If you're a Washington area home owner and you wonder how much value is added to your property when you convert your side porch into a den or add a pool to your yard - take a brief plunge into the world of real estate appraising.
What you find is that a dollar's worth of pool usually isn't anywhere near as valuable as a dollar's worth of kitchen.
And a deck built on to an in-town Washington house may add more to the sales value of the house than the addition cost.
It is clear that assigning appraisal values to home improvements can be a veray complicated business - exceptions to the rules crop up everywhere.
Discussions with six top specialists, all members of the Society of Real Estate Appraisers, suggest that there are broad categories of improvements, and that some of them generally return more than others. Precisely what they return depends on your neighborhood and how economically you spend your money for materials and labor.
For example, remodeling an outdated kitchen in a typical Washington neighborhood almost always will add more to the value of the dwelling than spending an equal amount redoing the basement, according to Donald C. McCandless, head of his own Bethesda appraisal firm.
The Washington market, he says, tends to place a higher value on remodeling above ground level than below. A home owner who spends $3,000 carefully upgrading his kitchen or adding a first floor bathroom can expect to get it back dollar-for-dollar - or close to it - almost immediately. He'd be less likely to recoup the expense as quickly out of cellar recreation room.
But here's a big qualification: If the same home owner went overboard on his kitchen - upgrading it far beyond anything available in other kitchens in his neighborhood or spending excessively on labor or materials - then he'd probably not get back his money for years, if ever. He would have "over-improved," and that's the number one no-no for value-conscious property owners.
A $15,000, gourment kitchen in a $65,000 brick colonial is attractive to prospective buyers, but they simply won't pay $15,000 for it. It's out of line for the house.
William S. Harps, vice president of John R. Pinkett, Inc., the large Washington realty firm, says that "whenever an owner is planning a change or addition, he should consider the value framework of the immediately community. He or she can exceed the norm by a small fraction and not lose; but once you're the only house in the area with a $20,000 swimming pool or tennis court, you can pretty much be certain that you'll never get it back when you sell your house."
Again, the rule bends with exceptions. A $2,000, backyard deck off the kitchen in an in-twon D.C. neighborhood of houses without decks could be such an attraction that it not only returns dollar for dollar immediately, but could actually add 2,500 (125 per cent) right away. A garage built for $1,500 to $2,000 in an area of Capitol Hill where garages are rare might well be recoverable dollar-for-dollar at completion.
People are willing to pay for novel additions to a house - provided they are perceived as practical, and as long as their cost is relatively small compared to the total price of the dwelling.
The "neighborhood value frame work" rule also applies from the reverse end of the scale. If you won the only house in the neighborhood that isn't centrally air-conditioned - and your house is otherwise comparable to its neighbors - then spending money on air-conditioning will almost certainly pay off in market value. If you're the only guy on the block without a pool or tennis court - a situation more typical of Beverly Hills than Washington - then it may make sense to go ahead and put one in.
What sorts of improvements generally return the best in this area?
Lloyd R. Wilson Jr., chairman of H.L. Rust Co., summed up his long residential appraisal experience as follows: "The more labor-saving the improvement, the more energy-conserving the improvement, and the more people who will use it, the more it returns, and the more quickly."
In concrete terms, that means kitchen modernizations or expansions; additions of first floor living space via conversions of porches; upgrading or adding first floor bathrooms or powder rooms, or an extra bath upstairs, and most forms of reasonably priced energy-saving improvements, like insulation, storm windows, and heat pumps.
Energy-related improvements are relative newcomers to the list of high, immediate returns, according to Wilson. "It used to be that you could spend a lot of money putting on storm windows and buyers would smile but be unwilling to add much to the home price for them. Now, you can be pretty certain you'll get your money back because people have gotten so concerned about high fuel bills.
"I've just put in a $2,100 heat pump in my house and I'd get every cent of it if I sold the house tomorrow," he said.
(Wilsom contrasted the $2,100 pump with the $3,000 he spent building a greenhouse on his property. "I'll be lucky to ever see 20 per cent of that money (ie., $600). It's worth it to me, though, because my wife is such a flower-lover. The heat bills in the maintenance is a pain, but I didn't build it as an investment. It's purely for pleasure.")
What types of improvements - besides greenhouses - tend to be low or slow returners in the eyes of local appraisers? Appraisers invariably mention tennis courts and pools, but also luxurious landscaping (high initial cost and high upkeep), almost any sort of special effect expenditure, like ceramic tile flooring, extra extra firplaces or lavish home security systems.
They also cite a variety of expenditures that many home owners consider, excellent improvements but which the market classifies as routine maintenance. Putting in a new hot water heater, for example, adds little to the sales value of the property because buyers expect a house to have a working water heater, whether new or old. Even an undeniably important improvement like raising the amperage in an older house and upgrading its overall electrical system may not come close to paying for itself, unless the system was so bad the house wasn't saleable othewise.
Most other improvements fall somewhere in the mid-rages: done economically, with an eye to the neighborhood, they will repay themselves via inflation alone within a few years.
Kenneth R. Harney is managing editor of the Housing and Development Reporter, published here, weekly by BNA, Inc.