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Forum topic by smboudreaux posted 08-31-2011 11:44 PM 857 views 0 times favorited 20 replies Add to Favorites Watch
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smboudreaux

48 posts in 1312 days


08-31-2011 11:44 PM

My wife and i purchased a spec house back in 06 as our first starter home. Very nicely trimmed for our budget at the time but nothing spectacular. well as things have it i’m getting the itch to remodel the kitchen and baths with all new cabinets, counter tops, floors and appliances. after watching to many diy network shows where couple spend 20k on a makeover and add 35k of value to a 250k house i talked to a real estate friend of mine about this whole situation and what i could look to recoup. what he told was shocking to me. long story short he said dropping 20k on a kitchen potentially may not and any value to my house. he said the resale value of the home is based on what other homes in the same area of the same have sold for. This ticked me of quite a bit considering i have dropped over 40k on my shop, fencing and landscaping anticipating to see at least some return on my investment. can anyone shed some light on this? first hand experience possibly?


20 replies so far

View Gene Howe's profile

Gene Howe

6034 posts in 2173 days


#1 posted 09-01-2011 12:39 AM

we’ve always done remodels and upgrades with our comfort and pleasure in mind, with no eye to any monetary gain.
Your friend is correct to a point. If the homes in your area are larger and more expensive than yours, you are in good shape and can upgrade with some confidence of a modest return.

-- Gene 'The true soldier fights not because he hates what is in front of him, but because he loves what is behind him.' G. K. Chesterton

View crank49's profile

crank49

3506 posts in 1716 days


#2 posted 09-01-2011 12:49 AM

The appraised value of a house is BASED on appraised value of similar, nearby properties; true.

Some things don’t always add value to a house; a swiming pool, workshop are a couple that don’t.

Some things usually DO add value to a house; kitchen and bathroom update are a couple that do.

The numbers I have seen indicate you should never spend more than 10% – 15% of house value on a kitchen remodel or update if you plan to recover your investment.

Your updates need to be in line with what other homes in the area have. For example, granite countertops will not add value if every house in the area has laminate.

-- Michael :-{| “If you tell a big enough lie and tell it frequently enough, it will be believed.” ― A H

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derosa

1557 posts in 1580 days


#3 posted 09-01-2011 01:37 AM

As others have said, it varies a lot. My parents home is lakefront and way better then any of the surrounding neighbors who are all just far away enough to not overly effect the value. Someone with money will pay lots more for the nicest looking house with the best upgrades on lakefront. For my house in the city, some minor upgrades are all that is needed to see to it that my house will continue to be one of the most valuable on the street. Even tearing down the house and building all new one would probably only get me 90k instead of 80k since mine is already at the top of what is a low value marketplace.

-- --Rev. Russ in NY-- A posse ad esse

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a1Jim

112818 posts in 2322 days


#4 posted 09-01-2011 01:49 AM

Having been a Realtor,a contractor and investor of real estate , I feel that a lot of the old rules for adding value to our homes are no longer in effect given the present day market conditions so I’m afraid your friend is correct. Home prices in most areas have declined sharply and many have lost 50% of there value. I have always felt that a homes improvement should please the people who live in the home first and then look to the homes value, of course we all have to make improvements that make sense for our own economic situation.

-- http://artisticwoodstudio.com Custom furniture

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ShaneA

5446 posts in 1343 days


#5 posted 09-01-2011 02:14 AM

The realtor is looking out for you. Maybe even doing you a favor. Investing into what is generally considered a declining housing market may be tricky at best. You would no doubt improve the marketability of the home. You would no doubt get enjoyment out of it. However, improving the bottom line or returning a significant amount on your investment may or may not happen. The value of your home is in comparable sales as stated above. But moreover, the value would be defined as what someone will payfor it. If you were looking to buy a new home. Had a choice between two identical homes, except a more updated kichen or bath in one, would you be prepared to pay full retail, as a buyer for the updated one? Probably updated with choices you didnt or would not have made. It can be tough. At this point any dollar I invest in my home is a dollar out the window. All markets vary. That is where trusted realtors come in.

View David Grimes's profile

David Grimes

2072 posts in 1384 days


#6 posted 09-01-2011 02:22 AM

A1Jim is EXACTLY right. I rarely hear the word resale any more, yet remodeling is quite active. My customers are primarily making decisions for THEMSELVES, but with a nod to not making a MISTAKE for later resale.

A good example: two very recent customers would have preferred to get rid of all the tubs in the house, but rightly were afraid it would be a detractor (big negative… maybe even a show stopper). In both, a second full bath is now an Americast tub with a full tile hop-up with niche and double curve liner/curtain rod. Both the Masters are now tub-less, but you should see the door-less walk-in showers with all the bells and whistles (shelved niche, bench, rainhead and big gooseneck, handheld with diverter, body spray, separate temp mix and pressure, listello and decos, etc.)

These days, the appraisal might not reflect the true market value for your home (that will NOT be determined until somebody pays you for your house), three things to keep in mind:

If you let your house run down or even just get “dated”, then its sale price WILL BE LESS (if it sells at all). Even if you take care of it immaculately, the fake butcher block laminate, the stove with the mechanical push buttons, analog clock and coil burners will be viewed by the potential owners as negatives that they will have to replace immediately (not to mention the black hammered iron hardware and red velvet Spanish theme you got going on in 1973). Elvis is dead and Graceland is a dump, okay ?

There is much to be said for quality of life (value added) in what you do to your home FOR YOU while you live there. If you don’t get a pool or a shop or new kitchen just because of the return percentage, then all the years of enjoyment to your life from those things will not be. How do you price that ?

The upgrades or updates may just be what sells your house at all. Kitchen and bathrooms sell houses, but just let the garage and the painting and flooring go to hell ! Then all the granite and stainless appliances in the world won’t get you top dollar. It ALL has to be at least acceptable, THEN the right upgrades make it an attractive package (both to live in AND to sell someday).

Okay…I’m done. ;=)

-- If you're going to stir the pot, think BIG spoon or SMALL boat paddle. David Grimes, Georgia

View Lissajous's profile

Lissajous

12 posts in 1248 days


#7 posted 09-01-2011 02:31 AM

Any experienced investment pro will tell you that a home should be treated as an expense. Homes don’t satisfy any of the normal criteria for a good investment – liquidity, diversification, security of principal. If you want to invest in Real Estate buy a REIT fund or ETF.

As far as upgrades, the odds that the tastes of prospective buyers will be the same as yours are not that great. There is a good chance that they will look at your kitchen and say that they hate it and will have to remodel before moving in. When I bought my current home I ended up with a beat up place because none of the nice homes available suited my tastes, so why buy something nice for more money and then have to rip out the guts? It didn’t make sense.

It’s just a matter of chance on how it will go down.

View sandhill's profile

sandhill

2128 posts in 2669 days


#8 posted 09-01-2011 04:15 AM

ALL the old rules and theories no longer apply to real estate investing as a money making endeavor. Been there done that! I have bought and sold or flipped 5 houses and got out of it in 2003 bought a house in 2005 for 200K put 60K into it and right now it has a value of under 60K. It turns out the house is 550 square feet less than was reported in the original appraisal I spoke to 2 lawyers even had a case going on for 7 months and the bottom line is both said “Your Screwed” luckily I love where I am and love the house I have. I am 60 feet from the water and enjoy seeing dolphins and manatees travel up and down the river to the Gulf of Mexico I can Kayak right from my back yard. I guess we will pass it onto our kids to enjoy as a vacation home or for rental income. Lissajous hit the nail on the head a home is a home and not an investment to make money on. If your investing buy a house your not going to live in and sell it high or rent it or both.

I like REIT’s A LOT! In fact I LOVE, LOVE LOVE them I am long on two and roll the dividends back in. I have been holding them for 2 years now and enjoy a 18% return year over year so if you want to invest in real estate buy a REIT but do your home work and know how they work. A word of caution when interest rates go up they can loose value fast, there is a rumor going around about a nation wide refinance program, this could hurt all REIT’s that do gov’t backed mortgages so you may want to look into other types.

View sandhill's profile

sandhill

2128 posts in 2669 days


#9 posted 09-01-2011 05:14 AM

landog – I think the point we were trying to make is don’t buy a house just for the investment aspect. Right now in my area you can get a house that was 500K or 600K in 2006 for 150K put 20K or 30K into it and flip it for a 60 – 100K profit the only catch is you have to live in it for one year. In Oklahoma what was 150K in 2007 is now 220K so your right about that.

View David Grimes's profile

David Grimes

2072 posts in 1384 days


#10 posted 09-01-2011 05:17 AM

Only since 2007 has housing been a questionable investment, so the “experienced investment pro” doesn’t have to be any older than 25 to pass on that “wisdom”.

As for tastes not being the same, I guess that depends on locale, too. I can nail 80-90 percent of clients’ wants very quickly and then filter that through through the “budget” and “custom design but tastefully neutral” filters to arrive at solutions that fit the job. Rarely does something get done that would be downright objectionable to a near-to-mid-future buyer.

Some things go and never some back (avacado and burnt orange appliances). I believe stainless will stay popular forever in commercial and high-end kitchens… and therefore never really go OUT of style for lesser ones.

Bright brass has been out. Antique brass will return before polished brass does. Locksets and door hinges aplenty for the dumpster in both of the brasses. Brushed nickel, brushed stainless, pewter and the bronzes (oil-rubbed and venetian) will be with us for awhile in lighting and hardware. Matte black hardware and black as an accent color are really strong (and don’t get old and boring because they aren’t a color. They all co-exist pretty well. All my interior doors are ordered with dull chrome hinges to get away from the brass.

Copper has long been a niche finish and style that if tastefully done has and will pass the test of time. It’s like claw foot tubs… they can be placed and fitted for a forever cool look… or they can look like some funky afterthought.

Maybe your builders suck where you live. ;=)

-- If you're going to stir the pot, think BIG spoon or SMALL boat paddle. David Grimes, Georgia

View Sarit's profile

Sarit

494 posts in 1884 days


#11 posted 09-01-2011 06:06 AM

A remodel that gets you the most ROI is usually not a remodel that you want to live with. It is usually “lipstick and mascara”. Its basically filling your house with the cheapest things that look expensive, not upgrading any wiring/plumbing/insulation/venting/structural support and hoping nobody notices.
On top of this, let’s say you want to do the reno now, but don’t expect to sell for 10yrs, then whatever you install today is gonna be a bit worn and feel dated by then and you won’t get top dollar anymore.

Don’t get too excited over the DIY shows out there. They usually start with properties that really need that renovation so of course when the reno is done and the appraisal is done they can realize the full value of the updates. When you reno an already “nice” property you have to remember that you’ve already paid for the previous owners/builder’s updates so you will only be able to realize the difference between their apparent values (regardless of how much you replace). For instance if you have what looks like a $15k kitchen, then you completely gut it and install what looks like a $25k kitchen, then your valuation only increases $10k. If you managed to spend only $10k to get the $25k look then you still only break even.

Like Lissajous said, treat your home as an expense. Do the renos that will make you happy while avoiding resale faux pas’. Don’t overextend yourself to get that dream kitchen because you think you’ll make that money back. If however you assume it to be a complete loss, then you could take the cost of the reno and divide it by how many months you plan to stay there and that would be how much “rent” you’re paying to have a nice kitchen. If you’re happy with that number, then whatever happens you won’t regret your kitchen (unless you sell earlier than expected).
As an expense, the projects I do on my house tend to be for minimizing expenses and maintenance rather than for value creation. For instance, I’ll be installing those gutter liners that keep leaves out. I probably won’t see a dime added to my appraisal but eliminating the need to clean gutters and minimizing water damage caused by malfunctioning gutters will pay for itself.

When you decide that you want to sell, that’s when you switch from ‘expense’ mode to ‘flip’ mode. Here is where you pull out all the lipstick and mascara to pretty up your place without actually spending much money. New paint, resurfacing cabinets, regrout the tiles, etc. If you can’t see it don’t pay for it and don’t replace anything (unless contractually obligated to). In a true flip you might have to replace a lot, but if you’ve been treating your home as an expense up to this point, nothing should need replacing now.

View David Grimes's profile

David Grimes

2072 posts in 1384 days


#12 posted 09-01-2011 06:40 AM

landog, When I was typing both your post and sandhill’s were not there, so it isn’t as obvious that I was responding to the lissajous post before those, especially:

Any experienced investment pro will tell you that a home should be treated as an expense. Homes don’t satisfy any of the normal criteria for a good investment – liquidity, diversification, security of principal. If you want to invest in Real Estate buy a REIT fund or ETF.

As far as upgrades, the odds that the tastes of prospective buyers will be the same as yours are not that great. There is a good chance that they will look at your kitchen and say that they hate it and will have to remodel before moving in. When I bought my current home I ended up with a beat up place because none of the nice homes available suited my tastes, so why buy something nice for more money and then have to rip out the guts? It didn’t make sense.

It’s just a matter of chance on how it will go down.

-- If you're going to stir the pot, think BIG spoon or SMALL boat paddle. David Grimes, Georgia

View a1Jim's profile

a1Jim

112818 posts in 2322 days


#13 posted 09-01-2011 06:45 AM

landdog just out of curiosity what area is it that you can still flip houses .

-- http://artisticwoodstudio.com Custom furniture

View smboudreaux's profile

smboudreaux

48 posts in 1312 days


#14 posted 09-01-2011 01:02 PM

i appreciate the insight fellas. the area i live in really hasn’t been affected by the country’s housing crisis. actually the house i paid 165 for in 06 appraised for 205 here recently, god bless the oilfield. the remodel will be done solely with our comfot and enjoyment in mind. i was just curios to see how it would affect the value of my home.

View dbray45's profile

dbray45

2616 posts in 1521 days


#15 posted 09-01-2011 03:57 PM

When I move out of my house, if it is when I retire, the current kitchen is coming out and going to our new house, it is installed so that would not be that difficult to do. I am putting $5000 into the budget for an IKEA set of counters and cabinets – just for that “new kitchen look.”

I built my kitchen from scratch to my wife’s requirements, everyday that goes by she tells me that these cabinets will be the temp cabinets while I make her a better set (new and improved) for the new house. Some things will stay, the plumbing that includes the foot pedals for one – but new will be installed in the new kitchen.

I have more upgrades than I will every get out of my house but as several realtors have said, “You won’t get the price you want but it will sell real fast!” – and that is a good thing!!!!

-- David in Damascus, MD

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