Recoup Your Remodeling Costs

You’re ready to sell your home and you’re hopeful that your investment in upgrades and improvements will distinguish your home from the others on the market. As the housing slump continues to depress home prices, more homeowners look for ways to make their homes more attractive and valuable through home improvements.

Your expectations are to recoup the investments, upgrades, sweat, and care that you put into your home. Recouping some costs can happen but keep your expectations realistic. It may be hard to accept that a $20,000 upgraded kitchen with all the bells and whistles will not be 100 percent recouped when you sell. As a reminder the market value of your home isn’t based on:

• How much you added or invested in upgrades
• How much you paid for your home
• The tax assessed value or the balance of your mortgage

Your home’s market value is simply the amount a reasonable, rational and qualified buyer will pay for the home at a specific time. Market value of your home is influenced by:

• Interest rates
• Strength of local economy and local politics
• Location
• Competition (similar homes on the market)
• Proper home preparation and staging
• Marketing effort

Remodeling Magazine’s annual Cost vs. Value Report (2007) summarized the average cost recouped for 29 home-improvement projects in nine regions. In the magazine’s 20th annual report the message is clear that exterior upgrades, along with kitchen remodels, seem to show the highest rate of return.

For instance, an upscale siding replacement using fiber cement materials would recoup 88.1 percent of the cost; a wood deck addition 85.2 percent; upscale vinyl and mid-range wood window replacements 81 percent and 81.2 percent respectively.

Nationally, projects that did not recover as well were home office remodels (57 percent), installing a back-up power generator (58 percent), and adding a mid-range sunroom (59.1 percent).

At this point, you may think, “Why would I invest any money in the home if I can’t recoup 100 percent of the cost?” Good question. In some cases, simply to make the home sellable. For instance, the curb appeal, to include siding, may be necessary just to get prospective buyers in the door. Also, keep in mind that these are “averages” and your return on investment will be based on a number of variables, to include location.

Noted in the survey is the fact that the value of remodeling declined in 2007 compared to 2006 and that no project exceeded an 88 percent return (again, averages). The likely reasons for the year-to-year drop:

• Rising remodeling costs
• Slowing home appreciation brought on by a slow housing market in many areas

There are other items to consider when factoring your rate of return for remodeling. The overall condition of your home affects the cost recouped on a remodeling project. For instance, a 1970’s style home with only an updated kitchen will not enhance the value of that home if the bathrooms, fixtures, carpet, etc. aren’t replaced or updated. Updating your home’s overall design to fit your new addition will make your home more appealing and valued. Any sharp contrasts between your renovation and your home’s design should be avoided.

Beware of ultra-popular design fads. Today’s hottest designs and materials won’t necessarily be so hot tomorrow. A good way to find out what may appeal to potential homeowners is to visit online listings of homes for sale, real-estate agents’ open houses, and new home builders in your area. Whatever home aspect you improve it should be compatible with not only your home but also your neighborhood.

You should consider the value of similar homes in surrounding areas. Unfortunately, with the sub-prime mortgage crisis you’re seeing more short sale and foreclosed homes. If any are in your neighborhood they may negatively affect the value of your home. A home’s urban, suburban, or rural setting also affects its value, as does the availability and cost of new and existing homes in the immediate area.

Other factors that may affect the recovery of remodeling costs and the potential value of your home are substandard workmanship or substandard materials. Initially, it may save you money, but it may hurt you in the long run. That’s not to say that all your materials have to be of the highest quality, but try to choose traditionally popular materials that will appeal to a wide range of buyers throughout the years. We don’t want to offend any “do it yourself” readers, but we often see substandard work in finished basements — and it’s obvious to prospective buyers. We also recommend that you obtain permits and comply with all public inspections and zoning requirements to avoid serious legal issues.

Finally, we would like to address the frequently debated issue of whether investments in swimming pools are recouped. This may vary with locations, but in our experience, the cost is rarely recovered and may reduce the number of potential buyers. While they’re extremely attractive to some buyers, they raise issues for many more to include the cost, danger associated with young children, liability, insurance, and maintenance. Additionally, consider that a home pool in a neighborhood that has a common pool will probably have very low appeal to buyers.

We recommend if you install a pool you do so for your own enjoyment and with realistic expectations about their value.

According to the National Association of Realtors (NARS), 90 percent of homeowners believe their homes have high investment potential — and we agree. Homeowners who tastefully improve their homes, set realistic goals and expectations can help their home become more attractive to buyers, and sustain its value through conditions such as the current market.

We hope this helps in some manner and as always we invite your comments, concerns and questions at homesformilitary@vrsam.com and / or join us at the New VR SAM® Military Community Forum where you can discuss any number of issues impacting military families at http://vrsam.conforums.com/.

Moving to Northern Virginia? Visit VR SAM® at www.vrsam.com or call us at: 1-(877)878-7726.

As a completely free service for our Military Families, we invite you to find your new home or list your home (sale or rent) at: www.moresam.net.

For complete explanation of the Remodeling Magazine’s survey results for the nine regions please see www.costvsvalue.com.

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