5 home improvements that may not pay off when you sell

Kate Wood

You spent the holidays binging on HGTV, and now visions of shiplap accent walls and freestanding soaking tubs are dancing through your head.

a kitchen with a wood floor: A massive kitchen renovation may not help resale value as much as you think.© Getty Images A massive kitchen renovation may not help resale value as much as you think.Don’t let your desire to upgrade your home downgrade your home’s market value. Before you make a renovation fantasy a reality, consider whether the project will pay off when you’re ready to sell. Plenty of home improvements add value, but others — like these five — can hurt it.

1. A chef-quality kitchen

If you love to cook, a high-end kitchen could be the ultimate gift — for you. But if you think a massive overhaul will majorly impact resale value, you might be in for a surprise. An upscale kitchen renovation recoups just 54% of its cost in added value, according to Remodeling magazine’s 2020 Cost vs. Value report.

“If you do marble countertops and high-end appliances, you could spend $100,000, and it doesn’t necessarily mean your house is worth an extra $100,000,” says Beatrice de Jong, a consumer trends expert for Opendoor, a San Francisco-based direct home buyer and seller.

Smaller kitchen upgrades could yield a bigger payoff. Chris Arienti, broker and owner of Remax Executive Realty near Boston, suggests keeping updates reasonable: Think granite rather than marble, and GE instead of Sub-Zero.

2. DIY painting

A bold statement wall can say the wrong thing to potential buyers if the workmanship is questionable. Streaky, chipped or low-quality paint can knock $1,700 off a home’s sale price, according to Opendoor data that looked at home offers made from June 2018 to June 2019.

“A good paint job is not easy,” says Sarah Cunningham, a real estate agent with Ethos Design + Remodel in Boise, Idaho. “It is all in the prep work, and most people don’t want to do the prep work.” Hiring a professional to paint can help ensure a more attractive result.

3. An expanded master suite

Knocking down a wall to create an oversize master bedroom or stealing closet space to build out a spa-style bathroom may sound dreamy. But how about as a selling point? “If you go from five bedrooms to four, and you can make it work, no big deal,” Arienti says. But he cautions that losing a bedroom in a smaller house could mean a lower selling price.

As for cutting into closet space, residential building codes don’t mandate that bedrooms have closets. But, Arienti says, “Once you take the closet out of a bedroom, to a buyer, that no longer looks like a bedroom.”

4. Plush wall-to-wall carpeting

Carpet can be especially unattractive to first-time home buyers, who may be used to landlords updating carpet between renters, de Jong says.

“In general, people are grossed out by [carpeting]. It can make a room look a little bit dated.”

It can also ding your sale price. Carpet as the primary flooring in a house drops the value by $3,900 — and carpeting in the master bedroom causes a $3,800 plunge, according to Opendoor. Conversely, a 2019 report from the National Association of Realtors estimated that sellers could recoup the entire cost of refinishing hardwood floors. New wood flooring could actually add value, with sellers getting $1.06 for every dollar spent according to NAR.

5. A swimming pool

It doesn’t matter if it’s infinity edge or above-ground: Any pool can be seen as a drawback by buyers who don’t want to deal with maintenance or insurance. Even in Florida, a pool doesn’t add value, Liede DeValdivielso, a real estate agent with the Keyes Company in Miami-Dade, said via email. If you’re thinking resale, it’s not worth it — you’ll never recoup the cost, DeValdivielso said. But if you’ll use it and enjoy it, put in a pool.

How to decide if a renovation is worth the cost

To ensure you’re making an informed decision:

  • Consider your timeline. “If you’re going to be in the home for 30 years, you can do anything, because at that point, your mortgage is paid off,” Arienti says. Looking to sell in the near future? Pay closer attention to whether your choices will appeal to a potential buyer.
  • Consult an expert. “Talk to a professional so you aren’t making misinformed choices that are going to work against you in five to 10 years,” Cunningham says. A designer can help you tell fleeting trends from future classics; a contractor can explain what kind of work a proposed renovation would entail.
  • Compare home features in your area. De Jong suggests looking at comparable homes for sale near you and going to open houses to make sure your improvements align with the norms for your neighborhood.
  • Get an appraisal. A licensed appraiser can do a feasibility study to estimate your home’s current value and its likely value after the improvements.

10 TERMS YOU’LL LIKELY ENCOUNTER IN A REAL ESTATE PURCHASE CONTRACT

10 TERMS YOU’LL LIKELY ENCOUNTER IN A REAL ESTATE PURCHASE CONTRACT

Purchase offers are legally binding contracts. Every state has its own real estate laws, and local real estate boards use different standard forms.

Ask your Accredited Buyer’s Representative to give you a copy of the standard contract so you can review it before searching for homes. That way, you can get familiar with the legal terminology and ask questions before you find a home you’d like to purchase.

Here are ten of the most common clauses:

1. Price

Of all real estate contract terms, the purchase price may be the easiest to understand and the hardest to agree upon. If the seller is asking too much relative to recent comparable sales, your buyer’s rep may suggest attaching a report that helps defend your offer price.

Also, the seller may be willing to accept a lower price if you include other desirable terms in your offer, like a quick closing date or an all-cash purchase.

2. Closing Date

The closing date (also called settlement date) is the proposed date when ownership will be transferred to the buyer.

It’s an essential contract term that keeps both parties on track to meet their respective obligations. That said, unexpected delays may occur from completing inspection repairs or finalizing your financing, for example.

The purchase agreement includes provisions for situations when the buyer or the seller can’t meet the closing date, potentially including penalties. It’s also possible that the sale could be canceled.

3. Inspection

Typically, buyers have ten days to conduct a professional home inspection once the sellers accept their offer. Your buyer’s agent can provide recommendations, but it’s your responsibility to hire the inspector.

Depending on the findings in the inspection report, you may need to negotiate repairs with the seller or agree to an adjustment in the purchase price.

4. Financing

Your purchase may be contingent upon securing funding with a mortgage company. This section of the real estate contract spells out the key terms of your mortgage commitment, such as the size of your down payment and the type of loan (for example, FHA or conventional).

Typically, sellers prefer buyers with larger down payments or who have already received pre-approval (which is stronger than being pre-qualified). These differences can be particularly significant in situations where you’re competing with other buyers.

5. Attorney Review

Real estate professionals are not licensed to practice law but are allowed to help home buyers (or sellers) enter into real estate contracts. This is why most real estate contracts include an attorney review clause, which gives both parties time (typically three to five days) to secure an attorney’s review and potentially cancel the contract under specific provisions.

6. Disclosures

Sellers are required to complete property disclosures that reveal various defects or improvements that may affect the home’s condition. Required disclosures vary by market, but common examples include revealing the presence of lead-based paint (a federal law), asbestos, or other environmental hazards.

Usually, disclosure documents are given to buyers once the seller has accepted your offer. In some cases, you may receive them before submitting a contract. Either way, buyers must sign off on all disclosures.

For sellers, it’s best to reveal everything about a home upfront because the transaction is less likely to fall apart. Also, if you discover after closing that the sellers lied on their disclosure forms, you may be able to take legal action against them.

7. Escrow of Earnest Money

As a buyer, you’ll need to show the sellers that you’re seriously interested in purchasing their home by depositing earnest money (also called a good faith deposit) into an escrow account.

Your buyer’s representative can advise you on local market conventions, but as a rule, the earnest money is 1% to 2% of the total home purchase and is applied to your down payment at closing.

Your purchase contract should stipulate where your escrow deposit will be held (typically a title company or the real estate broker) and how much you’ll be refunded if the transaction fails to close under various conditions.

8. Adjustments at Closing

This section of a purchase contract outlines any modifications to the property’s purchase price to accommodate the payment of property taxes, utilities, municipal assessments, association fees, etc.

For example, if the seller made a semi-annual property tax payment two months before closing, the buyer will need to “reimburse” the seller for the remaining four months.

9. Title Insurance Affidavit

An affidavit of title is a document that proves the seller owns the property and can legally convey ownership to you. It helps ensure that there are no claims against the property, such as a mechanic’s lien, which might happen if the seller hires someone to complete work on the home but doesn’t pay them.

10. Other Addendums

Additional terms and conditions beyond the general forms can be added to a real estate purchase contract as an addendum.

Typically, this is where you’d spell out requests to include personal property, ask for a home warranty, request information about the property’s Homeowners Association, or make other stipulations.

As a buyer, it’s essential to make sure that you clarify all the terms and conditions of your purchase. At the same time, you’ll need to balance these requests against your desire to successfully negotiate a purchase with a seller.

What Exactly Do Closing Costs Cover?

What Exactly Do Closing Costs Cover?

A home costs more than just the sale price. For example, closing costs—which make up about 2% to 5% of the home’s purchase price—are a major added expense. Michael Hyman, a research data specialist at the National Association of REALTORS®, shares the charges that make up closing costs in a post at the association’s Economists’ Outlook blog so that home buyers can be prepared.

Lenders provide a Closing Disclosure at least three business days prior to closing on a mortgage. But buyers will need to budget for these added costs ahead of time to avoid sticker shock days before closing.

Origination fees. This is the fee charged by lenders for processing the application and underwriting it. The fee typically ranges from about 0.5% to 1% of the borrower’s mortgage. Sometimes, it’s higher for smaller loans because “the fixed costs are a higher percentage of a smaller balance,” Hyman notes.

Service charges. These include items such as the appraisal, credit report, flood determination and certificate, tax status, pest inspection, title search and insurance, and survey fees. Appraisals and surveys can cost anywhere between $300 to $500 each. Title services can add up to about $2,000, so buyers may want to shop around for that.

Transfer taxes and recording fees. Transfer taxes vary by state but can run up to 2.7% in parts of New York. “It does not matter if the buyer or seller pays, as long as the transfer tax is paid to the government, so transfer taxes can be negotiated between the buyer and seller,” Hyman writes.

Escrow items. Homeowners insurance, property taxes, and primary mortgage insurance (if applicable) also are added fees. Buyers moving into a homeowners association may need to pay monthly dues for the upkeep of the community.

Hyman offers the following example for how these costs can add up: A buyer is purchasing a $275,100 home with a 5% down payment. The loan amount is $261,345. Closing costs are estimated at 2.5% of the loan value—so $6,533. The buyer made a $2,000 earnest money deposit, so they would need to bring $4,533 in cash at the time of closing. “Altogether, this means that the potential homeowner will need to have access to approximately $18,300 in cash to pay for the down payment and closing cost net of the earnest money deposit,” Hyman says.

INTERIOR REMODELING: WHICH PROJECTS MAKE HOMEOWNERS HAPPIEST?

According to Harvard’s Joint Center for Housing Studies, Americans spend $400 billion annually on home remodeling projects. Which of those projects bring the most joy? Which ones provide the best value?

To answer these questions, the 2019 Remodeling Impact Report, published by the National Association of REALTORS® (NAR), offers insights from three distinct perspectives—consumers, real estate professionals, and remodeling experts.

First, to calculate a “joy score,” consumers were asked about their satisfaction and happiness with recent remodeling projects.

For perspectives on remodeling priorities and estimates of cost recovery at resale, NAR surveyed members (REALTORS®) who are engaged in residential transactions.

Estimates on the cost of each project were obtained through members of the National Association of the Remodeling Industry (NARI).

Here are the top ten interior remodeling projects, ranked by joy scores:

1. Complete Kitchen Renovation (Joy Score = 10)

For many homeowners, the kitchen is the heart of the home, where meals are prepared and shared with loved ones. It’s a room that invites creativity but also takes a beating over time.

It’s not surprising that a complete kitchen renovation earned the highest joy score. It’s also the most expensive remodeling project, estimated at $68,000 with a 59 percent cost recovery rate ($40,000).

2. Closet Renovation (Joy Score = 10)

A brand new kitchen may top your wish list, but many homeowners were equally satisfied with renovating a closet. Improved functionality, livability, and storage organization are top drivers.

Among remodeling projects, closet renovations are relatively inexpensive, but they also had the lowest cost recovery rate (40 percent).

3. Full Interior Paint Job (Joy Score = 9.8)

Over time, homeowners’ tastes change, especially if they are dialed into HGTVHouzz, and other outlets featuring the latest design trends.

A fresh coat of paint is one of the easiest ways to update rooms. Paint companies are happy to offer suggestions. Each year, for example, Benjamin Moore reveals its latest color trends.

The top reason for tackling a full interior paint job was “time for a change” (49 percent). Upgrading worn-out surfaces, finishes, and materials was another top priority.

4. Individual Room Paint Job (Joy Score = 9.7)

Painting one room brought homeowners nearly as much satisfaction as a complete interior paint job. The top motivating factor was adding individual personality to the home.

5. Kitchen Upgrade (Joy Score = 9.7)

Even if you aren’t ready for a total kitchen overhaul, smaller upgrades are nearly as satisfying, and there are plenty of ways to make budget-friendly updates.

A kitchen upgrade ranked highest among REALTORS®, in terms of tips for successfully marketing a property. One out of five surveyed NAR members said kitchen upgrades helped close a sale.

6. Basement Conversion to Living Area (Joy Score = 9.5)

For homeowners eager to add livable square footage to their home, renovating space in an unfinished basement can be an optimal solution.

Additionally, this upgrade earned one the highest cost recovery estimates, at 64 percent.

7. Refinish Hardwood Flooring (Joy Score = 9.5)

Whether homeowners want to repair worn-out surfaces or update the look of their home, refinishing hardwood floors yielded a 9.5 joy score.

It’s a project that’s also expected to provide full cost recovery.

Over a quarter of REALTORS® (27 percent) have suggested sellers complete this renovation before attempting to sell their home.

8. Bathroom Renovation (Joy Score = 9.3)

Similar to kitchens, bathroom surfaces, finishes, and materials wear out over time or require updates.

Bathroom renovations are also strongly encouraged by REALTORS®, with one in three saying they have suggested sellers tackle this project before listing their home.

9. Insulation Upgrade (Joy Score = 9.3)

When you walk in the door of your home, you may not “see” an insulation upgrade, but you will probably feel it.

Improved energy efficiency is the overwhelming reason to tackle this project. Plus, unlike cosmetic updates, the cost recovery benefits of upgrading insulation improve over time.

10. New Bathroom Addition (Joy Score = 9.2)

If your family’s daily routines get bogged down by bathroom traffic jams, you may be a prime candidate for this renovation project. Bathroom additions are predominately undertaken to add features and improve a home’s livability.

Bathroom additions are also relatively cost-effective, with a 50 percent recovery estimate.

Agency-explained-

DESCRIPTIONS OF AGENCY

There are agents, and then there are agents. Yes, it sounds confusing. That’s because the term “agent” is often used in a casual manner, referring to any real estate practitioner.

But agent also refers to someone with whom you’ve established a formal agency relationship—someone who represents your best interests in a real estate transaction and owes you fiduciary responsibilities. Agency relationships are usually established in writing with buyer agency agreements, and require:

  • loyalty
  • obedience
  • disclosure
  • confidentiality
  • reasonable care and diligence
  • accounting

THE BIRTH OF BUYER AGENCY

For many years, real estate was practiced in such a manner that agency relationships were only extended to sellers. Any real estate agent who brought a buyer to the table was actually working as a sub-agent to the seller.

This all began changing in the 1980s, when buyer agency started gaining momentum in residential transactions. Today, agency laws still vary from state to state. But even if you live in a state that recognizes buyer agency, you can’t assume that you will automatically receive fiduciary responsibilities from the agent you’re working with as a potential home buyer.

That’s why it’s vitally important to talk to the agent or broker early in your working relationship about his/her agency status. You may also want to consult your state association of REALTORS® to gain a better understanding about agency laws in your particular state, or contact the agency charged with regulating real estate professionals in your state, often referred to as the state real estate commission.

Details vary from one state to another, and each brokerage has its own contract terms within these broader guidelines. But for purposes of illustration, this table outlines how your status may affect the level of service to which you are entitled:

Are you a buyer-customer or a buyer-client?
Services will vary, depending on your agency status*
If you are a CUSTOMER (no agency relationship), an agent will: If you are a CLIENT (agency relationship), your agent will:
Maintain loyalty to the seller’s need Pay full attention to your needs
Tell the seller all that they know about you Tell you all that they know about the seller
Keep information about the seller confidential Keep information about you confidential
Focus on the seller-client’s property Focus on choices that satisfy your needs
Provide just the material facts Provide material facts as well as professional advice
Only provide price information that supports the seller’s listing price Provide price counseling based on comparable properties and their professional insights
Protect the seller Protect and guide you
Negotiate on behalf of the seller Negotiate on your behalf
Attempt to solve problems to the seller’s advantage and satisfaction Attempt to solve problems to your advantage and satisfaction

* This chart is for general illustration purposes only. Agency laws vary by state; and specific terms of individual agency contracts will vary from one agent to another.

YOU MAY NOT KNOW IF YOU’RE A CUSTOMER OR A CLIENT.

Depending on the laws in your state, you may find yourself working with someone who is actually negotiating for the seller, not you the buyer. The best way to be certain your interests are being considered and protected is to sign a buyer agency agreement with a trained buyer’s rep, which clearly establishes client-level services and spells out what services you can depend upon.

WHAT ABOUT DUAL AGENCY?

In some cases, it will become necessary for your real estate professional to deviate from the single agency model. For example, a buyer-client may become interested in a house that also happens to be offered for sale by a seller-client of their buyer’s rep, or by the same brokerage firm. How can a buyer’s rep, in this instance, maintain complete loyalty to their buyer if he or she also owes complete loyalty to the seller?

Obviously, they can’t. But, depending on the real estate license laws in your state, and your status with the brokerage firm, the manner in which this situation is handled will vary. To get concrete answers, you should read and discuss the brokerage services disclosure statement, which should reflect your state’s agency law. If your agent hasn’t supplied a disclosure statement, you should ask for it. It spells out the different categories of agency services they provide and how they address dual agency.

Almost all states require disclosure of dual agency and often require that a buyer’s rep (or his or her brokerage firm) only act as a dual agent with the written consent of all parties to the transaction. In such a situation, the brokerage agrees to endeavor to be impartial between both parties and will not represent the interest of either party to the exclusion or detriment of the other party. Neither will they share the confidential information of one party with the other party. This is how brokerage firms and their agents strive to create win-win situations for everyone involved. There are a few states that prohibit dual agency even with disclosure and consent.

OTHER TYPES OF RELATIONSHIPS

Some states also allow different types of relationships beyond agency relationships. For example, a transaction broker assumes responsibility to facilitate the transaction, rather than represent one side over the other. Further obligations may also be set forth in a written contract with a client.

Even though the laws concerning agency can vary from one state to another, one thing that is constant throughout the U.S. is the obligation for all REALTORS® to comply with the National Association of REALTORS® Code of Ethics.

ISSUES TO DISCUSS WITH A BUYER’S REPRESENTATIVE

Real estate agency relationships, like all business relationships, can be formed in a number of ways. In order to help talk through your options, here are several questions to ask your buyer’s rep:

  • Do you represent buyers, sellers or both?
  • What services are provided to (or excluded from) me, based on my status as a buyer-customer or buyer-client?
  • When does representation begin? When does it conclude?
  • If I’m not ready to commit to your normal term, can you offer me a one-day buyer agency agreement or a 24-hour opt-out clause?
  • How is dual agency addressed in your firm?
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