset
it. You may not make as much out of your remodeling
-- the rate of return isn't great -- but it will be
better than selling your existing property and buying
a new one."
Jay MacDonald is
a contributing editor based in Mississippi.
Posted: April 12, 2006