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| The Basics | 3 simple ways to increase your home's value
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Think like a potential buyer and your mission becomes clear, an expert renovator says. That means fixing what can be seen (or, ugh, smelled) first.
By Bankrate.com
The single most cost-effective investment you can make to increase the value of your home is to buy a roll or two of plastic trash bags. Stuff them with junk outside the house -- from beer cans to raked leaves.
Nothing could be more common-sense than cleaning up the yard and exterior, right?
"You'd be surprised at how many people don't recognize the importance of doing these kinds of items," says Steve Berges, a real estate investor in Michigan who buys dilapidated houses, fixes them up and sells them for a profit. His advice: When renovating a house or preparing it for sale, spend money on things a buyer can see.
Any successful investor is adept at spotting hidden value, buying low and selling high. That's what Berges does when he scouts properties, generally houses 20 to 70 years old. "One of the things that we like when we drive up to a house is what we refer to as high 'Yikes!' appeal," he says. He defines "yikes appeal" as the state of a house in which a normal person would drive up, say, "Yikes!" and keep on driving.
What a 'Yikes' house looks like
A house with high "Yikes!" appeal has weeds, a boat parked in the front yard and an old car transmission on the side of the house, nested amid beer cans. A rain gutter hangs down. Overgrown shrubs obscure the front windows, creating a dreary interior. People actually try to sell their homes in such condition, creating opportunities for bargain-hunters.
Working the other side of the equation, Berges has written a book called "101 Cost-Effective Ways to Increase the Value of Your Home."
The book lists various kinds of exterior and interior improvements (improving the porch, replacing kitchen cabinets) and ranks each project's "impact value." A one-star impact value means the project won't add to the home's value and might actually lower it; a five-star impact value means the project could potentially add $1.50 or more to the home's price for every dollar spent.
A lot of money is at stake. Homeowners spent $166 billion on home remodeling in 2001, according to the Harvard Joint Center for Housing Studies. More than three-quarters of that was spent on what the Joint Center calls improvements, with the rest going to maintenance and repairs. Another $48 billion was spent on the remodeling of rental properties. Researchers credit the $214 billion in remodeling for preventing the economy from dropping further into recession in 2001. More money was spent on remodeling than on clothing that year.
Researchers discovered that 6.3% of remodelers spent more than $20,000 on improvements in 2000-2001 and 2.7% spent more than $35,000. Much of that was targeted toward fixing up kitchens and bathrooms.
Protect, improve, appreciate
"Families that spent more on home improvements also realize the greatest rates of price appreciation," the Harvard study said. "In many regions of the country, homeowners recover as much as 80% to 90% of the cost of home improvements in the form of higher home values. Little wonder, then, that homeowners spent almost $2,300 on average in 2001 to help protect and improve their most important financial asset."
If you're getting ready to sell a house, you want to be among the homeowners who recover 80% or more of their investments in the form of a higher price. Berges says the key is thinking like a buyer. And what do buyers do? They drive up to a house and look at it. If they're not repelled by what they see, they step inside and look around.
Based on that typical experience, Berges formulated the following guidelines:- Spend money on what can be seen vs. what can't be seen.
- Fix up the exterior first, then the interior.
- Focus first on what Berges calls the "Yikes!" appeal -- clutter, trash and bad smells that drive down a home's value.
"Visibility adds value," Berges says. "The improvements that are most visible are the things you need to focus on."
What you see is what pays off
This means that, if you have $10,000 to spend, and you can either spend it all on a new roof or all on repairing a cracked foundation (but you can't do both), you should replace the roof because it can be seen. Whatever your budget, put a higher priority on improvements that can be easily seen, because those give you the best bang for the buck.
"People expect the foundation, plumbing and wiring to work," Berges says. "If they don't, they detract from value. But fixing them to bring them up to code doesn't necessarily add value."
Because an unkempt yard and ugly exterior can cause prospective buyers to drive away without going inside the house, you should work on those first. Clear up clutter. If you want to, hire day laborers to remove that old engine block in the driveway and reattach that rain gutter that fell two years ago and has been lying by the side of the house ever since. Then concentrate on landscaping. Prune hedges, trees and shrubs, especially if they obscure the front of the house. Paint. If the roof is dirty, hire someone to power wash it.
From the curb, "the roof takes up 30% of what you see," Berges says. "If you have a nice-looking roof, that goes a long way in curb appeal for the house."
Cut clutter, clean
Maybe you notice that Berges isn't recommending that you break the bank -- just that you spend a little time and money to make the place look better. You should do the same inside the house -- reduce clutter and clean everything. If you own a pet, invite a non-pet owner inside the house to sniff around. You might be inured to the smell of your Weimaraner's urine, but the stench could make a buyer retch.
When Berges buys a house that he intends to fix up quickly and sell, he almost always has the interior repainted wall-to-wall and has the carpets and vinyl flooring replaced. Once, when he and his wife sold their own home, they didn't replace the carpets and they regretted it.
"We thought that by offering a flooring allowance, a family could move in and select their own flooring," he writes. But he discovered that buyers don't want to select their own flooring. He already had bought a house and didn't want to be stuck with two mortgage payments, so he unloaded the old house quickly, for $10,000 less than he thought it was worth.
Deal with the hassle, keep the profit
"For half that amount we could have replaced all of the flooring and sold the house for its market value," he ruefully writes. "People don't want to fool around with painting and replacing carpet and fixing the house up. In the world of fast food and instant gratification, people just want to buy a house and move in."
Berges's book is geared toward middle-class homeowners. On the upper end, buyers expect well-kept yards and painted walls, of course, but they often yearn for amenities that middle-class people might not expect. For example, one of the hot trends in the Hamptons on Long Island, says architect Marcia Previti of Gillis Previti Architects, is for two dishwashers in the kitchen. "You might reserve one for glassware and one for pots and big dishes," she says.
Adding a second dishwasher might be a sound investment in the Hamptons or in Beverly Hills, but it would be a waste of money in Toledo or Peoria. Berges's final piece of advice is to keep up with the Joneses, but "you don't want to overimprove."
Berges lives in a neighborhood of concrete driveways. A neighbor recently spent $28,000 replacing a concrete driveway with brick pavers. In a high-end neighborhood, that would be a cost-effective use of money, but Berges's neighbor won't come close to recouping the cost of installing the beautiful driveway.
When you're trying to decide how to spend remodeling money, Berges recommends seeking the advice of an experienced real estate agent who is familiar with your neighborhood. A licensed appraiser should be able to provide guidance, too.
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