Major home renovations make fewer cents and less sense

If you're putting your home on the market, you may want to rethink those plans to bump out the kitchen or add an extra bath.

(WSJ) -- During the boom, such ambitious projects would recoup as much as 90 cents on the dollar. Not today. The resale value of improvements in general is sliding, according to experts. In a departure from recent trends, homeowners are getting the best payback from relatively mundane improvements, such as sprucing up the outside or putting in new windows.

The slumping housing market has made remodeling much trickier. When house prices were climbing ever higher, buyers knew they could spend big bucks to expand their homes and still make a profit when it came time to sell. Not so today.

Further complicating the equation: Construction prices have continued to climb. That means adding that new bath will cost more, even as it contributes less to the resale value.

Homeowners have taken note. Remodeling peaked in 2006. And it is expected to fall 4.8 percent this year, according to a report by the Harvard Joint Center for Housing Studies released in April.

Tighter credit also makes it harder for many homeowners to afford big projects. Still, American homeowners will spend an estimated $166 billion on remodeling this year, according to the Harvard center.

Nationally, returns for all major home-improvement projects are fetching 70 cents on the dollar, according to a Remodeling magazine survey of real-estate professionals conducted late last year. That's down from 80 cents in 2004. Back then, a minor kitchen remodel cost an average $15,300 and recovered an estimated 93 percent if the home was resold within a year. Today, a similar remodel costs $21,100 and would recoup about 83 percent.

This doesn't mean all remodeling is a waste of money. Home improvements that help a property stand out are most likely to pay off, as are those that make a house lower-maintenance or more energy-efficient.

"Make the outside of the house look really great so that people fall in love between getting out of the car and the front door. That is money that is worth spending," says Diane Saatchi, senior vice president at the Corcoran Group real-estate agency, who sells high-end properties in the Hamptons of New York's Long Island.

Freshly painted trim and new hardware also help a home show well, says Saatchi. And landscaping, including well-manicured trees and shrubs, can help older homes compete against new ones that lack mature vegetation, she says.

New windows and doors and siding help homes look well-tended and spiffy. They also help make houses more energy-efficient, which increasingly matters to buyers grappling with rising fuel and air-conditioning costs, experts say.

Some elaborate remodels, though, may make your home harder to sell, says New Mexico builder Lonny Rutherford. He notes that lenders are nixing higher-than-normal appraisals and that many buyers are looking for a deal. Even if someone wanted to pay extra, they "would have a hard time financing the house unless they have a lot of cash," he says.