Six ways to ensure a remodeling project pays off.
Just a few years ago you could count on getting the bulk of your money back for almost any home-improvement project you took on. Today merely replacing a toilet seat can feel like throwing caution, and cash, to the wind. By following these 6 tips, you can help ensure that you maximize every dollar you put into your home in order to get the greatest return.
Rule No. 1: Repairs get the biggest returns.
The smartest money now goes into addressing much needed repairs, especially deferred maintenance. That's because while buyers might appreciate enhancements like Jacuzzis and Sub-Zeros, they won't tolerate a house with a leaky roof or antiquated plumbing. If a property is known to have issues, today's buyers will take note and make an offer accordingly. Trying to keep problems a secret can cost you a lot of money in the long run. If buyers discover them during inspection, it's now common practice to ask sellers to pick up the tab. Moreover, buyers have a tendency to "over estimate" the cost of repairs, solely for negotiating purposes. So the $20,000 you saved by putting off a roof repair, could turn into a $30,000 credit to the buyers at closing.
Rule No. 2: Remodeling beats adding on.
There's been a fundamental shift toward quality over quantity. There's nothing less appealing to a home buyer than the feeling of first walking into a home and the immediately becoming completely disoriented due to all the poorly planned room additions. Homeowners once thought that by merely adding more and more rooms to a home would automatically mean a higher resale value in the end. This just isn't the case. Many homeowners have ended building elaborate labyrinths, unwelcoming to home buyers and ultimately much harder to sell.
Even a well planned addition doesn't always pay off. Having a big, formal living room plus an everyday family room is less desirable than having one multi-use common space. So rather than adding on, you're better off repurposing existing square footage by reconfiguring the floor plan or capturing unused space. Want an eat-in kitchen? Knock down the wall between the kitchen and dining room ($2,000 to $8,000, depending on whether it's load-bearing or contains plumbing). That will instantly create a large eat-in kitchen and give the whole house a more open feel -- without a huge investment to make up at resale.
Rule No. 3: Eco-friendly upgrades can save cash.
Some green improvements pay you back long before you sell your house. Install energy-efficient features, such as EnergyStar appliances and extra wall insulation, and you'll see lower energy bills every month. Green features are also increasingly a selling point. Most people in the market right now are first-time homebuyers in their thirties, and they've been raised to care about carbon footprints and being ecofriendly.
Rule No. 4: Tech infrastructure trumps cool gadgets.
Home electronics seem like a deal, since prices have fallen about 50% over the past three years and continue to drop, according to Stephen Baker, president of industry analysis at NPD Group, a market research firm. Still, that doesn't change the fundamental problem with expensive built-in technology: Put in a $10,000-plus dedicated home theater today, and something better will come along tomorrow and make your system look as if it's from the Mesozoic Era. With buyers seeking any excuse to low-ball their offers, they're not going to reward you for an out-of-date system. Tech infrastructure is different, however. Anytime you're opening up walls for a construction project, have cabling and Ethernet ports installed. At about $80 a room, it's a low-cost way to provide the capability for whatever technologies come along.
Rule No. 5: Let the Joneses be your guide.
During the boom, you could be the first on your block to have a luxury kitchen, spa bathroom, or in-ground pool and count on others following suit. And even if the neighbors never took your lead, there was plenty of equity growth to cover your costs. Nowadays that fudge factor is gone. "You really have to keep your house's amenities in line with the neighborhood now," says Kermit Baker, director of the remodeling futures program at Harvard University's Joint Center for Housing Studies. If other houses on the block have real marble countertops, by all means add one to your house, but if everyone still has faux blue-marble Formica from the '70s, you're not getting your money back. Also, keep your projects design-neutral so they'll appeal to the greatest number of people. Choose neutral colors and traditional electrical and plumbing fixtures unless your house has a modern architectural style.
Rule No. 6: The new payback time is five years.
As with any volatile investment, the longer your time frame, the lower the risk. Don't take on a big project if you're likely to move in less than three to five years. There's just too much chance that any money you put in -- aside from necessary repairs or superficial cosmetic work -- could be lost while the housing market continues to meander. But if you plan to stay awhile, be sure to carefully research your contractors and make them compete over bids. Grab them while they're hungry for work and make it clear that you'll be getting multiple bids so they'll be motivated to undercut one another's prices. Although, be wary of the accepting an unusually low bid. It is a common mistake of inexperienced contractors, even those with the best intentions, to undercut the competition so much, that they fail to properly budget enough money to complete the job. I've witnessed a few homeowners that were successful in aggressively negotiating a contract, but midway through the project, the contractors run out of money and the owner is stuck with a torn up, half built home. In the end, what looked like a huge savings, turned out to be a much greater expense.
Always check references, go inspect previous work, and be proactive in your involvement in every project.