Planning Home Improvements

How to set the asking price for your home.

The reason why you own a home (rather than rent) is the equity you are able to build.  You do this three ways:  (1) by paying off your mortage, (2) through rising real estate markets, and (3) by improving your home.  Today we no longer have consistently rising real estate markets.  Most markets are now relatively stable but remain weak.  Homeowners seeking to increase the value of their properties are looking at a variety of home improvement options, but they instinctively know these projects can be risky in flat markets.  If they don’t plan and spend wisely, their investment may not be recuped by a higher home value.

T h i n k    B e f o r e    Y o u    S p e n d

Here at LampertHomes.com, we talk a lot about improvement as an investment.  But before considering any specific home improvement project, you should determine whether it meets the general investment criteria outlined below.  It’s great to plan and build an improvement your family will enjoy while you live there, but it’s even better if the market recognizes it with a corresponding increase in market value.  Before you open your checkbook, do a little strategic thinking to see if your ideas meet these conditions.  If they do, you have a much better shot at creating value in excess of your costs.

Don’t Overimprove

In most communities, home prices generally reflect the average resident’s annual income.  It’s fun to make improvements to your home that make it consistent with your ideal lifestyle.  However, make sure that the improvements don’t make your home the most expensive property in the neighborhood.  If you have the most expensive property in your neighborhood, chances are you will have a difficult time selling your home for what you have invested in it.  Prospective buyers (if they can even afford the house) will be afraid they can’t resell it at the same price. 

Before you commit to any big project, ask yourself, “Is this three-car garage or swimming pool out of character for my neighborhood?”  If it is (and be honest), you may be consigning your house to an oddity status.  If your house is improved beyond the range of all neighborhood homes that surround it, it is likely the investment in your home won’t be realized when it’s time to sell.  Look at the upper end of home values in your neighborhood.  If your planned project puts you beyond that limit, you will not likely get that money back.

[Bonus tip:  Over-decorating your home also tends to be counter-productive.  No matter how fabulous your taste in decorating, you don’t want it to get in the way of buyers visualizing their own furnishings in the house.]

 Only Make Renovations That Count

Experts agree that the right renovations, especially bathrooms and kitchens, enhance the marketability of your home.  For example, bathrooms have become a popular remodeling choice because they have the highest rate of return of any home addition or home remodel.   Any real estate agent will tell you that a gleaming kitchen with state-of-the-art appliances, hardwood flooring, stone countertops and lots of cabinet space can sell a house the instant a prospective buyer sees it.  Conversely, a cramped, poorly-lit kitchen with outdated linoleum and harvest gold appliances will deter most buyers.

As a cautionary note, there are a few project types that often don’t work out well from a purely financial standpoint.  These include sunrooms, pools and spas, home office remodels, bad basement finishes, and intricate landscaping.

Upgrade What You Can’t Renovate

If you can’t afford to renovate without incurring additional debt,  instead consider cosmetic improvements to update and refresh key rooms.  Replacing an old countertop, repainting cabinetry and walls, and installing new door pulls and lighting make big improvements to your kitchen for a very modest price.  Similar touches increase the appeal of older bathrooms as well.  Fresh paint throughout your home is another low-cost, high-return project.  It makes everything look cleaner, brighter, and larger.   It’s much safer to fund this type of upgrade, especially when the market is weak, and buyers prefer a house they won’t have to redecorate immediately.

Avoid Unnecessary Improvements

Replacing a roof when it only needs a few repairs or upgrading plumbing systems are examples of improvements that mean big money you’ll never get back.  Instead, stay on top of routine home maintenance tasks and let the next owner decide what major improvements to make.  Depending on the age of your house, you can expect to spend from 1% to 3% of its value every year on maintenance and repair.  Your maintenance budget should increase as your house ages, so remember to include funds to replace major systems as required.  Foundations and roofs are things that are difficult to inspect, but in the long run minor repairs can save you about ten times the cost of work necessary to replace or rebuild.

And be careful not to let contractors supersize small repair projects by talking you into full-blown replacements.  It’s a common tactic.

Be Realistic About Your Budget

Estimating costs can be a problem because people (a) are not thorough in their budgeting, and (b) make overly optimistic assumptions.  You’ll often hear that you should figure your cost and triple it.  For some, that’s probably good advice but it’s not really necessary if you’re careful and methodical.  Itemize every scrap of material in your estimates, including mundane items such as the cost of nails, staples, fiberglass tape or joint compound.  They all add up.  Then account for at least a 15% overage of materials for waste.  Throw in another 30% for price increases, especially if you’re not buying all your materials at once.

Projects requiring demolition are inherently riskier than those that don’t.  You have no idea what you will find when you tear open a wall.  You may discover wiring that needs to be replaced, pipes that need to be rerouted or moisture problems that have rotted away joists or sill plates.  Pad your budget and allow yourself a bit of flexibility in your work schedule to accommodate unpleasant surprises.

If you’re hiring a contractor to do the work, realize that the bid with the lowest price may end up being much higher in the end. “Allowance items” tend to be the main source of inaccurate cost estimates.  For example, contractors may give you allowances for flooring, lighting or hardware that are artificially low.  The bid looks enticing until you examine it closely. Request a line item for straight costs on materials and labor since some contractors mark up materials and labor in order to profit on them.  Ask the contractor to pass along costs to you and to add a line item for their fee.  This creates a more clear and honest assessment of the job.

Be Sure You Can Finish What You Start

Nothing makes prospective home buyers more nervous than seeing work-in-progress.  If you have any doubt at all about your ability to finish a project once it’s been started, then you should either hire a pro or just not do it at all.  It’s very difficult to get offers on a house with uncompleted work because buyers imagine the worst.  They fear you will take shortcuts when you know a sale is pending and don’t have time to finish the work.  If you don’t fully understand every step of the project, you can’t be sure you know the outcome.

Some projects do require more than one person.  It’s hard to hang drywall on a ceiling by yourself, even with a deadman prop.  Pay attention to the weight you lift because you don’t want to risk an injury or a fall.  It’s not worth it.  If you’re afraid of heights or are unsteady in high places, don’t install a roof.  Hire somebody else to do it.  Before you start a project, think about each step from inception all the way through to completion.  You do not want to get halfway and discover you can’t finish.

If you’re new to home improvement, think about starting with changes and upgrades that are easy to accomplish.  The more experience you acquire, the better qualified you’ll be to judge the requirements of more complicated projects.  There’s a lot of simple projects you can do to start adding value to your home today.  Take a look at our post 101 Worthwhile Home Improvement Ideas and you’ll probably find a few that can benefit you!