These projects are proven winners, but be in the know before you get started.
Which home improvements give you the most bang for your buck, come selling time? The answer has to do with the term "ROI," or "Return on Investment."
In other words, what you will get out of what you put in. ROI is important because you want to recoup at least the same amount of money you put into your home when you sell it, or as close as possible. But it's not a simple equation to work out how to best maximize your payoff.
The Seven Best Home Improvements
According to Remodeling Online's 2006 survey of nearly 2,200 real estate professionals in 60 cities across the country, the home improvement with the highest return nationwide is a mid-range siding replacement. Other top projects include replacing your windows with either wood or vinyl one, both major and minor kitchen renovations, a bathroom remodel and a two-story addition. These are nationally averaged prices and percentages.
Watch Out for "Over-Improving"
Before you start tackling that high-yield improvement, know that there's a chance you could "over-improve" your home. That might sound crazy, but it happens most often when the project just doesn't fit the neighborhood or the home's value. For example, if you own a $125,000 home in a neighborhood full of three-bedroom, two-bath homes, and you decide to add on another garage or another floor, you might never recoup the cost of that work.
Why? If the project costs you from $25,000 on up, then you'd have to sell your home for at least $150,000 or more just to break even. Are like homes in your neighborhood selling for that? If not, you're out of luck, because your expensively remodeled home might not fit in with the value of other homes in the surrounding area. Thus it may not be as valuable to potential buyers, since house prices are often ruled by location, and who's to say they might not inherit your quandary when it's time for them to sell?
Drop That Toolbox
You might be willing and able to do just about any home improvement project around your house, but before you tackle any major work, consider two things. First, ask yourself if you can do the job right. Saving money is one thing, but are you knowledgeable enough about the task at hand so you don't encounter major (and costly) problems?
Second—and perhaps more importantly—put yourself in the shoes of a potential buyer, even if you're not likely to sell for years. You might be proud of all your home improvements, but the homebuyer may ask lots of questions about the work. Like it or not, there is an inherent skepticism about homegrown handymen, no matter your talents. Professionally done work, on the other hand, tends to have a certain "seal of approval" that assures the job was done properly. Plus, most pros guarantee their work for an extended time, which gives buyers even more confidence.
Location, Location, Location
When looking at the numbers, you might find that they seem either too high or low for your given area. Remodeling Online attributes that to the leveling effect of averaging. "High demand for remodeling services in some parts of a given metro area may drive prices up, but this is often countered by lower demand—and lower prices—in another part of the same city," the report says.
Quality and differences in size and scope also account for differences in a project's cost. This is why, especially if you know you'll be selling your home within a year or two, it pays to consult a REALTOR® before you pick up a hammer.
Thursday, July 19, 2012
Tuesday, July 3, 2012
Uptick in remodeling activity a sign of the times
Mary Ellen Podmolik | Chicago Tribune | May 20, 2012
The weakest part of the housing industry is single-family home construction, but home remodelers are in line for an upbeat year.
After rising 3.5 percent last year, to $107.4billion, homeowner spending on remodeling projects is expected to increase 12 percent this year and an additional 8 percent next year, says a recent forecast by the National Association of Home Builders and Harvard University's Joint Center for Housing Studies.
That doesn't include spending by investors purchasing distressed properties and fixing them up either to resell or to turn into rental units. Add that in and the total spent was close to $300billion last year and is expected to increase.
Credit the anticipated spending to some of the same factors that have helped weigh down the housing market. The percentage of people who moved from one home to another in 2011, 11.6 percent, was at its lowest rate since the Census Bureau began tracking mobility in 1948. Because of declining home values, 26 percent of homeowners plan to stay in their homes at least 16 more years, and an additional 23 percent said they plan to stay put six to 10 years, according to a recent poll by the National Institute of the Remodeling Industry.
Also, homeowners in areas where the local housing market seems to have bottomed out may be more willing to invest in their properties again, taking on projects they deferred.
Consumers buying foreclosures or homes sold through short sales typically need to make improvements and repairs that last year translated into average spending of $7,300 during the first year of homeownership.
And finally, even homeowners with equity in their homes may decide that in the current market, trying to sell their home isn't worth the effort, so they'll tailor the home to their changing needs instead.
"The mix is going to change," said Kermit Baker, a senior research fellow at Harvard's Joint Center for Housing Studies. "It's not going to be driven by these upper-end projects. It's going to be driven by these smaller-scale activities and it's been deferred. There's a lot of folks who are not underwater or not that significantly underwater and aren't planning on moving anytime soon."
That's not good for would-be buyers who are waiting for choice inventory to come on the market. It's not good for homebuilders, either. But it's welcome news for remodeling professionals so long as homeowners have saved up enough for the projects or have the creditworthiness to borrow money.
Last year, the five most common remodeling jobs were bathrooms, kitchens, window and door replacement, repairing property damage and whole-house remodeling.
"Remodeling is (now) not driven by price appreciation or preparation for sale — by a lot of the things you'd normally thought of — but rather by simply good old-fashioned 'This is what I want. I want a place that is newer, has all the gizmos and is nicer to live in,'" said David Crowe, chief economist for the National Association of Home Builders. "It's a return to the real value of a home as a place that I will use rather than trying to gain appreciation."
Baker continues to believe that much of the remodeling industry's growth will come from changes made to homes to allow baby boomers to age in place. "That's going to be one of the really strong markets over the next decade," Baker said. "I'm really not sure the remodeling industry knows how to sell that population really well."
Lower rate and shorter terms: With interest rates on 30-year, fixed-rate mortgages that hovered under 4 percent, it's little wonder homeowners who refinanced their mortgages during the year's first quarter were eyeing more stable products and shorter loan terms.
According to Freddie Mac, 31 percent of borrowers who refinanced during 2012's first three months traded in their 30-year loans for 20-year, 15-year or shorter-term mortgages. Meanwhile, 68 percent of borrowers who had hybrid adjustable-rate mortgages refinanced by moving into fixed-rate mortgages, the highest share in a year. Mortgage refinancings accounted for 81 percent of mortgage applications during the quarter.
mepodmolik@tribune.com
Twitter @mepodmolik
The weakest part of the housing industry is single-family home construction, but home remodelers are in line for an upbeat year.
After rising 3.5 percent last year, to $107.4billion, homeowner spending on remodeling projects is expected to increase 12 percent this year and an additional 8 percent next year, says a recent forecast by the National Association of Home Builders and Harvard University's Joint Center for Housing Studies.
That doesn't include spending by investors purchasing distressed properties and fixing them up either to resell or to turn into rental units. Add that in and the total spent was close to $300billion last year and is expected to increase.
Credit the anticipated spending to some of the same factors that have helped weigh down the housing market. The percentage of people who moved from one home to another in 2011, 11.6 percent, was at its lowest rate since the Census Bureau began tracking mobility in 1948. Because of declining home values, 26 percent of homeowners plan to stay in their homes at least 16 more years, and an additional 23 percent said they plan to stay put six to 10 years, according to a recent poll by the National Institute of the Remodeling Industry.
Also, homeowners in areas where the local housing market seems to have bottomed out may be more willing to invest in their properties again, taking on projects they deferred.
Consumers buying foreclosures or homes sold through short sales typically need to make improvements and repairs that last year translated into average spending of $7,300 during the first year of homeownership.
And finally, even homeowners with equity in their homes may decide that in the current market, trying to sell their home isn't worth the effort, so they'll tailor the home to their changing needs instead.
"The mix is going to change," said Kermit Baker, a senior research fellow at Harvard's Joint Center for Housing Studies. "It's not going to be driven by these upper-end projects. It's going to be driven by these smaller-scale activities and it's been deferred. There's a lot of folks who are not underwater or not that significantly underwater and aren't planning on moving anytime soon."
That's not good for would-be buyers who are waiting for choice inventory to come on the market. It's not good for homebuilders, either. But it's welcome news for remodeling professionals so long as homeowners have saved up enough for the projects or have the creditworthiness to borrow money.
Last year, the five most common remodeling jobs were bathrooms, kitchens, window and door replacement, repairing property damage and whole-house remodeling.
"Remodeling is (now) not driven by price appreciation or preparation for sale — by a lot of the things you'd normally thought of — but rather by simply good old-fashioned 'This is what I want. I want a place that is newer, has all the gizmos and is nicer to live in,'" said David Crowe, chief economist for the National Association of Home Builders. "It's a return to the real value of a home as a place that I will use rather than trying to gain appreciation."
Baker continues to believe that much of the remodeling industry's growth will come from changes made to homes to allow baby boomers to age in place. "That's going to be one of the really strong markets over the next decade," Baker said. "I'm really not sure the remodeling industry knows how to sell that population really well."
Lower rate and shorter terms: With interest rates on 30-year, fixed-rate mortgages that hovered under 4 percent, it's little wonder homeowners who refinanced their mortgages during the year's first quarter were eyeing more stable products and shorter loan terms.
According to Freddie Mac, 31 percent of borrowers who refinanced during 2012's first three months traded in their 30-year loans for 20-year, 15-year or shorter-term mortgages. Meanwhile, 68 percent of borrowers who had hybrid adjustable-rate mortgages refinanced by moving into fixed-rate mortgages, the highest share in a year. Mortgage refinancings accounted for 81 percent of mortgage applications during the quarter.
mepodmolik@tribune.com
Twitter @mepodmolik
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