Should you invest in adding value to your home?

If you have lived in your home for more than five years, it has probably occurred to you that you are sitting on a good investment, since with a partially paid down mortgage and the (possible) increase in the value of your property – it may be a sizeable sum. This sum is called your equity.

Curb Appeal: Before and After

A lot has happened to property values in the past five years, with the mortgage crisis that began in 2008, the fallout of which is still echoing the halls of banking and lending offices even today. Today, banks are far more cautious in evaluating property, not only for sellers or those looking for equity loans – but even for buyers. This puts downward pressure on home values across North America.

The good news in urban centers, (like San Jose,) is that larger cities have a microcosmic economy where buyer demand still drives property values. And it is for that reason that you want to consider what types of things buyers look for most often when considering purchasing a property.

In most cases, the variables to consider for making a change to your property should be:
a) the cost, both in time and money
b) the expected return of your investment, in terms of resale and in your enjoyment of the change

Unsure where to start? Well, if you aren't actually attempting to flip your property, the best place to begin is where you wish to see the change. In other words, invest in your own sense of satisfaction. 

How do I know it will add value? The rule of thumb for updates usually means that the end result is:

  • spaces – less busy
  • colors – more neutral
  • fixtures – consistent with overall design
  • cost – kept relative to your neighborhood

We conducted a survey of many real estate sources and have come up with the 'standard' items that when updated correctly, can add significant value to your property:

Kitchen
It is usually the most expensive item to update, (since it usually means 4 brand new appliances to go with the change) so make sure this is something you are willing to commit to. The kitchen can make or break a sale in some markets, but if a home is priced properly, the new owners to be may already be visualizing the new kitchen they will be putting in.

Bathrooms
Costs of updating a bathroom can rival even a kitchen if it means replacing (or worse, relocating) the major articles in the bathroom, like the toilet, bath/shower and sink/vanity. Updating or adding bathrooms, especially master baths, will add considerable value to your house.

Basement
You could transform an empty basement into a media room or a bar room. But if the ceilings are low (below 6 feet), you may just want to put in basic flooring and give it a coat of paint. You will also want to be sure that your basement is waterproof before doing anything significant.

Landscaping
Many homeowners don't give much thought to their landscaping, but a good design can add significantly to your home's value — sometimes as much as a new kitchen or bath. Basically less is more. If you can remove pushes or hedges that obscure a lovely entrance or bay window – then maybe landcsaping means you are removing things. Even in flower gardens, having a nice weed-free space between each plant (possibly adding mulch for contrast) can make for a visual treat. Even painting your foundation (they are often simply parged concrete) can provide a dramatic backdrop for lawns or gardens. Darker earth tone colours are best. 

Painting
There are no right colors if you are painting for your own enjoyment, but if you are painting to sell, neutral colors are best. The current set of colors that is most appreciated, are the lighter earthy tones, like sage, taupe, lighter browns and pale beiges.

Adding a Deck
Have a roomy yard? A deck is a great idea and doesn't have to cost a fortune. Check your local hardware big-box store for plans that you can follow to save a lot of money. If you have a smaller yard, a nice patio may be the preferable option. Including things like a fire pit can make your back yard appear more inviting.

Adding a Sunroom
Sunrooms are often the difference between an uninsulated back porch and a charming 'addition'. Adding a couple windows make all the difference. If you have a larger budget, you may consider adding insulation and/or a fireplace to make it an all-season room.

Curb Appeal
The front of your house and your yard are the first thing buyers will see. Hide the toys, tools and shovels and keep things neat. Adding some nice bushes or shrubs to accent your updates is a low cost way to eenhance this first impression.

Home Office
With more people tele-working, home offices are becoming increasingly important to buyers. If you have a 4th bedroom, or room in the basement, this is a good idea. Using the third bedroom is ok, but since the strongest seller is the single family home – three bedroom is the minimum standard.

More Space and Light
In real estate, dark and cramped are no good, so a little light goes a long way. Look for places to add lamps or possibly opening up walls that aren't load-bearing to open up your space and bring in the natural light.

Sources

  1. 3 simple ways to increase your home's value. MSN Money. [http://moneycentral.msn.com/content/Banking/Homebuyingguide/P84657.asp]
  2. 8 Ways to Add Value to Your Home With Creative Landscaping. Articlesbase.com.[http://www.articlesbase.com/landscaping-articles/8-ways-to-add-value-to-your-home-with-creative-landscaping-433389.html]
  3. 20 Ways To Add Value To Your Home. Kitchener-Waterloo Homes.[http://www.kwhomeguide.com/20_ways_to_add_value_to_your_home]
  4. Add Value: A Home Office. BuyOwner.com.[http://buyowner.com/learning/blog_article.asp?id=80]
  5. More than Just Curb Appeal: Landscaping can add value during the sale of a home. Bowers, Paige, Realtor. (Dec. 13, 2011) [http://www.realtor.com/home-garden/gardening/garden-landscape-ideas/landscaping-adds-value-to-home.aspx?source=web]
  6. Driehorst, Michael. Basement remodeling adds functionality, value to a home. Toledo Free Press. June 25, 2009. (Dec. 13, 2011) [http://www.toledofreepress.com/2009/06/25/basement-remodeling-adds-functionality-value-to-a-home/]
  7. Painting Projects That Add Value To Your HomeFood and Home. (Dec. 13, 2011) [http://www.foodandhome.com/guide/painting-projects-add-value-your-home]

San Jose Real Estate Value

With prices of homes rising at varying rates depending on where you live, and also, in some cases, prices are falling – some people ask ,what is the value og my property?

It isn't what you have invested on your San Jose, California house. It isn't what you feel it is worth. It is what the market will pay. How do you figure out what the market will pay? For single family homes, the best way is by seeing what similar homes have sold for.

Figuring replacement cost also isn't a very useful determinant. It's difficult to say what land is worth in a city center where none is left for sale, for example, and tough to gauge depreciation of the home itself. Valuation from replacement cost is used as a secondary method, and for unique homes that can't be compared easily with others. However, the primary method of real estate appraisal used for homes is a market analysis using comparable sales, or in the language of Realtors – a Comparative Martket Analysis (CMA).

Finding the value of your San Jose house

First find at least three similar homes in the same area that have sold within the last year, and preferably within the last six months. You can find this information is in county records (sometimes online now), or from a real estate agent with access to the multiple listing service. Make sure you have the basic sales information: sales price, terms of sale, description of the property, etc.

Here is how you use this information to find real estate value. Write down the selling price of your first comparable. Review the description item by item, adding to the sales price of the comparable for each thing it doesn't have that your subject home has, and subtracting for each thing it has that your subject home doesn't have.

This sounds confusing, but it will make sense once you try it a couple times. For example, if your subject home has a second bathroom, and the a comparable doesn't, you add the value of the bathroom to the sales price of the comparable. If a comparable home has a blacktop driveway, and the subject home doesn't, you take the value away.
 
What you are doing is reconciling differences, to see what the comparable home WOULD have sold for if it was just like yours. Suppose a comparable San Jose home sold for $140,000, with one less bathroom than your subject home, and a bathroom is worth $15,000 in your area (ask a real estate agent for help with these figures). You ADD $15,000 for the bathroom it doesn't have. You subtract, say $4,000, for the paved driveway it does have, that your home doesn't have. $140,000 plus $15,000, minus $4,000 gives you a comparable sales price of $151,000.

Do this with all differences between the subject home and each comparable. Once done, average the three comparable prices. If, for example, the three comparables now have adjusted sales prices of $151,000, 162,000, and 149,000, add the three figures and divide by three. The indicated value of the home is $154,000.

All appraisal is an inexact science. You might only find comparables sold in San Jose over a year ago, and have to estimate appreciation in the area. If a comparable sold with seller financing, you have to decide how much this affected the price. Still, for all of it's flaws, for single family homes this is the most accurate method for finding true real estate value.