Home Over-Improvement Can Lead to Market Under-Performance
Written by: Lankarge/Nahorney for HomeInsight
Because your home is indeed your castle, there's nothing wrong with smartening up the moat every few years. But any remodeling you undertake should not only improve your home's aesthetic appeal, but should add to its resale value as well. Often, the best improvements are relatively simple and add cosmetic appeal, such as a new coat of paint, carpeting, or a minor kitchen refresh. These are the kinds of projects that bring your home up to par with the others in your neighborhood and help maintain your home's value over time.
Keep Track of Sale PricesThe best way to gauge how your home would perform on the market (and whether your planned improvements would overprice it) is to monitor the maximum sale price range of the homes in your neighborhood. These figures are the limit that potential buyers will spend in your area. If they are going to pay more, they will look elsewhere. See the maximum sale price of homes in your neighborhood.
Get the advice of an experienced real estate agent who is familiar with your neighborhood and knows the impact of home improvements.
Will the remodeling be cost-effective and avoid "over-improving" my home?
If you know you're going to stay in your home until you retire, you can pretty much improve to your heart's content. But the average home owner moves once every seven years. Many make the mistake of undertaking expensive improvements they can't recoup when it comes time to sell. In terms of market value, you will benefit more from having a home that is comparable in price or slightly below the other homes in your neighborhood. This leaves room for appreciation to strengthen your investment over time and you won't be dropping money into pricey renovations that buyers will ignore when it comes time for you to sell. This is especially true if the value of homes in your neighborhood is dropping. See what houses comparable to yours sold for in your location over the past three months and past year.
It's also important to be judicial in the amount you spend on improvements if, when you go to sell, there's a big housing inventory from which buyers can pick and choose. If there are lots of houses available for buyers, they are not likely to pay top price if they can find a similar, but less expensive house in the same location. See the length of time houses similar to yours in your location spent on the market before they sold or were "de-listed" (removed from the market). When the number of days on market or the number of houses being de-listed rise, it's a good indication that the housing market is softening in your location.
You also don't want to over-spend on renovations if there's likelihood that your region will suffer job layoffs due to a major business closing or an overall economic downturn. See your state's current unemployment rate and check the country's leading economic indicators. (This could be information garnered from public websites that give consumer confidence information, gross domestic product, unemployment, housing starts etc.)
Is my improvement project logical for my type of home?
You may be a gourmet cook, but it doesn't make much sense for you to enlarge the tiny kitchen of your two-bedroom ranch and stuff it with expensive built-in appliances, including a temperature-controlled wine storage unit. Improvements that aren't in keeping with the style of your home or the tone of your neighborhood make it stand out - and not in a good way! These are the homes that most often languish on the market or fail to fetch your asking price. See where your current house fits into your neighborhood profile and where it would fit in after your planned remodel.
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