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If you plan to market your home soon, you may want to rethink plans to bump out the kitchen or add a bath.
Some analysts saw such ambitious projects as recouping as much as 90 cents on the dollar during the housing boom. Not today.
The resale value of improvements is sliding, experts say. In a departure from recent trends ? but in keeping with previous housing market downturns ? homeowners are getting the best payback from relatively mundane projects, 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.
His additions include 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.
The slumping housing market has made it much trickier to remodel with an eye toward adding value to the home.
When house prices were soaring, many buyers could spend big bucks to expand their homes and still profit when it came time to sell. Today, a buyer who spends unwisely on remodeling simply may be digging a deeper hole when it comes time to move.
Further complicating the equation: Even though housing prices are slumping, construction prices keep climbing. That means adding a bath will cost more, even as it contributes less to resale value.
Homeowners have noticed. Remodeling activity peaked in 2006 before slowing last year. And it is expected to fall 4.8 percent this year, according to a report released last month by the Harvard Joint Center for Housing Studies.
Since many homeowners borrow to remodel, 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 study.
Nationally, returns for all major home-improvement projects are fetching 70 cents on the dollar, Remodeling magazine reports after a survey of real-estate professionals conducted late last year. That¡¯s down from 80 cents in 2004. Back then, the magazine reported, a minor kitchen remodel cost an average $15,300 and recovered an estimated 93 percent if the home were resold within a year. Today, a similar remodel costs $21,100 and would recoup only about 83 percent.
That doesn¡¯t mean all remodeling is a waste of money.
The right home improvements might help a property stand out in a glut of new houses and foreclosed properties. Improvements that make a house lower-maintenance or more energy-efficient also may attract buyers.
¡°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,¡± said 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, Saatchi said. And landscaping, including well-manicured trees and shrubs, can help older homes compete against new ones that lack mature vegetation, she said.
New windows, 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 said.
Some elaborate remodels, though, may actually make your home harder to sell, warned New Mexico builder Lonny Rutherford.
He said lenders are rejecting loans for homes with higher-than-normal appraisals, and that many buyers are looking for a deal.
Even if a potential buyer wanted to pay extra, he would have a hard time financing the house unless he has considerable cash to make up the difference between the perceived value and the appraisal, he said.
Inferior remodeling work may be worse than none at all. Cheap cabinets and poor workmanship won¡¯t fool buyers as they might have when many were pressured to make snap decisions in a hot market, said Anslie Stokes, an agent in Washington, D.C.
Buyers are not willing to pay for shoddy renovations, Stokes said.
Some improvements have regional appeal.
Backup power generators, for example, 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.
And as for interior amenities, high-tech capabilities in homes are more desirable to home buyers in some high-tech-focused cities than everywhere else.
Article Sources: http://readingeagle.com/article.aspx?id=92084
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