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Saturday, May 28, 2011

Does Remodeling Increase Your Home's Value?

Good question. I don't know the answer. During the housing bubble, common wisdom was that YES it did and, besides, it was basically free cuz you could borrow from your home's appreciation. We all know where those ideas ended up.

1. APPRECIATION. I have seen two homes in my neighborhood undergo extensive renovation. Medium-sized cottages like my own were spiffed up, with many magazine-worthy details. Both homes were put on the market shortly after renovation. There were not flippers, but people who changed their minds about where they wanted to live. Both sold. Did the owners get back their money? I don't know. In any case, I don't plan to put $200,000-$300,000 to the test to find out.

2. NOT DEPRECIATING. I had a colleague with an under-employed husband and scads of kids. When he got a job, they relocated. Their house was on the lower-end of the market. Nevertheless, their real estate agent told them to carpet the hideous patterned linoleum. She said that NOT putting in the money would mean a $10,000 lower asking price. Too bad my colleague didn't get to enjoy the new flooring for a while.

I think my bathrooms are in the second category: they are so tiny, have so little storage (none), and have such ugly bathing facilities that they would LOWER the price of my house. Most buyers would tear them out immediately. Most owners with the tolerance of normal people would have fixed things up about 10-15 years ago.

However, I have to be careful not to over-improve because I don't plan to move any time soon. The latest thing won't be the latest in ten years.

On the plus side, materials costs have gone down with the bursting of the real estate bubble.

Any thoughts on this tricky issue?


Shelley said...

An accountant once told me not to make any major purchases on the basis that they were tax a boat or something (as if). He said it wasn't the basis of a sound decision and the tax savings was miniscule compared to the cost of the boat, for example. It's never been an issue for me but I think the idea is sort of parallel with fixing up your house. I think you should fix it to suit you, not a prospective buyer. Smart house shoppers look for the least perfect house in good area, not the most spectacular house. Even though we live in a 'good' area, we've seen two recent examples of houses bought and completely renovated with the resulting price completely off the scale.

We did our shower and our kitchen strictly to please ourselves. I think one has to keep the house in basic good repair, but if you're content with older fixtures and it all still works, why remodel? For me, the most I would do to make my house more marketable is to box up my clutter and to possibly paint the walls off white, but maybe not even that. The first thing people do is to paint the place to suit themselves anyhow. The only way we could increase the value of this house would be to build some sort of extension - a downstairs loo or to put in stairs and make rooms in the loft. It's another mistake, however, to virtually fill up the lot on which the house sits. We had one estimate for the loo that was just silly; we might revisit the issue when the stairs are too daunting. That's my opinion anyhow.

Duchesse said...

Just sold a house and looked at this issue. Did you know many r/e agents consider a reno (such as a bathroom) no longer 'current if it's THREE years old, forget ten?

At the same time, many buyers don't want your bathroom, they want *theirs*. When time to sell, the best bet (unless you have structural issues or scary things like mould) is fresh paint, clean grout, uncracked tiles and a few nice accessories, no clutter. A lot of people reno like crazy, expecting to pass the cost on to the new buyer- and can't.

We added a third floor to our house 18 years ago, an architectural project that added value via more square feet. But the new owners are ripping out several bathrooms b/c they like big ones and ours were smallish. I am 100% in agreement with Shelley: don't remodel for somebody else.

I'd pay to regrout, for example, but not rip out a shower unless I had to.

A lot of the "add value" pitch is hype from the home improvement industry.

Frugal Scholar said...

@Shelley--As i'm working through the process, I'm simplifying. Some things really need to be changed.

@Duchesse-Very good points. i'm already l"downsizing" my plans.