In this red-hot real estate market, with its instant sales and skyrocketing housing values, home improvements seem like a smart investment. Indeed, Americans spent a record $127 billion on remodeling projects last year alone. But is this conventional wisdom always right? Well, it depends, say experts -- on the project you pick, how much you wind up spending, and where you live.What To Consider First
Ask yourself, “Will this remodeling project enhance my life?” If it will, it’s probably worth considering for that reason alone. After all, you are doing something to improve your living conditions. But three key factors determine whether it’s likely to pay off financially too:
1. Your neighborhood. Make your house as attractive as the neighboring properties but not significantly more attractive, advises Allyson Bernard, a real estate agent in Danbury, Conn. You’re unlikely to recoup the cost of simply outshining the Joneses. So, compare your home to others in the same area and price range before deciding how much to spend, adds Terry Hankner, a Cincinnati agent: “For example, if most of them have three full baths and yours doesn’t, consider adding one.”
2. The cost. Sinking $50,000 into a house won’t automatically add $50,000 to its value. In fact, a modest makeover may sometimes pay off better than a big-budget project. “Adding a second bathroom clearly makes your house much more attractive,” says Richard Gaylord, a Long Beach, Calif., real estate agent. “But the cost can range from $15,000 to $50,000 or more. So, it’s always wise to get several bids.”
3. The local real estate market. In a sizzling market, home improvements can add dramatically to the resale value of a home; in a sluggish market, they typically don’t even pay for themselves. Last year, for example, a $15,235 kitchen remodeling project in the booming Jacksonville, Fla., market increased the value of a house by $22,367. In Detroit -- a depressed market -- the same project cost $15,229 but added just $4,000 to resale value. Nationwide, homeowners on average recouped only 80-90 cents on each dollar spent last year on remodeling projects. The bottom line: To be successful, a home improvement must repay you on an emotional level as well as financially.Projects That Pay Off
So, all things being equal, which projects are likeliest to add value to your home? The standard guide used by the experts is Remodeling magazine’s annual “Cost vs. Value” report. Now in its 18th year, this report compares the cost and value added of identical remodeling jobs in 60 different cities, based on information from both contractors and real estate agents.
Make Over Your Kitchen -- Sensibly. You can’t go wrong renovating an outdated kitchen -- especially if you resist the temptation to splurge on pricey items like hand-painted tiles and built-in cappuccino makers. Focus primarily on the basics: refacing existing cabinets; installing a new wall oven, cooktop and sink; putting in new wallpaper and upgrading the flooring. Last year, the nationwide average cost of these changes was $15,273, according to Remodeling. Average resale value added: just $14,195. But in some strong markets, the project more than recouped its cost. In Chicago, for example, this new kitchen cost $17,313 last year but added a whopping $23,464 to the resale value!