How to Increase Your Home's Value
Questions to Ask Yourself
- Is staying in your location really important? If you like the neighborhood you’re living in, you have the choice to renovate your home or buy a home in the same neighborhood.
- Do you have the budget? In locations with affordable homes, you might lean towards buying new. In cities with expensive homes, it might be cheaper to renovate.
- Can you renovate your home without changing the floor plan? It costs less to renovate your home — almost 50 percent less — when you don’t change the structural elements.
- Will renovations increase your home’s value? Some remodels and changes increase a home’s value, while others are just money down the drain depending on your local market. You should always consult with a remodeling expert before you embark on big projects to see if they’ll add value.
- What’s your long-term plan for the home? You shouldn’t make renovations to a home if you don’t have a long-term goal for it. For example, if you live in a two-bedroom house and plan to have a lot of kids, you’ll likely need to move sooner than later. Sometimes it’s just easier to move into a new home.
- How does moving affect property taxes? Property taxes vary by county, and moving into a new home might mean an increase. Check with a real estate agent and the city itself before to make sure you wouldn’t be paying more taxes as a result of moving.
- How is your mortgage affected by a move? Buying a new home could mean a lower mortgage, depending on market conditions. You could also end up with the same mortgage — you’ll need to see what real estate pros say and what your best deal could be.
Weighing the Pros and Cons
Once you’ve answered some of these questions, you might be leaning more towards one decision than the other. If you need more information on renovation versus buying a new home, here are some of the pros and cons of both decisions.
Selling your old place before searching for a new place can be a long, extensive process with an exciting result. And it can be both stressful and arduous if you don’t approach it correctly. Here are some of the advantages and disadvantages to weigh in the process:
- New beginnings: You get to start over in a new place — whether it’s down the street or in a new neighborhood, city or state — beginning again with your family and belongings. You get to meet new people, decorate your new home and settle into a new landscape.
- Financing options: Once you’ve bought a house the first time, it’s easier the second or third time around to go through the paperwork and purchase process. Your agent will help with title, insurance, taxes and finding a quality lender to help you buy the house.
- Income taxes: Depending on your state laws, selling your old home could land you extra money in your pocket without added taxes because of the capital gains exemption (which is up to $250,000 and $500,000 for married taxpayers). There also are eco-related tax credits available if your new home qualifies. You should check with your real estate agent and tax filer.
- High costs: Selling a home involves paying your real estate agent and other fees throughout the process. It’s long, complicated and expensive, and you have to be willing to go through it to acquire your new place.
- Moving: Moving can be a problematic process because you always find stuff in your old place that you never used. That leads to sorting, throwing away and trying to pack everything within a short timeframe. It’s added stress that can be overwhelming at times.
There is really only one reason to try to increase the value of your home: if you’re trying to sell it. If you’re not, deliberately increasing your home’s value most likely will increase your tax bill as well. There are ways to increase your home’s value for resale that range from the very expensive (major remodels and additions) to free (tidying up the front yard). We’ll look at the whole range, noting how much value is added when possible.
Before you begin any of these projects, it is important that you do them with the following in mind: you do not want to raise the value of your property too far above others in the neighborhood. Why? Because people who want expensive homes will shop exclusively in higher-value neighborhoods. If you own the “best house” in the neighborhood, it is unlikely you will recoup whatever investment you’ve made. A good rule of thumb: keep the value of your property within 15 to 20 percent of your neighbors’.
The following figures appeared in the November, 2001 issue of Realtor Magazine. They list the top ten remodeling projects undertaken to increase a home’s value in the United States and what percentage of your remodeling investment is recouped at resale.
Project (average cost recouped, national):
Minor kitchen remodel (88%)
Bathroom remodel (85%)
Major kitchen remodel (81%)
Family room addition (80%)
Deck addition (77%)
Master suite (75%)
Attic bedroom (74%)
Siding replacement (73%)
Window replacement (69%)
Home office (55%)
These are national averages, so in your area, the figures may be lower or higher. To explain, if you spend $10,000 on a minor kitchen remodel, you will be adding $8,800 to the value of your house. Remember that it’s a tricky business, trying to add value to your home. What seems to be value to you may not appear that way to any given prospective buyer.
Projects that may increase your home’s value include: Jacuzzi (4 jets or more); permanent hot tub; in-ground pool with nice deck area; security system; sprinkler system; substantial out buildings such as a two-car garage or finished workshop; and vaulted or trey ceilings. Think twice about the following projects however, as they may not add value to your house: above-ground pool; ceiling fans; garden pond; and light fixtures.
Some tips when attempting value-increasing remodeling:
l Remodel with mass appeal in mind. Potential buyers are usually attracted more to neutral, mainstream design.
l Don’t go cheap when it comes to construction. Use durable, quality materials. If you’re a do-it-yourselfer, honestly evaluate your ability to do it right.
l Don’t remodel in a different style from the rest of the house. Additions and improvements that look “tacked on” may detract from a home’s appeal.
l Turning a bedroom into a bathroom is a mistake – it reduces the number of bedrooms, a chief selling point.
l Don’t do a $30,000 kitchen remodel in a $100,000 house – unless you plan to continue living there. It is a waste of money.
l If you don’t sell, there are improvements that actually reduce your tax bill. Qualifying improvements are those that increase your home's value or prolong your home's life, including: a fence, driveway, a new room, addition, swimming pool, garage, porch or deck, built-in appliances, insulation, new heating/cooling systems, a new roof, landscaping, etc.
If you don’t have the kind of money it takes for even minor remodeling, there are low-cost ways to increase your home’s value. At the very least, the following things will make your home more attractive and inviting to prospective buyers.
Make sure the outside of your home is spic-and-span. Clean out the gutters. Wash the windows and remove cobwebs and bugs. Trim the hedges, cut and edge the lawn, sweep the sidewalks and driveway. Plant some colorful flowers out front. The reason for these small things is simple: If two similar homes in the same are area are both for sale, the one with the cleanest and most appealing front yard will sell first.
You may want to add to or improve your landscaping while you’re at it. According to a study conducted by Money Magazine, landscaping may be the best investment to improve a home's value. The study found that well-planned, attractive landscaping was estimated to have an actual recovery rate 100 to 200 percent higher than a kitchen or bathroom renovation.