|Have you over-improved your home?
So how do you know if you've sunk too much into your
biggest investment? That's a lot like asking whether you spent too
much on your last vacation, says Roll. Those with money to burn
can afford to break ground on a pricey expansion regardless of resale
Most of us, though, should take a long hard look
at our neighbors before dropping another dime on granite countertops.
sales prices are a good place to get started.
A local real
estate agent, familiar with your neighborhood, will often perform a complimentary
assessment of your home's market value. They'll also provide the all-important
maximum sales price of similar homes on your block.
If that figure would force you to sell at a loss,
it's time to put a halt to any new construction projects you've
"A Realtor can tell you what additional value
would be added to your home in whatever type of remodeling you're
thinking of doing and whether any improvements you might make are
out of step with the neighborhood," says Paul Bishop, managing
director of real estate research for the National Association of
Web sites, including HomeGain.com and Domania.com,
can also provide comparable sales data.
too, that investment returns on home improvement jobs are all relative.
least likely to recoup top dollar on a new master suite or third full bathroom
if you're the only one on your block to have one.
are usually on good ground if you are improving your home relative to other homes
in your neighborhood," Baker says. "But you're on thin ice if you improve
beyond the general value of your neighborhood -- like adding a third bathroom
if all the other homes have two."
You're also more likely to over-improve if you insist
on top-of-the-line materials. Viking stoves and hand-forged copper
sinks may make your dream kitchen complete, but buyers won't pay
a premium for someone else's extravagance.
"You can easily get
into trouble with an upscale project, especially in kitchens and bathrooms, if
you're too high-end or edgy in your design choice," says Alfano. "The
majority of buyers are not going to have your exact taste in colors or style.
It's a little risky."
Generally speaking, you won't recover the full cost
of any home-improvement project -- though some clearly boost value
better than others. For example, you'll recover nearly 83 percent
of costs on a minor kitchen remodel, 83 percent on a midrange siding
replacement and 74 percent on a two-story addition, according to
Remodeling Magazine's 2007 Cost vs. Value Report.
Jobs that add the least value: a midrange home office
remodel, which recovers 57 percent of costs on the resale market,
a new sunroom at 59 percent and an upscale master suite at 64 percent.
And swimming pools? Forget it. Few buyers welcome the hassle, insurance
costs and potential danger if they have kids. Expect to lose big
on that expense, unless you're in a luxury home.
Of course, homes
are more than just an investment. Some of what you spend giving your house a makeover
is just for you. A finished basement, for example, may not yield a lofty return,
but getting the toys and board games out from under your dining room table can
be worth its weight in gold for your sanity.
Yet, with economists
predicting slower growth ahead for the real estate market, Roll says you should
carefully consider the investment return of any new remodeling job you may have
Improve first those things that yield the greatest
"If you are overextending yourself, or going
into extensive debt, think twice," he says. "People are
well-advised to be clear about what they are spending on home improvement
and where that money is coming from."