Homeowners are opening their wallets. A rebound in the housing market has made them more willing to invest in renovations that could boost the value of their homes even more in a rising market.
Many homeowners decide to make upgrades with the idea that the bigger kitchen or finished basement will make their home more enjoyable. But those looking to sell should know that not all projects will boost the value. Here are six tips:
1. Consider all buyers: The classic example is installing a pool, which could make a home a tougher sell. It’s unlikely you will recover your expenses, says Richard Borges, president of the Appraisal Institute. The principle holds true for other big projects, such as adding a second garage.
2. Don’t overdo it: Some improvements can help lift the value, especially updates to features like dated cabinets and appliances. The key is selecting finishes and appliances that don’t go well beyond what a buyer might find in similarly priced homes. Appraisers call it “overimprovement.”
3. Consider expansion risks: One project that’s least likely to produce a return is a room addition that expands a home beyond its original floor plan, Borges says. Jobs that require tearing down an exterior wall often involve moving doors, windows, etc., which can drive costs higher than, say, converting an existing space. The more expensive the project, the harder it can be to recover the costs.
4. Consider cost to value: One way to gauge whether a project is worthwhile is to estimate how much will be recovered at resale. For example, a $1,000 siding job that adds $500 to the value is a 50 percent return. When home prices are rising fast enough it’s easier to recover the costs.
5. Prioritize: Making a master bedroom bigger or converting a closet into a half-bath might seem like good investments, but not if you need to upgrade your roof or fix window seals.
6. Consult an expert: An expert can help gauge how the upgrade could affect sales price.