How Much Is Too Much on Home Improvements?

Nearly every homeowner has a wish list. Perhaps you'd love to:

• Rip out and replace that hideous green carpeting the previous homeowners must have purchased to match the front lawn.

   

• Build a walk-in closet so every pair of shoes, every shirt, every suit has its place.

   

• Add a double-decker, wraparound deck so entertaining can spill outside.

In any case, one thing is for certain: Completing any item on that wish list comes at a cost. And as projects snowball -- and home improvements inevitably do -- you may start to wonder if it's all worth it.

Considering your home's worth is one way of answering that question. On average, don't put more than 20 percent of a home's value into improvements on the home, most industry experts say.

"I've always been hesitant to endorse averages because every house has its own story," says Gregg Hicks, director of marketing for Reliableremodeler.com. "If you simply use a percentage model, you might be shortchanging or over-extending yourself, depending on your situation."

From the age and condition of the home to what the Joneses of the neighborhood have done, there are a lot of factors to help in deciding how much work may be necessary and, likewise, what would be considered going overboard. Still, Hicks says a rule of thumb on how much to spend can be a good starting point.

In fall 2006, Dan Fritschen, author of "Remodel or Move?" and founder of a Web site by the same name, surveyed 5,000 homeowners who were considering that choice. Half of those were planning to remodel and expected to spend 30 percent of their home's current value on the project. In a similar 2005 survey, one-third of respondents planned to remodel and expected to spend the same percentage of home value.

Relative Values
So what does it take to get a thumbs up on improvement spending from the experts? Neighborhood knowledge. Consider the highest priced home as a limit.

"You can improve up to that level," says Fritschen. "Going over that should only be done if you don't want to recoup the majority of your remodeling investment by your home appreciating." In other words, you'd better enjoy that fourth bathroom and natural stone-surrounded pool with waterfall if nearby houses have no such amenities.

Or, as Becky Nelson, senior loan officer for Opteum Financial Services, puts it: If you want $50,000 in custom landscaping while your immediate neighbors are struggling to mow their lawn, that's fine. But when you move, you're not getting the $50,000 back. Nelson adds that in the mortgage world, that over-improved house would be considered "the castle of the neighborhood." You'd be hard-pressed to find a buyers' agent that recommends purchasing the neighborhood castle -- or a house that sticks out in any obvious way.

Next: " ... The long and short of it." >

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