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Does Remodeling Boost Your Market Value?

Before you drop $25,000 for a major remodeling or renovation job, it certainly helps to know if that investment will pay off when you sell your home. Will it add $25,000 to the resale value of your home, or just make life more comfortable (or expensive)? It's important information but don't rely on remodeling industry statistics to provide it, says Kenneth Harney in The Nation's Housing.

Remodeling Magazine publishes the annual "Cost vs. Value Report," a nationwide survey that measures the possible return on investment for various remodeling projects when it comes time to sell. It takes a look at 60 regional real estate markets and 12 types of remodeling projects ranging from kitchen and bath renovations to windows and siding. Through a survey of real estate professionals, the report tries to measure how much and how fast the expenditure will add to a home's resale value.

But the results obtained from these surveys is highly variable, extremely suspect and fraught with potential conflicts of interest, says Harney. Some of the results don't make sense from a state or regional perspective, either. In the 1998 study, for example, a $10,000 kitchen renovation returns 45 percent of its value in Hartford, Connecticut. That same renovation, however, returns a whopping 125 percent in New Haven. The margin of error might have something to do with the methodology, says Harney, which isn't backed by actual sales transactions or appraisals. Similar discrepancies show up in nearly every state and region.

Professional appraisers suggest looking at some basic factors in determining how much money you'll get back from a remodeling expenditure:

1 - Consider Neighborhood Norms.
Compare your home to similar homes in the neighborhood, and apply common sense to the decision. For example, if your home has only one bathroom while most homes have two or more, then it might make sense to install one. But don't go all out on a luxury, $40,000 master bath with sauna. Maybe a half-bathroom will suffice.

2 - Expensive Isn't Always Better.
Sometimes the cheapest renovations offer the highest returns. Exterior paint and landscaping improvements can add considerable "curb appeal," boosting your home's salability. Basement rec rooms or swimming pools, on the other hand, tend to be losers.

3 - What's the Demand?
Always look at your area and the real estate market's relative strength. If homes are consistently selling like hotcakes, then chances are people will pay for your remodeling improvements. Also make sure you get your neighbors' opinions and possibly a professional real estate appraiser's assessment of your particular plan.