Monday, November 30, 2009

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By David Field
Contributing Writer
Money Morning

It’s no secret that the old real estate adage tells us that only three things determine the value of your home – location, location, location.

But the reality is that there’s plenty you can do with most any piece of property to get a higher selling price in almost any market. Some of the steps you can take are largely cosmetic – and are aimed at improving the “curb appeal” of the property. Others involve extensive reconfigurations, making them costly.

Despite the big differences in both time involved and costs, almost all of these steps actually have a real return-on-investment (ROI). As the U.S. housing market slowly revives, and as the federal tax credit of $8,000 for first-time homebuyers is extended, it’s worth considering the projects you can launch that will boost the value of your humble abode.

A lot of money is at stake.

Homeowner spending on improvements more than doubled between 1995 and 2007 to reach $326 billion, according to a 2009 Harvard Joint Center for Housing Studies research study. More than three-quarters of that money was spent on what the Joint Center labels as “improvements,” with the rest going to maintenance and repairs.

In major metropolitan areas, individual homeowners spent between $3,400 and $4,000 a year. Now, in a tough real estate market, it’s time for these improvements to pay off. Just remember that you won’t necessarily recoup directly what you spend: just because you pour some $10,000 or $12,000 into, say, a Jacuzzi doesn’t mean you’ll get that much back in a sale price, say the experts. Improvements must be targeted to the things people want enough to pay for.

Some of the home improvements cost a lot less than you’d think. Consider some of the basic improvements you can take to make a house or condominium more attractive, more appealing and more saleable: Focus on turning your house in to a brighter, cleaner “postcard” that makes a huge first impression on a prospective buyer.

This includes simple exterior steps such as mowing the lawn, getting the garage cleaned up and removing eyesores from the driveway. Houses in even the most appealing upscale neighborhood have an old clunker that’s been under repair for months, a rusty gutter hanging down, or easy-to-eradicate eyesores like overgrown grass or weeds.

These may sound like simple tasks – in fact, they are – but some sellers are so focused on the interior that they forget that it’s not easy to get a buyer to come inside and look around and look if weeds, long grass and an under-restoration 1958 Ford Edsel are what they see from the curb.

Steve Berges, a real estate investment author who writes about increasing property values through home improvements, says its best to spend on the exterior first – specifically to induce prospective buyers to come inside and look around.
A View From the Curb

Stay on the outside and two opportunities present themselves:

* New windows.
* New siding.
* And a new roof.

New windows and new siding both have solid economic arguments in their favor.

For most homes, new windows are the fastest and easiest step to lower energy costs by making the house hold its shot or cool air more efficiently. They have an ROI that’s estimated at 77% to 80%, meaning you’ll get as much as 80 cents on the dollar back in the form of a higher price. (A federal tax credit of $1,500 also applies to the installation of new energy-efficient windows through next year.)

New windows are unique in that they’re one of the few improvements that provide benefits from both the outside and the inside.

Then there’s the siding, which can be replaced with either a fiber/cement or foam-backed vinyl substitute.

Although not every type of home is a candidate for new siding, and some people object to siding on aesthetic grounds, the ROI potential is strong here, as well. Energy efficiency has become a permanent part of the home-owner’s mindset, meaning it’s a key determinant in deciding the value of a home-improvement project, Remodeling magazine concluded in its most recent annual survey.

This all assumes, of course, that your roof is both in good shape and that it, too, looks good. Just remember that a bad roof, one that looks shabby even if it’s not, is a major part of the first impression that a house makes. Roof repairs can range in complexity from the replacement of a few shingles to replacement of the entire roof, gutters and soffits. The payoff here can come in the form of lower heating-and-cooling bills, the reduced risk of damage from leaks, and one less thing that a prospective buyer can use to negotiate down from the asking price.
Heart of the House

But houses are like people: the important stuff is inside, often deep inside. And it’s inside where the greatest costs and the greatest returns are to be found, says Northern Virginia Realtor Charlotte Jones. These are in the most important, most intimate parts of the house: The bathroom and the kitchen, the two places where the family function is core.

The kitchen is, after all, the ancestral hearth, where meals are shared. The bathroom, too, is important enough for its condition (as well as the number of bathrooms the house actually has) to affect the sale price of the home.

These two areas of the house can be approached as major rebuilds, or just as places to improve, says Northern Virginia home contractor Larry Sweeney.

Depending on the size and amenities of your desired bathroom, you could expect to pay $50,000 or more to tear out walls, repair joists and wall studs, change structural elements and make major layout changes, such as putting in a new shower and commode.

However big the price tag, you can still expect to recoup nearly 71% of the cost (which would be $36,400 if you have a $50,000 bill) when you go to sell. This project has increased in value since 2007, while its sister project – adding a complete bathroom – fell in value.

Kitchens are typically the most frequently used room in a home, so it makes sense that spending money here is going to pay off when it comes time to sell. Fancy cabinet work can be stunningly expensive, but new cabinetry improves appearances enormously. New floors or floor-coverings similarly can give a kitchen a whole new look.

Basic improvements to your kitchen can pay handsome dividends, says real-estate agent Michael C. Murphy in his book “How to Sell Your Home in Good or Bad Times.”

Murphy writes: “For most buyers, (the kitchen) is the heart of the house. Paint, wallpaper, and even re-floor the room if it needs it. Consider sanding, staining or painting worn-looking cabinets. Replace old cabinet hardware like handles and knobs – a low-cost improvement that makes a big difference in appearance.”

While a major kitchen renovation is usually the most time-consuming and expensive home improvement job (averaging more than $110,000), it’s also one of the most profitable. Regardless of the size of your financial layout, you can expect to get a nearly 71% ROI.

The average amount spent on a major kitchen-remodeling job is $55,503 for a midrange update; an upscale designer makeover averaged $109,394, according to Remodeling magazine. The mid-range kitchen overhaul nationally recouped 78% of its cost and 74% of the costs were recovered in an upscale makeover. If you want to keep your project from turning into a bottomless money pit, be extra careful in choosing the new appliances in an era of $6,000 refrigerators, make sure you choose carefully – getting what you really want and need.

Remember also that appliances are very much a personal choice, and a buyer’s taste may differ from yours.
Adding Room(s)

Many homeowners add an extra room if they’re in their house for a long time and raise their family there; the room is often for a child growing into his or her teen years. Not every home has the design or layout for an added room, which can easily exceed $100,000 in cost, but some people convert an attic or even a basement into living quarters for about half of that.

If you’re lucky enough to have a fair amount of land and space, an exterior deck is a way to extend your home’s room for living at a reasonable cost. With people spending more time at home – and entertaining there more, as well – an extra room or a large deck can be attractive investments.

Interestingly, pure wood decks have a lower value than an exterior deck made of a composite material of wood and another material. The price difference is as much as two and a half times for the composites. So you can spend anywhere from $10,000 to $25,00 – and up. Some homeowners spend more than $35,000, but claim that they recoup that investment. Geography, logically enough, plays a major role in determining the value of a deck addition, with exterior decking recouping much more in San Francisco than in, say, Columbus, Ohio, Remodeling says.

To close, here’s a brief note on some improvements that may seem very appealing, but which actually make little financial sense.

The big one is a swimming pool, which many people associate with upscale, luxurious living. But a pool not only adds little to a home’s resale value, it can actually pull it down: Pools require constant costly maintenance and, as they crack and age, those costs can escalate and accelerate. What’s more – in this age of hair-trigger litigation – a swimming pool can add the “fear factor” of legal liability.

As for the other, that fancy garden, it may seem upscale, but forget about it. Exterior gardens, especially an elegant estate-like topiary, add little or nothing to a home’s resale value.

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