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Have you over-improved your home?
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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 value.

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Most of us, though, should take a long hard look at our neighbors before dropping another dime on granite countertops.

Comparable 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 got planned.

"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 Realtors.

Web sites, including HomeGain.com and Domania.com, can also provide comparable sales data.

Remember, too, that investment returns on home improvement jobs are all relative.

You're 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.

"You 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 planned.

Improve first those things that yield the greatest return.

"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."

Bankrate.com's corrections policy -- Updated: Dec. 27, 2007
 
 
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