DEAR BERNICE: We’re planning on remodeling our two-bedroom, one-bath house and were wondering what upgrades will produce the best return on our investment. The house needs a new kitchen, and another bedroom and bath. We also thought of putting in a pool. Where should we begin? –Andy K.
DEAR ANDY: A common misconception about upgrades is that they always increase the value of the property. Upgrades normally make a house more saleable (i.e. easier to sell.) They don’t necessarily increase the property value. For example, assume that you upgrade your property with cherry cabinets and green granite countertops. You sell the home to someone who wants white European cabinets and black countertops. Your upgrades made your home more attractive to more buyers, but in this case, the upgrades are not worth much if the buyer intends to tear them out. When deciding what to upgrade, the smart decision is to upgrade your home for your own enjoyment.
You will obtain the biggest return from your investment if you add the extra bedroom and bath. Increasing bedroom and bath count is one of the smartest ways to increase property value. It also makes your property more appealing to a wider variety of buyers.
As a rule of thumb, increasing square footage increases value. There are some exceptions, however. For example, if most of the homes in your area are 2,000 to 3,000 square feet and you do an addition that makes your home 4,500 square feet, chances are you have over-improved the property. This means that your property is worth less than 4,500-square-foot houses that are surrounded by houses of similar size. The smaller homes in your immediate vicinity would drag your value down.
In terms of return on investment, pools are tricky. Do most of the homes in the area have pools? If so, adding a pool would make your property more comparable to the other homes in the area. On the other hand, many people don’t want the upkeep or risks associated with having a pool. Others may prefer to have a nice backyard where they can create the perfect garden.
Be sure to protect yourself by carefully investigating any contractors prior to hiring them. Does the contractor hold the appropriate licenses to do work in your city? Use Google to search the contractor’s name and company. Also search sites such as Yelp. Ask for references and contact them. If possible, go see the contractor’s work firsthand. Finally, it’s also smart to obtain at least three bids. If a bid is too good to be true, be wary.
If you’re feeling confused (which is what I felt when we were facing a major remodel on one of our houses), you may want to explore a company such as ServiceMagic.com. They screen contractors prior to adding them to their database. You can read reviews as well as obtain estimates. After reviewing bids from four ServiceMagic general contractors, we chose one who did an outstanding job on our remodel. Again, no matter whom you interview, carefully investigate their reputation and their work before giving them a deposit. …CONTINUED
DEAR BERNICE: We were under contract to sell our house to a buyer who hired the pickiest inspector in town. The inspector noted every crack, said the roof needed to be replaced (even though the roof is guaranteed for 20 years and is only 5 years old), and made our house sound as if it is falling apart. The buyers decided to cancel the deal. Now our agent says that we have to disclose the report to future buyers. Is that really necessary? –Donna P.
DEAR DONNA: Disclosure laws vary from state to state. It’s a pretty safe bet, however, that any items noted on the inspection report do need to be disclosed to future buyers. In your case, it’s troubling that the inspector said that there is a roof problem. It would be smart to have a roofer (not the one who installed the roof originally) inspect the roof for problems that may have resulted from improper installation.
For example, one of our neighbors had to replace their entire roof even though the property was less than a year old. If the inspection reveals that there is a problem, you can go back to the company that installed the roof originally and have it repaired under warranty. If there is not a problem with the roof, obtain a written report from the roofer that shows that the roof is in good repair. You can then give the buyer both reports and recommend that the buyer obtain their own inspection.
Sellers are often reluctant to disclose problems with their property. My experience has been that people will buy almost any property provided the issues with it are disclosed upfront. In terms of the other items that the inspector noted, if the repairs are easy to do, it would make sense to complete them. If you don’t have the time or the budget to do so, another alternative is to offer future buyers a credit for the estimated cost of repairs.
Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, trainer and author of "Real Estate Dough: Your Recipe for Real Estate Success" and other books. You can reach her at Bernice@RealEstateCoach.com.
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