Real estate may be considered a long-term investment, but you should be keeping track of your home's short-term value just as you would the rest of your portfolio.
With foreclosures reaching an all-time record in the third quarter, the housing market has been flooded with the highest number of single family homes up for sale since 1988. That glut, in combination with the ongoing credit crunch, helped to strip 5.7% off the value of the average U.S. home last year, according to Zillow.com, an online real estate service. Values could continue to dive well into 2008.
Even if you're not planning to sell your home anytime soon, you should be concerned about falling home prices. An estimate of your home's current value is a must for assessing homeowners insurance and property tax, as well as for planning your estate. It's also an important factor in figuring out which remodeling projects you should embark on now in order to get a bigger payoff in the long run.
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If you seek to boost the value of your abode, make sure you don't overdo it. Now is not the time to dip into your home's equity or rack up credit-card debt to fund pricey remodeling projects.
Instead, choose projects that offer the most bang for the buck. Here are five ways to beef up your home's value without embarking on a costly and massive renovation.
Keep up with the Joneses. Find another outlet to express your individuality. To get the most money out of your home, you need to be in lockstep with your neighbors. "You don't want the biggest house on the block, or the nicest," says Sid Davis, author of "Home Makeovers That Sell." If most of the other homes on your block have laminate kitchen countertops and you splurge for granite, it's unlikely you'll get that money back in added value. Nor does it pay to be nonconformist. If all your neighbors' homes have designer kitchens, buyers will see replacing your olive green '70s-era refrigerator and oven as one more line on their tab.
Go green. Projects that improve energy efficiency offer some of the best returns, says Vena Jones-Cox, past president of the National Real Estate Investors Association. You'll reap immediate savings in the form of lower energy bills. And when you're ready to sell, rest assured that these upgrades will catch cost-conscious buyers' eyes. "If you look at what features real-estate agents are pushing, it's 'new furnace,' 'new windows,' 'new roof,'" she says. Swap out 10 old windows with insulated wood replacements, for example, and you could expect to recoup 81% of the project's $11,384 cost, according to Remodeling magazine's 2007 Cost vs. Value Report. In comparison, spending $69,817 to add a sunroom returns just 59%.
Gossip. Nearly 80% of consumers now start their search for real estate online, according to the National Association of Realtors. Considering that so much of a home's value is desirability (i.e., how close your house is to the best schools or how safe the neighborhood is) it can't hurt to do some cyber-boasting about your area's best features, says Diane Saatchi, senior vice president for Corcoran Group, a New York-based real estate broker. StreetAdvisor.com lets homeowners rate everything from sidewalk cleanliness and noise to cellphone reception and neighborly spirit. YourStreet.com users can post local news stories and debate each other about the best local pizza joints or dry cleaners.
Clean house. Aim to complete several small upkeep projects each year, like weather-stripping entryways, re-plastering a cracked facade or securing a loose floorboard. Although these problems are simple and inexpensive to fix, left untouched, they can cumulatively spell big trouble at sale time, cautions Saatchi. Buyers expect a $2 discount for every dollar of damage discovered during a home inspection, according to home inspection service HouseMaster. "People are very mindful of things that add to the cost of the house," she says. "Better you think about that first and can correct it before you put the house up for sale."
Exercise contractor caution. With fewer new homes being built, more contractors are looking for work. The good news: As contractors scramble for your business, bids will be more competitive, says Jones-Cox. You may also be able to negotiate a smaller upfront payment. The bad news: You'll need to be more vigilant about picking the best contractor for the job. "Contractors are starving for work," she says. "They may tell you they can do jobs they don't have the skills to do." Check that your would-be contractor has the appropriate licenses with your town building department, and that there are no outstanding complaints with the Better Business Bureau. Also, ask the contractor for a list of former customers for whom they've completed similar jobs, and follow up with each.
Gauging Your Home's Value
Homeowners curious about the value of their property (and that of their neighbors) can benefit from a slew of new real estate web sites geared toward house hunters. Just type in your address and these free programs gauge a home's worth using complex algorithms that incorporate sales data culled from local records:
Zillow: Refine the site's already detailed estimate by adding details of your home — number of bedrooms, total square feet, etc. Historical charts track a given property's value over time, while maps reveal the estimates for neighbors' homes. Could you be tempted to move if just the right offer came along? Set a price with the "Make Me Move" feature.
Eppraisal: This site provides not one but three estimates — low, mid and high — to capture current market trends. See how your home stacks up against comparable properties, and against the area at large.
HomeGain: The estimates are bare-bones, but you can send questions to a local real-estate agent for a more in-depth assessment. Charts show recent selling prices for comparable homes, as well as those nearby.
Yahoo! Real Estate: One-stop shopping site aggregates data from partners Zillow and Eppraisal. Check out comparable homes for sale, or eyeball prices of those recently sold.
To get an even more accurate assessment, follow up with a local real estate agent for a complimentary evaluation. Agents can give you a bit more detail than appraisal web sites, says Jones-Cox. They can, for example, point out whether the nearest comparable house went for a low price due to a poor local market, the owners' questionable taste in lime green carpeting or a pricey structure flaw turned up during inspection.