Home Work
Money: Which renovations and improvments add the most value to your home?
It’s springtime and a young man’s mind turns to…home improvement.
That’s right. Despite what poets may say, spring is the time that many people — emerging from the cold and dark days of winter — consider ideas on how to change their home. For some, it’s a simple spring cleaning and adding to the garden. For others, it’s a major remodeling job or building an addition.
But before you break out the power tools or hire a contractor, you might want to consider what that project will do to the value of your home. Remember, for most of us, our home represents our largest single investment — and often our most profitable.
So it’s worth your time to consider whether you might be better off putting in a new kitchen rather than spending your money on a 70s-style hot tub.
Of course, remodeling decisions shouldn’t be driven solely by dollars and cents. This is your home, and you have to live in it. If you want a hot tub on your deck and you can afford it, by all means, call the builders. (While you’re at it, you might want to install some shag carpeting and Disco lights just complete the look.)
But if there are a number of things about your home that you’d like to change, you may to look at which ones add the most value to your home and which ones may actually lower the price of your home at selling time.
How does one find out which home improvements add the most value? Well, luckily for us, a couple of Florida State University economics professors recently decided to buck academic tradition by putting together a study that provides useful, relevant information.
The professors analyzed 29,000 home sales transactions, looking at how physical and locational characteristics impacted the price of sold properties. All of the sales in the study took place between January 1996 and March 2003 in 21 counties in Pennsylvania, Maryland, New Jersey and Delaware. The professors calculated the average amount different types of improvements added to the home’s value.
What commands top dollar among American homebuyers?
The answer may surprise you. It’s not a big kitchen filled with Viking appliances — though that does crank up the value of your home. Maybe a nice, big fireplace? Nope.
Apparently, we Americans are a little more practical. We’re more concerned about the room where we dispose of our food than the room we prepare it. That’s right, bathrooms — both full and partial — took the top two spots on the list for value added to a sold home.
According to the study, adding a full bathroom will increase the price of your home by 24 percent. Adding a partial bathroom adds 15 percent.
It should be noted that these figures can vary depending on the situation of each house. But they do provide some indication of how an improvement will reflect on the home’s value.
Here are the rest of the top ten improvements and how they impact a home’s value:
3. Oversize garage: 13.8%
4. One- or two-car garage: 12.9%
5. Central air conditioning: 12.4%
6. Fireplace: 12%
7. Stucco siding: 9.7%
8. Double oven: 8.8%
9. In-ground pool: 7.9%
10. Kitchen island: 5.3%
Of course, there’s a flip side to home improvement. Sometimes a project is designed not so much to add beauty or luxury to a home but to repair or upgrade a house to keep it in working order.
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Real estate experts say that homeowners — especially owners of older homes — will get more bang for their buck by spending money on fixing defects than on costly additions.
For example, retiling a roof or upgrading your electrical system may not be sexy, but when prospective buyers come around, they’ll appreciate it more than a new family room addition.
According to the study, homes advertised and sold as “fixer-uppers” sold for 24 percent less that other homes.
The study also found that some home features — or lack thereof — actually lowered the price of a house.
Here are the top features that cost home sellers, and the percentage of value lost:
1. No laundry: -15%
2. Professional office: -5%
3. Vinyl siding: -3.5%
4. Porch: -2.0%
5. Basement laundry: -2%
Home improvement has become a national pastime. But remember, you’re making changes to the biggest investment of your life — so choose wisely.
Mark Helm is a personal finance writer and financial planner. He can be reached at 703-501-8531 or HelmFinancial@aol.com.
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