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Every homeowner wants to see their home value increase. If you plan to move, home price appreciation gives you the chance to sell at a nice profit. If you stay, higher home values give you more equity, which you can utilize to fund home improvements through a home equity loan or cash-out refinance.
Here’s how to determine and potentially increase your home value:
- 8 ways to increase home value
- Figuring out your home value
- How much do homes increase in value per year?
- How to pay for improvements that increase home value
8 ways to increase home value
If you want to try increasing your home value at a faster rate than the market alone, there are ways to take a more proactive approach.
Bear in mind that while these strategies can potentially increase your home’s value, they may not offer a positive return on your investment, depending on the project and your local market.
1. Increase your square footage
Increasing your home’s square footage may increase its value, but it depends on where you add space and how useful it is.
Here are some of the more valuable options:
- Accessory dwelling unit: Think of an ADU like a small second house on your property. At a minimum, it should have electricity, plumbing, a kitchenette, a bathroom, and a place to sleep. A space like this can be used as a guest house, extra living space for a multigenerational household, an office, or an income property.
- Finished basement: Finishing your basement can double your home’s usable square footage. It can offer a place for guests to stay, children to play, adults to work, or friends to hang.
- Finished attic: Finishing your attic can have similar benefits to finishing your basement. However, you may not gain as much usable space due to ductwork and ceiling height limitations. Also, keeping this space comfortably cool may be a challenge in the summer.
- Bedroom addition: Adding a master suite or increasing the number of bedrooms to be in line with what homebuyers want in your area can increase your home’s value.
- Bathroom addition: If your bathrooms are small or few in number — especially if you only have a single bathroom — an addition may be worth the expense. No one likes waiting for a toilet.
One major downside to more square footage is increased utility and maintenance costs. If you live in a starter home-type neighborhood, these downsides could make your home less appealing to potential buyers.
2. Add curb appeal
Your home’s exterior is your first chance to delight prospective buyers, not to mention it’s something you’ll see every time you return home from the store. How your home looks from the outside reflects your pride of ownership and can send a message about how well you have cared for the inside.
Perhaps that’s why projects that increase curb appeal often have the greatest return on investment (again, that doesn’t necessarily mean the return will be positive).
Some curb appeal projects with a typically high ROI include adding stone veneer, replacing the front door, replacing the garage door, replacing siding, and replacing windows.
3. Enhance your kitchen
Even people who don’t cook enjoy an attractive kitchen, especially in homes with open floor plans. When guests come over, they often congregate in the kitchen, so even if you’re only serving pizza and beer, you’ll want it to look nice.
A complete kitchen remodel typically does not increase your home’s value by nearly as much as you spend on it.
If your main reason for enhancing your kitchen is to help your home sell, talk to an experienced local agent about the features that are most desirable to buyers so you can spend your dollars effectively.
4. Update your bathrooms
The kitchen is king, but bathrooms are a close second when it comes to rooms that can make or break the value of your home. That’s especially true for your master bath. As with a kitchen upgrade, you’ll spend more on a significant remodel than you’ll get back in resale value, but even smaller updates can make a difference.
Replacing old and/or unattractive plumbing fixtures, lighting, towel bars, and other hardware are only part of a bathroom update. It’s just as — and perhaps even more — important to repair wall cracks, regrout tile, and replace old caulking around the tub and cabinets to give your bathroom a clean, fresh look.
5. Make your home energy efficient
An energy-efficient home can be a great idea, and it’s one that will surely appeal to buyers because you’ve already spent the big bucks. They reap nothing but benefits from lower energy costs and a more comfortable home.
A Freddie Mac study found that homes rated for energy efficiency sell for an average of 2.7% more. That’s $2,700 for every $100,000 in home price, or $5,100 on a $300,000 home.
A National Association of Home Builders survey also found that buyers were willing to spend an extra $8,728 on average ($5,000 median) on a home that would cut their utility bills by $1,000 per year.
But in terms of getting a return on your investment, as well as reducing your environmental impact, you need to calculate the trade-offs carefully. The remodeling process can create substantial waste unless you properly recycle or rehome old items. The most environmentally friendly option may be to use and maintain what you have until it wears out.
If you determine that additional energy upgrades are worthwhile, know that federal tax credits of a few hundred dollars per project are available through 2021 on energy-efficient furnaces, air conditioners, water heaters, and a few other items.
6. Add closets
Adding closets increases the value of your home in two ways. First, closets provide extra storage to make your home more functional. In addition, a closet can turn a “bonus room,” which has limited value, into a bedroom, which has significant value.
Building codes and local customs determine what a room needs in order to be considered a legitimate bedroom. In addition to a closet, a bedroom might need to be a certain size, have a door and window, be above ground, and have walls or a ceiling of a certain height.
It’s important to note that creating a bedroom can also increase your property tax. For example, say you convert an attic that’s not currently included in your home’s square footage for the purposes of your tax assessment into a bedroom. The bedroom would be included on future tax assessments, and as a result, your property tax is likely to increase based on the new square footage.
7. Have your home inspected
A home inspection from a licensed inspector will alert you to maintenance issues you need to address to protect your home’s value. Here are some of the problems a professional inspection will reveal:
- Roof damage
- Faulty electrical system
- Plumbing leaks
- Wood-boring pest infestation
- Foundation and chimney damage
- Failing or obsolete equipment, such as a hot water heater
Addressing maintenance issues doesn’t directly increase the value of your home because home valuations generally assume structures, systems, and equipment are in good repair. However, these fixes keep deferred maintenance from reducing your home’s value down the road, and repairs and replacement can make your home compare more favorably to similar homes.
8. Paint the interior
Nothing freshens up a home as quickly or inexpensively as new paint. Whether you do it yourself or hire a pro will depend on the condition of your walls and trim — and your skill level.
The more dings and uneven textures your walls, trim, and ceilings have, the more you need a professional painter to achieve a quality result. Same with cracks, papered walls, old paint that might be lead-based, and drastically different colors than you’ve chosen for the new paint.
Crisp whites and soft neutrals like gray and beige — or the currently popular “greige,” which combines the two — are your best bets to get the most value out of a paint job.
Learn More: How Much Does It Cost to Paint a House?
Figuring out your home value
Knowing how much your home is worth can help you make important financial decisions such as whether to refinance, apply for a home equity loan, sell, or spend money on upgrades. Here’s how to figure out your home’s market value:
Through an online home value estimator
Home value estimators — also known as automated valuation models or AVMs — from real estate websites can give you an idea of how much your home is worth:
- Zillow uses a combination of public and user-submitted data to calculate an estimate of your home’s value.
- Redfin uses data from the Multiple Listing Service, an agent database of properties for sale, to estimate how much homes are worth.
- Trulia uses public and agent-reported data to create an estimate of a home’s value.
These sources have limitations, however. They’re only as good as the data they are based on, and sometimes that data is inaccurate or incomplete.
Areas with few homes or unique homes also make it hard to generate a value for one home based on others in a similar location. Sometimes a home’s ownership rarely changes in an area and there aren’t comparable sales to generate estimates with.
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Through a home appraisal
A home appraisal is a formal, professional opinion of how much your home is worth. Lenders often rely on home appraisals when you apply for a mortgage and they need to establish your home’s value.
Since a home appraisal costs several hundred dollars, you won’t want to order one until you start working with a lender. Your lender can tell you if your credit score and debt-to-income ratio are high enough that it makes sense to move forward.
Learn More: Low Appraisal: Why It Happens and How to Avoid It
How much do homes increase in value per year?
If you’ve been watching the real estate market over the last 10 years, you may have an unrealistic idea about how much home values normally increase.
Many parts of the country are experiencing housing shortages that have driven up prices for both rental properties and owner-occupied homes.
Until the housing shortage is alleviated, prices are likely to remain at historic highs, all else being equal. Historically low mortgage rates have also fueled demand for homeownership. Low interest rates temper the impact of higher home prices a bit, and vice versa, for anyone using a mortgage to buy a home.
Nationwide, home values increased by about 4 percent per year from 1996 through 2019. An increase similar to the inflation rate is nice, but won’t make you rich.
Further, real estate values are highly localized. It doesn’t really matter what’s happening with home prices nationwide; it matters what’s happening in the neighborhoods where you are trying to buy or sell.
How to pay for improvements that increase home value
You have multiple options for financing home improvements. Here are loans to consider if you’re in need of additional funds:
|Loan type||Best if:|
|Cash-out refinance||You want to take advantage of low interest rates. Credible can help you find the best refinance rates.|
|Personal loan||You need cash fast. Get started with Credible.|
|Home equity loan||You need a lump sum but don’t want to refinance. Learn more about home equity loans.|
|HELOC||You want to pay for a series of projects over time. Learn more about HELOCs.|
|Credit card||You could benefit from a 0% introductory APR. Use Credible to find a card that works for you.|
With a cash-out refinance, you take out a new mortgage that’s larger than your existing one. The new loan pays off that mortgage, and the excess — minus the loan’s closing costs — goes into your bank account to use however you want.
- Upsides: You get a lower mortgage rate and can use the cash as you please.
- Downsides: Restarts the clock on your mortgage unless you refinance into a shorter term; you’ll also have to pay closing costs.
Home equity loan
A home equity loan allows you to borrow a lump sum based on the difference between what your home is worth and what you owe. You can usually borrow up to 80% of your equity, sometimes more depending on the lender and your willingness to pay PMI.
If your house is worth $300,000 and you owe $200,000 on your mortgage, your home’s equity is $100,000, or 33%.
- Upsides: You’ll pay lower closing costs than with a cash-out refinance, avoid restarting the clock on your first mortgage, and get a low fixed interest rate.
- Downsides: Usually requires at least 20% equity and typically has a higher interest rate than a cash-out refinance.
A home equity line of credit gives you a certain amount of money to draw upon as needed. If you’re doing a series of home improvement projects over a longer time, a HELOC may save you money compared to a home equity loan.
The initial interest rate is often lower than a home equity loan rate but higher than a first mortgage rate. The rate is variable, so it may go up in the future.
- Upsides: You’ll pay lower closing costs than with a cash-out refinance, avoid restarting the clock on your first mortgage, and possibly save on interest.
- Downsides: Usually requires at least 20% equity and the interest rate is variable, which could affect your monthly payments.
A personal loan is an unsecured loan that you can use however you want. The amount you can borrow is based on your ability to repay the loan, and your interest rate is based on your credit score.
If you see a loan advertised as a home improvement loan, it’s probably just a personal loan.
- Upsides: The lender won’t foreclose on your home if you stop paying your personal loan, and the structured repayment period means you know the total borrowing cost up front. There are also no closing costs and you can get the money fast.
- Downsides: Interest rates can be significantly higher than home loans.
Similar to a personal loan, you can use a credit card to buy almost anything. Your credit line will be based primarily on your income, and your interest rate will be based on your credit score.
- Upsides: It may be possible to get a credit card with a 0% APR for 9 to 18 months. Credit card rewards can also be a valuable bonus if you never incur credit card interest. The bank won’t foreclose on your home if you can’t pay your credit card bill, and there are no closing costs.
- Downsides: Interest rates can be higher than 30% depending on the card and your credit score, and an open-ended repayment period means you could get into financial trouble if you don’t hold yourself to a self-imposed repayment plan.
Daria Uhlig contributed to the reporting for this article.