Home Improvements - Avoid these Mistakes

By Steve Gillman - 2006

Different home improvements are made for a different reasons. Unfortunately those reasons are often confused in the minds of those making them. This helps explain the first of the three common mistakes covered here.

1. An Unclear Purpose

If you're not clear about why you're doing home improvements, you can't know if they're worth the price. Motivations are often confused, and a given project may not only be to make the home more livable, but is often justified as an "investment" as well. But it may not be an investment that yields any return when the home is someday sold.

Remodeling Magazine recently reported on the average cost and added value of various home improvements according to which area of the country the homes were located in. Many remodeling projects, including creating a home office, only returned about half of the cost in added value if the home was sold thereafter. A basement remodel returned about 90% of what was spent in most cases. That was the best "investment."

In other words, on average, every type of home improvement in every area of the country is a money losing proposition. Certainly some are better than others. For example, the average attic bedroom addition only cost $13,000 more than it adds in value to the home, while you lose $30,000 on the average master bedroom suite. Of course it is also true that if you're careful and creative you can add more in resale value than you spend on a project.

Still, consider this: If you spend $68,000 creating a master bedroom suite, and it only adds $38,000 to the value of your home (these are average figures), the real cost is in the long run is $30,000. This doesn't count any interest you pay if you finance the project, which could bring the total real cost to more than $50,000. This is the price you pay for your personal enjoyment.

Now a question: How long you will live in the house? Divide the true cost of your improvements by those months to decide if it's worth the cost. Using the example above, if you move five years later, that nicer bedroom was $10,000 per year, or $833 per month for the pleasure. Using this approach, if it seems reasonable, do the improvement. On the other hand, if an extra vacation or two annually, or $10,000 per year going into a retirement account, or any other way you could spend that $50,000 sounds better, drop the project.

2. Unclear Contract

When you aren't sure what you want, you're likely to pay more than you think for home improvements of any sort, because extras cost more. Whatever you agree with the contractor on, that's what you get for the quoted price. Changes will be extra, so be clear about what you're trying to do in advance, and make sure it's all included in the bid and the contract you sign.

Hopefully you're wise enough to have a deadline in the contract, rather than an "estimated date of completion" or other vague language. Still, a deadline is not always sufficient. Consider including a clause that specifies penalties for not completing the job by the deadline. Agreeing that the price will be reduced by $100 for each day past the deadline is what I call a "motivational clause." One more note: never pay in full until the job is done in full.

3. Being Unprepared For The Process

Home improvements - especially large ones - involve large messes. Dust and construction materials may be around for weeks. Ask the contractor what to expect, and if he will be completely cleaning up the mess in the end. Ask if they provide a bathroom, or if the workers need access to your bathroom. Ask about security issues, like walls that may be open to the outside for weeks. Will you need to chain up your dog? What dangers to your children are possible? Ask all of these things before you sign that contract.

Another page to check out:

How to Sell a House - This free ebook is now on the pages of this site and has a chapter about improvements to make before selling a home, and how to judge their cost-effectiveness.

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