Remodeling in Today’s Market - How Far Should You Go?

From on March 13, 2008 in General

ThinkingMaybe you purchased your home fifteen years ago and have already built equity. Or, like many of us, maybe you bought at the peak of the “housing bubble” and are nervously watching the prices of homes drop below what you paid for your home. When you first bought your home, you had big dreams of renovations and improvements you could make. But now, you hesitate to invest any additional money into a home that might be worth less than what you paid for it.

A potentially bleak scenario, do you remodel, or draw the line and wait for the housing market to rebound? Or, do you renovate now, enjoy your home, and just wait a little longer before you sell? How do you know what to do?

Obtain an appraisal. You can hire a professional appraiser, who will do an appraisal for $300-$400, maybe even less with the slower real estate market. Or, a realtor will gladly give you a free appraisal and comparative market analysis based on recent home sales in your area. You can discuss recommended improvements with your realtor to determine better resale appeal and what they estimate your home will be worth after those improvements are completed.

Research your area. Go to www.realtor.com and look through the multiple listing database. Compare and contrast your home’s location and features compared to others in your area. You can get a basic idea of home prices and what you get for your money.

Obtain an estimate. After discussing with a realtor or appraiser what your home’s current and potential value will be, obtain a free estimate from a contractor for the work you want completed. After you have both figures in mind, compare what your investment will be compared to the potential return in the current market. If it is close to a break-even point, you know you’ll be okay. Especially if you wait a couple of years to sell, and give prices a chance to rebound again.

Location, location, location. Take your location and the dynamics of your local economy into account. Is your city continuing to expand and add more infrastructure? Are more or less jobs being created? A bustling, local economy definitely will help your home increase in value. Whereas, if people are getting laid off and moving to better areas, prices are more likely to fall. All of these factors should be considered when you are trying to determine how much money to invest in your home.

After you’ve completed your remodel, have your realtor return for another appraisal. Any realtor will tell you, renovating your home is almost always a good move. Prioritize your remodeling, keep it conservative, and shop around for the best prices on materials. As many economists will attest, the housing market will rebound within time; it just needs to run its course. Until then, enjoy your renovations, and relax!