Relevant to Taos Real Estate News Articles
Will Upgrading Your Home Help You Sell It?
Big-Ticket Renovations Lose Value Amid Market Slump; Investing in Curb Appeal
By M.P. MCQUEEN
May 15, 2008; Page D1 - Wall Street Journal
If you're putting your home on the market anytime soon, you may want to
rethink those plans to bump out the kitchen or add an extra bath.
During the housing boom, such ambitious projects would recoup as much as
90 cents on the dollar. Not today. The resale value of improvements in general
is sliding, according to experts. In a departure from recent trends, homeowners
are getting the best payback from relatively mundane improvements, such
as sprucing up the exterior of their house or putting in new windows.
After spending $400,000 remodeling the suburban East Greenwich, R.I., home
he bought for $820,000 in 2002, Jonathan Salinger learned he probably couldn't
sell it for more than $1.1 million in today's market. That's after posh
additions that included landscaping, a pool, an outdoor kitchen, first-floor
laundry and mud rooms, and custom cabinetry. As a result, the 45-year-old
district manager for a mortgage lender recently decided not to list his
house for sale and scratched plans to move the family closer to his children's
private school in Providence.
The slumping housing market has made remodeling much trickier. When house
prices were climbing ever higher, buyers knew they could spend big bucks
to expand their homes and still make a profit when it came time to sell.
But today, a buyer who spends unwisely on remodeling may be simply digging
a deeper hole when it comes time to move.
Further complicating the equation: Even though housing prices are slumping,
construction prices have continued to climb. That means adding that new
bath will cost more, even as it contributes less to the resale value.
Homeowners have taken note. Remodeling activity peaked in 2006 before slowing
last year. And it is expected to fall 4.8% this year, according to a report
by the Harvard Joint Center for Housing Studies released last month.
Since many homeowners remodel using borrowed money, tighter credit means
it's also harder for many homeowners to afford big projects. Still, American
homeowners will spend an estimated $166 billion on remodeling this year,
according to the Harvard housing center.
Nationally, returns for all major home-improvement projects are fetching
70 cents on the dollar, according to a Remodeling magazine survey of real-estate
professionals conducted late last year. That's down from 80 cents in 2004.
Back then, a minor kitchen remodel cost an average $15,300 and recovered
an estimated 93% if the home was resold within a year. Today, a similar
remodel costs $21,100 and would recoup only about 83%.
This doesn't mean all remodeling is a waste of money. Home improvements
that help a property stand out in a glut of newly built houses and foreclosed
properties are most likely to pay off now, as are those that make a house
lower-maintenance or more energy-efficient.
"Make the outside of the house look really great so that people fall
in love between getting out of the car and the front door. That is money
that is worth spending," says Diane Saatchi, senior vice president
at the Corcoran Group real-estate agency, who sells high-end properties
in the Hamptons of New York's Long Island.
Freshly painted trim and new hardware also help a home show well, says Ms.
Saatchi. And landscaping, including well-manicured trees and shrubs, can
help older homes compete against new ones that lack mature vegetation, she
says.
New windows and doors and siding help homes look well-tended and spiffy
from the street. They also help make houses more energy-efficient, which
increasingly matters to buyers grappling with rising fuel and air-conditioning
costs, experts say.
Some elaborate remodels, though, may actually make your home harder to sell,
says New Mexico builder Lonny Rutherford. He notes that lenders are nixing
higher-than-normal appraisals, and that many buyers are looking for a deal.
Even if someone wanted to pay extra, they "would have a hard time financing
the house unless they have a lot of cash," he says.
Inferior remodeling work may be worse than none at all. Cheap cabinets and
poor workmanship won't fool buyers as they might have a few years ago, when
many had to make snap decisions about buying a house, says Anslie Stokes,
a real-estate agent in Washington, D.C.
"Buyers can spot shoddy renovations, and they aren't willing to pay
for it anymore," Ms. Stokes says.
Some improvements have regional appeal. Backup power generators bring greater
returns in the West and Southwest, following several seasons of extreme
weather that can knock out electrical power, than in New England. Steel
replacement roofs bring greater returns in wildfire-prone California than
in Iowa or Minnesota, according to the Remodeling magazine survey. As for
interior amenities, home buyers in some high-tech-focused cities find "wired"
homes very desirable, but they aren't in demand everywhere.
"People are looking for broadband access and alarm systems," says
Jim Amorin, a real-estate appraiser in Austin, Texas. "That is almost
getting to be a necessity in my market." He says barbecues, pools and
other home-entertaining amenities are also in demand in his part of the
country. "In downward-trending economies, people spend more time at
home, so they like things that make that more enjoyable."
Despite the real-estate meltdown, some homeowners are still putting their
faith in renovations. Susie Hastings, a 61-year-old homemaker, recently
spent $60,000 upgrading her mother's 1948 four-bedroom house in Farmington,
N.M., for possible resale or rental. Ms. Hastings replaced all the windows
and doors with double-paned energy-efficient ones, redid the stucco exterior
and added a high-efficiency boiler to slice the utility bill. Now she hopes
the house will sell for more than its previous appraised value of $220,000.
"It has made a big difference in the look," she says.
Write to M.P. McQueen at mp.mcqueen@wsj.com
