“Beware of the return on investment trap of kitchen upgrade” advised Angela. There’s also a hidden opportunity she said. Which applies to you?
According to Remodeling website, you can expect to recoup 60 - 70% of your costs should you remodel your kitchen in Raleigh North Carolina. Just make sure you avoid the trap
Let’s turn the clock back a little. At lunch with a couple of friends the topic of value of a kitchen upgrade was raised by Joyce. She wanted our input since we were involved in real estate. I’m the manager of a mortgage loan office and real estate investor. Angela’s experience comes from many years as a successful real estate agent.
Angela raised the issues of the return on investment trap of kitchen upgrade and the hidden opportunity. Let’s start with the trap:
There’s an upper limit on value of a house.
Angela explained it this way:
= Your home value now: $170,000
= Cost of kitchen remodel: $35,000
= Neighborhood home values: $155,000 - $175,000
Remodeling states you can recoup 60-75% or $21,000 to $26,750. Here lies the trap. To recoup 60-75% you’d have to sell your home for $191,000 - $196,250. Is this realistic when neighborhood’s home values top out at $175,000?
The hidden opportunity? Angela pointed out that kitchens can help sell a house. A kitchen upgrade that makes a house more attractive to buyers will make a house sell quicker. Buyers tend to view homes within a certain price range. If your home stands out because of the kitchen, an offer may result.
Caution: This only applies when your home is comparably priced. Asking a $20,000 premium because of the remodeled kitchen would result following situation:
= Buyer mentioned above would never see your house since it’s out of their price range.
= Your house would be competing with homes in neighborhoods that easily support values in the $190,000+ range.
One last caveat. Assume, for the sake of discussion, you find buyer willing to pay $20,000 premium because of the great kitchen. What’s next? An appraisal. Since homes in your neighborhood top out at $175,000, an appraiser is unlikely to sign off on a report saying the home’s value supports the $196,250 sales price.
So far Joyce hasn’t been dazzled by my brilliance so she asked for my point of view. I agreed with Angela. Personally, I upgrade a kitchen so I can enjoy it. Unless I felt the kitchen would severely hurt Angela’s ability to market my home, I avoid remodeling just prior to placing my home on the market.
So there you have it. Make sure you avoid the return on investment trap of kitchen upgrade. Don’t expect to sell your home for more than the neighborhood can support.
Source: Consumer Reports
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Originally published: http://raleighmortgagegals.com