2 of 18

Write now Article Tools

The Law of Diminishing Returns is the King of determining if the cost of your home improvement will be translated to a corresponding value. There is nothing harder to sell than a $300,000 dollar home in a $150,000 dollar neighborhood so you had better make some choices before you over invest in home improvements.

First ask yourself and give an honest answer to the question, "Do I expect to live in this house until I die?" Since most of us move about every 5 years the answer will generally be "NO" which means you will at some point have the house on the market.

If your answer is "YES" then feel free to construct your castle as you wish but remember that someone someday is going to have to sell an out of place house in a tough market. With sub-prime loans just now starting to affect the economy and the housing market, home improvements need to be necessary, cost efficient and effective.

Here are some of the most common additions:

A swimming pool, in perfect condition adds allure but not value to a house at selling time. In other than perfect condition a pool is a liability that will drag your asking price below the market value when your original investment is added to the equation.

An added bedroom making the house no more than one bedroom larger than the neighborhood average is generally a good investment. There is always a market for more bedrooms among families who are growing are who expect growth and the cost of adding an extra bedroom is easily recovered by the increased value of the home.

There is an exception to this rule. If you convert your garage into a bedroom, you may have solved your space problem but you have taken a giant step backwards in both the value of the homes square footage and the number of buyers who would even be interested.

Extra bedrooms mean the need for more bathroom space and I mean a bathroom with a minimum of a sink, toilet and a shower. Again, the cost of adding a bathroom is easily recovered at sale.

The most tricky improvements, cost to value wise are in the kitchen. Expanding counter space, cabinet space and adding features like an island are always good investments for your home. The rub comes in when you start to accessorize those additions with granite counters, marble floors, and top of the line built in stainless steel appliances. There is no way to recover the costs of these overages unless you happen across that one buyer in a million who is willing to pay to have a kitchen exactly the way you want it.

Know your neighborhood. Make and stay within an improvement budget that when added to the median home values around you does not price you out of the market. Expect a loss on high end items that the prospective buyer will simply view as used or excessive. Watch the market in your area and know when to sell, ideally when the neighborhood has peaked in value and before a cyclical decline.

Finally, weigh your "wants" to your "needs" and decide whether you can afford to lose in five years the value that you are investing in your home today and build accordingly.

Learn more about this author, Derek R. Snow.
Click here to send this author comments or questions.

Add your voice

Know something about Home improvement: Cost vs. value?
We want to hear your view. Write now!