house being rennovated

Is a Home Addition Worth the Cost?

Home additions can add value to your home and make it easier to sell, but they can also drain your budget. Here’s what you need to know before breaking ground.

It’s a good time to be a homeowner. Last year was a seller’s market, and 2018 is shaping up to surpass it. Homebuyers are struggling to find homes — because of lack of availability and increasing prices — and sellers are reaping the rewards, with multiple offers over asking their price.

For homebuyers, “it will be a tougher year,” David Berson, chief economist at Nationwide and a former chief economist for Fannie Mae, told CNN Money. “There is going to be less choice and higher prices, and on top of that, mortgage rates have moved up.” The CNN Money article cites a Trulia study that found even starter homes are “more expensive, smaller, older and more in need of repairs than they were six years ago.” Kalena Masching, a real estate agent with Redfin in San Francisco, California, agreed.  “It’s a full-time job to be a buyer,” she said.

In today’s market, a larger home with recent updates can go for top dollar. So, if you have the time and the budget to put toward a master suite or bathroom addition, or if you are hoping to sell within the year and believe this add-on will help you sell at a higher price point, an addition may be perfect for you. Here are three questions to consider.

1. How much will it cost?

There’s how much you’ll spend on the addition, and then how much it will actually cost. According to CostHelper.com adding a bathroom or bedroom runs from $25,000 to $50,000. A family room or other large room could cost up to $100,000.

Bill Millholland, executive vice president at Case Design/Remodeling Inc., in Washington, D.C., told US News he would expect the project to average between $200 to $600 per square foot. He added that size plays a role. “The more you build, the less it costs per square foot,” he said.

Most people refinance their home to pay for the new addition. Others borrow money from lenders who look at the future value of the property. This covers the initial cost, but your homeowners insurance will probably go up. Make sure you factor the additional insurance into your total cost. If you live in a condo, you may also pay HOA fees. Talk to your insurer, your building association and your bank before making any decisions.

2. Does it make sense for the property, and will it make a return on investment?

According to a report from Remodeling, a two-story addition has a 65% return, a master-suite addition has a 63% return, a bathroom addition has a 53% return, and a sunroom has a 49% return on investment.

Even if you’re not planning on selling your home, think about the type of addition you’re planning to build and whether or not it will add value in enjoyment and return on investment. One day, the house will be sold, either by you or your heirs, and an addition that flows with the home and provides convenience is a better investment than an addition built without thinking about future buyers.

If you need to refinance or take out a home equity line of credit in the future, having an addition that adds value could help. Adding amenities or rooms that put your home on par with others in your neighborhood is probably a good investment, John Bredemeyer, past president of the Appraisal Institute, told HGTV, while going with something unheard of in your neighborhood probably is not.

3. How long will construction take, and how does that impact when you’re planning on selling your home?

If you’re not planning on selling anytime soon, this isn’t relevant, but if you’re hoping to move within a year or so, timing may be tight. That’s not to say that you can’t go ahead with an addition if you’ve done your research and believe it will add value, but make sure to have clear deadlines with your construction firm and build in time for delays.

An experienced attorney can help negotiate contracts with builders, look over loan agreements, and guide you through a quick and easy closing process when it is time to sell. Contact us today.

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