California realtor Carrie Benuska was ready to close on a house when the buyer pulled out during escrow. The reason for the last-minute turnaround: a bonus room her clients added to the back of their home years earlier.
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"This bonus room was not bonus at all," Benuska told MainStreet. "The room spoiled the flow, was built in a sub-standard way, and required the buyers to rip the whole thing off, then rebuild or patch the back of the house where it was added." The buyer's unwillingness to fix someone else's home "improvement" illustrates the catch that comes with some home renovations.
You may be in love with your upgrade, but as with any investment, there's risk involved -- namely not getting your money back when you decide to sell your house. Some home improvements drive up your homeowner's insurance, require you to pay out of pocket for larger repairs, or even put your family's safety in jeopardy.
With many homeowners hoping to add value to their homes that lost value in the recession, here's a guide to the "upgrades" that just simply aren't worth it.
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Earlier this year, consumer review website Angie's List polled more than 500 remodelers, real estate agents and contractors to determine what types of home improvement projects netted the highest return investment by increasing the value of a house. The project netting the lowest investment return, surprisingly, was a pool installation.
In-ground pools cost between $20,000 and $60,000 to install, but a homeowner wouldn't even recoup half of that. You won't get much more on smaller pools, hot tubs, or whirlpool baths, either. Moreoever, if the homeowners were ever looking to move, their home may take longer to sell. "Some buyers do not want a pool due to the maintenance, cost and liability," Anne Millians-Roche, president of Owens Realty Network in Florida, explains.
Additionally, fish-out-of-water families may want to purchase their pool after they've secured a homeowner's insurance policy, since a cement pond can drive up monthly premiums.
Putting in a Home Office ... or Monster Garage
What are other costly remodeling projects that might not be worth the expense? Installing a home office or a monster garage, which only recoup about a 60% investment return, according to Angie's List. Both will impact your ability to relocate significantly.
Why? Doing unique and costly remodels essentially puts your home in a niche market. A home office won't appeal to large families needing to covert it into a third bedroom. And the giant cave holding your car, meanwhile, might alienate those not devouring Car and Driver.
"The more unique the improvement, the narrower the market, and the harder the property is to sell, which eventually impacts sales price," Brian Coester, CEO of Coester Appraisal Group, explains. "If a homeowner's upgrades produces unique results, those improvements could end up costing the borrowers thousands of dollars in lost time on market or even equity."
Over-Decorating the Interior
If you're really sold on the idea of a home office, your best bet is to keep it simple. Don't paint the walls red, hang ornate chandeliers from the ceiling or weld the desk to the floor. Similarly, refrain from selecting orange countertops or patterned wallpaper for your kitchen. And definitely refrain from installing wood paneling.
"Paneling was great back in the '60s, '70s, or even '80s. Now, people are into clean exteriors," Reggie Marston, president of Residential Equity Management Home Inspections, says. He points out that you would probably have to undo all of the personal touches you added before putting your home up for sale, which could be costly and time-consuming.
"Homes for sale should look fairly neutral so the buyer can picture his or her family living there," Millians-Roche says. "If a seller redecorates to his/her taste and it is 'bold' or unique, it will definitely take away from the house."
Even those intent on living in their home forever need to make sure their upgrades are installed legally. Many major renovations require permits from your state due to the safety risks involved. Marston recommends contacting your local Building Inspections Department before completing any major renovations to ensure proper permits are obtained and you understand the safety codes thoroughly.
"Chances are illegal improvements will be flagged by a buyer's home inspector or appraiser," Cleaver says. "Then you not only pay municipal fines to get after-the-fact permits and inspections, but you've destroyed the trust your buyer has in the house -- and in anything you say about the house."
DIY Structural or Electrical Repairs
Similarly, if a project requires a professional, get a professional. And this is not only because you'll have to fix substandard work if your house ever goes on sale. Marston cites instances where shoddy do-it-yourself decks have fallen off of houses, resulting in injury or sometimes even death. Faulty electrical wiring or poor structural repairs can be just as deadly.
"Poor construction can harm the homeowner and their neighbors if, for example, a house was to catch fire," Florida contractor Kia Ricchi says. "Construction should be done by licensed and insured professionals."
Fiddling with the Floor Plan
Generally speaking, walls that are up should stay there. Railroad-style rooms you have to walk through to get to another room as well as long extended additions are prime examples of poor layout planning, says Benuska.
In line with this mode of thinking, don't add walls where there currently are none. Don't attempt to change a one-bedroom into two with a divider, either. Homebuyers will be turned off by a bedroom that's more like a crawl space.
"Original architects and builders usually had a good sense of how a floor plan should work," Benuska says. "Trying to make a house into something it was never meant to be can be a problem. Additions should be appropriate to the overall scale of the house."
Forgetting the Amenities
California real estate broker Susan Anderson once asked a client to remodel his condo prior to placing it on the market. He put in a lovely gallery-style kitchen, but there was one minor flaw: He didn't install an oven. Instead, the client opted for a small convection microwave that would meet his unique dining needs. In the oven's place, he added custom cabinets for show. But if buyers fixed the problem, they would have had to renovate the kitchen entirely. And of course, this condo never could sell. The moral? "When remodeling, make sure you include the minimum standards the average person would expect to find," Anderson says.
Granite countertops aren't the problem. It's just most of your neighbors probably don't have them. You could shell out thousands of dollars only to never see any return.
"If you took a home you purchased for $300,000 and added $150,000 in improvements, you would like to make back what you paid for the home plus improvements ($450,000), but the market in your area may only be around $350,00 for the same size home," Patrick Liska, owner of KBM Remodeling Consultants, explains.
If marble floors haven't caught on in your neighborhood, you might want to refrain from installing those as well.
Home improvements should be in tune with your neighborhood, but they also need to fit the style of your own abode as well. For example, if you own a ranch house, don't install an ornate iron doorway trimmed with gold leafing. Combining two discordant styles is what Marston calls "muddling," and it may make prospective buyers pass on your listing.
"Never make upgrades just for bragging rights," Cleaver says, referring to those coveted granite countertops. "If [they] make the rest of the kitchen look tired and shabby, better spend the money on new appliances that add flash and functionality."
So what type of renovations are actually worth your money? Angie's List recommends a proper remodel of a kitchen or a bathroom, which costs around $20,000. It will net you an 85% and 84% return on the investment, respectively, thereby increasing the value of your home.
Beyond that, decks are favorably received projects that recoup about 80% of the money you spent. And you can never go wrong with adding safety features, such as new, energy efficient windows or upgraded exterior siding, to your home. Those projects also have, on average, an 80% investment return.