Recouping Renovation Costs

Add another hassle to the headache of home selling: the last-minute renovation. With the housing market continuing to weaken, many sellers are going beyond the usual cleaning, painting, and “staging ” with flowers and pillows, by taking on big-ticket items.

New home competition
Some experts warn that sellers are unlikely to get their money back from extensive renovation. But owners often feel they have no choice if they want to sell, especially when builders of newly constructed homes are throwing in hardwood floors, finished basements, and other free upgrades.

“There’s so much competition, you need to stand out,” says one remodeler, who went on to spend $24,000 on pickled oak flooring in the dining room, and new carpeting, new skylights, and new stainless-steel sinks in the master bath.

Such are the decisions made in a depressed housing market where the average pace of sales fell 22 percent in December.

The market is hurting remodeling. Homeowner spending is expected to fall at an overall rate of 2.6 percent through the third quarter. Extensive pre-sale remodeling is often fraught with conflicted decision because homeowners are making aesthetic decisions they hope will please people they don’t know.

No matter what the upgrade, homeowners aren’t likely to recoup all the money they spent when they sell. According to Remodeling magazine, the overall return for remodeling projects is on the decline, falling to an average of 70 percent in 2007 from 86.7 percent at the market peak in 2005.

Best return on money
For a project using mid-range products, the best returns came from putting in a new deck, replacing the siding, and sprucing up the kitchen; the lowest returns came from remodeling a home office, adding a sunroom, or putting in a backup power generator.

The best use of your remodeling money is for a 12×20-foot wooden deck complete with bench, planter, and railing. At a cost of $10,347, you’ll get back 85 percent when the addition is sold. Siding replacement has the second best payback, at 83.2 percent. Minor kitchen replacement, including oven, cooktop, and sink, will return 83 percent.

DIVERSIFY YOUR PORTFOLIO

While many investors are concerned about their houses, others are struggling with their portfolios. Is it time to sell everything and head for safer ground, such as certificates of deposit, Treasury notes, or money market funds?

Erik Davidson, senior director of investments at Wells Fargo Private Bank in Denver, suggests that being diversified and disciplined are more important than being defensive. If you are investing through your employer’s retirement plan, get your last quarterly statement and look at where and how you allocated your money. Is it spread across various asset classes? Or have you concentrated your contributions in just one or two types of assets categories?

If you have a diversified portfolio, you don’t have to be fearful of current events, says Jeff Seely, chief executive of ShareBuilder, an online brokerage that caters to small investors.

Recently, there has been a lot of volatility, Seely says, “and small investors get stressed when the market is unstable, particularly after a sustained period of good performance.” But if you have good fundamental stocks, those investments should produce gains longer term, and a down turn is a good time to buy, he says.

Davidson says if you want to avoid reaching for the antacid during times like this, divide your investment contributions so that a certain percentage is invested in a variety of assets, including blue chip stocks, real estate, and fixed income.

Once you develop a plan, or asset-allocation approach, you’ve got to be disciplined and stick to it.