March 16, 2003



Which Renovations Bring Returns Today?

By Jane J. Kim

From Dow Jones Newswires

March 17, 2004 -- Fireplaces are hot; home offices are not.

It's long been known that when it comes to renovating your home, it isn't how much you spend. It's how you spend it. Bathrooms and swimming pools have always added value, but some other home improvements are more susceptible to fading in and out of fashion.

A study sponsored by the National Association of Realtors analyzed the effect of various housing characteristics on residential property values these days, shedding light on what renovations have integral value and what kind of housing styles are gaining or losing popularity. These days, homeowners are willing to pay more for homes with central air conditioning and fireplaces and are placing less value on square footage (although people still value lot size as much as they did in the mid-1990s), the study found. Home buyers also are placing more value on eat-in kitchens and utility rooms while placing less importance on having a dining room, a den or a study.

There are certain projects that you may not want to waste your time on since they typically have little effect on a home's value. Intercom systems, kitchen pantries and above-ground swimming pools added little value, for example. (Although an in-ground pool adds about 8%.)

Certain attributes actually detract from a home's value. A home office or an in-law suite lopped off about 5% from the homes' prices, although less than 2% of the homes in the sample had either type of room.

"It could be that people don't see this as an efficient use of space because they don't need it," said G. Stacy Sirmans, a Florida State University professor who conducted the study, along with colleague David Macpherson.

Which Renovations Bring Returns Today? - Continued

The property's style is likely to have an effect on selling price. Contemporary and Dutch-style houses command the highest prices while Victorian-style homes cut 5.8% from the selling price. Houses with stucco and wood exteriors sell for about 9% more, while those with vinyl and aluminum exteriors sell for about 4% less.

Price differences for houses that are on flat lots compared with sloping lots are negligible. But be sure you have a laundry facility because homes without one sold for about 15% less. But it's bad news if it is in the basement.

The study was based on data from 28,828 home sales across 21 counties in the Philadelphia area from 1996 to 2003. The average home sold for about $213,335, had 3.5 bedrooms and 1.8 full baths and was on the market for 72 days, according to the study. The study also found that the best time to sell your home is in the fall.

Although the impact will vary from region to region, the data give homeowners a "starting point" for determining whether they would want to undertake a certain renovation project over another, said Paul Bishop, research economist at the National Association of Realtors.

Before diving into a home-improvement project, you should contact a local appraiser or real-estate agent to find out how a particular renovation project will affect the value of your home in the region where you live, he said.

If there's any renovation project you undertake this year, adding a new bath is likely to give you the most bang for your buck. The study found that each full bath added about 24% to the selling price. Each additional bedroom added about 4% to the price while each additional 1,000 square feet of living space increased the selling price by about 3.3%. Central air conditioning, basements and fireplaces all consistently added value.

And unless you have a home that is more than 100 years old, an older house typically had a negative effect on prices, having the greatest impact on houses 21 to 30 years old.

Last year (2003), homeowners spent a record $130.4 billion on home improvements, up 7.3% from 2002, according to the Joint Center for Housing Studies at Harvard University. As the economy continues to improve, that number is likely to climb even higher, experts said.

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