Beauty is in the eye of the beholder but when it comes to a home appraisal some renovations are going to add value while others can be a waste of money, particularly if you are aiming to boost the value to refinance your mortgage or get a home equity line of credit.
Most homeowners think installing granite countertops, putting in a new pool and even fencing in the entire property will increase the value. But whether or not it will depends on the market they are in.
“A fence may not create additional value in a lot of markets but in other markets a privacy fence may be essential,” says Ken Wilson, president of the Appraisal Institute, the professional association. “No matter what the improvement is it's incumbent on you to know what the market is all about.”
Unless you are a real estate agent, knowing what improvements are going to boost the house’s worth and what isn’t won’t be easy. One way to do it, says Wilson, is to visit open houses in your neighborhood to get a sense not only of prices but what houses at different values have inside. For instance, do the pricier homes have granite countertops and hardwood floors or do the homes that are selling have laminate countertops. Another way is to talk to a local real estate agent or to hire an appraiser to get an idea of what a specific project is going to cost you. Wilson says an appraiser is going to charge you anywhere from $300 to $500 but if you are considering a several thousand dollar upgrade it may be worth it.
While the market dictates the value of home improvements, Wilson says it can be misleading in some instances. Take swimming pools. According to Wilson pools typically don’t get you much of a return as well as home additions that boost your square footage beyond the norm of your neighborhood. “Even in markets where it’s prevalent and expected you don’t get a dollar for dollar return (on a swimming pool),” says Wilson. “In some markets it’s a determent and can lower the value.” Wilson says ultimately you want to avoid being the best or worst house on the block. Leah Ingram, HomeAdvisor's personal finance expert notes that any renovations that put your home’s value above the median list price for your area will make it tough to get your return on investment.
According to experts, homeowners who are doing upgrades with the sole purpose of boosting their home value often make common mistakes. For one thing, Ingram says projects that are too hidden aren’t going to deliver as much value as home improvement projects that are obvious. Yes, a new furnace may be a necessity but that doesn’t mean it’s going to give you a value boost. Same with projects that are too taste specific or are too complex and large. “Entire room remodels are very costly and can be time consuming and won’t necessarily have a higher ROI,” says Ingram. “Selecting a few small projects can make a big difference.”
Experts say it’s better to stick with small projects. But which ones can make a big impact? According to Ingram, updating kitchen appliances to energy efficient ones or upgrading the cabinets or countertops are going to give you a better return on your investment than gutting the entire kitchen. Swapping out old appliances with stainless steel ones can make your kitchen look more modern which will ultimately increase your home’s value. Even changing the hardware on cabinet doors can modernize the space. Another small project than can get you a big bang for your bucks is upgrading your bathroom with a new shower or bathtub, says Ingram. “These projects make a big difference and add a fresh look without costing the homeowner a fortune,” says Ingram. “Real estate agents will tell you that, frequently, it is the kitchen and bathrooms that sell a home. So if your budget is limiting, focus your efforts and your dollars in these rooms only.”