The housing bust and subsequent tightened credit market put a damper on many homeowners’ grand renovation plans.

Now, though, it looks like things might be about to change. Spending on home remodeling is expected to bottom out this quarter and pick up in 2010, according to Harvard’s Joint Center for Housing Studies. The center’s latest Leading Indicator of Remodeling Activity (LIRA), released last week, projects annual declines in spending to ease from the current rate of 12% to 3.1% in the third quarter of 2010, as remodeling fundamentals turn positive. (The indicator started seeing year-over-year declines in mid-2007.)

Owners spent an estimated $109.7 billion on home improvements in 2009, down from $120.1 billion in 2008. The center forecasts that number to reach $110.9 by the third quarter of this year (for the four previous quarters).

Part of the reason for the turnaround forecast has to do with the housing market in general, which is by some measures showing signs of stabilization.

“We’re seeing people seeming a little more comfortable – specifically, people willing to work with larger jobs, do larger investments in their home,” says Bruce Case, president of Case Design Remodeling, a home-renovation firm based in Washington, D.C. Whereas about a year ago, most of Case’s clients signed up for smaller, need-based projects (like fixing a leaky roof), now they’re reaching a little more into the want-based projects, such as remodeling a bathroom or adding an extension.

“But we’re still seeing cautiousness,” Case says. “People don’t want to make a mistake.” Indeed, a still-tight credit market is curbing some homeowners’ ability to borrow for remodeling projects.

For homeowners who are thinking about giving their place a facelift – to either increase resale value or just because they want to transform the basement into a fourth bedroom – there are plenty of pitfalls to avoid.

“Even though there might be an upswing of work in 2010, it’s going to be slow. Homeowners have to figure out how to buy a new kitchen, how to pick a contractor, and figure out how much to spend,” says Shawn McCadden, an independent consultant to the remodeling industry in Groton, Mass., who used to own a remodeling business.

Here are a few things to keep in mind before you pull the trigger on a remodeling plan and invite the plumbers and electricians in.

Discount may not equal deal
Just a few years ago, a homeowner planning a renovation could make calls to three different contractors asking for estimates and not one would respond. With the changed market came a silver lining for homeowners who could still afford to renovate: contractors who returned calls and offered lower prices.

But the lowest price on a job may not always be the best deal. Consumers should be wary of heavily discounted prices, says McCadden. It may be a sign that the contractor isn’t running his business properly or is cutting corners. “If a contractor is spending your deposit money on a job he’s finishing, he may not even show up at your house, or he might not be there to take care of warranty work when the job is done,” he says.

When interviewing contractors, ask not just about the work but how the work will get done, says McCadden. Ask how they’ll manage the house, how they choose materials and how they’ll hire plumbers, carpenters and other workers.

DIY projects
The days of easy financing that enabled homeowners to pay for pricey remodeling projects are gone. Home-equity loans are much harder to come by these days, says Bruce Brown, a certified mortgage planning specialist at Pulaski Bank Home Lending in Kansas City, Mo.

So with an eye to saving money, many homeowners want an a la carte remodel: For example, owners do the painting or buy some of the materials while the contractor installs the new cabinets and does the electrical work. Owners are looking for places where the remodeler can bring most value to the project, says Case. And they’re willing to get their hands dirty if it means a lower bill.

But if you want to do part of the work yourself, be realistic about your skill level. Don’t try to install a new staircase if you’re never picked up a hammer. You’ll also have to accept responsibility if something goes wrong: “If you buy the paint and it peels off two years from now, it was your responsibility to provide the right material for the contractor,” says McCadden.

Lead regulations
As of April 22, contractors doing repair and renovation work in homes built before 1978 will have to comply with new Environmental Protection Agency regulations. Pre-1978 homes must be tested for lead. If lead is found, certain practices must be followed for projects that will disturb lead-based paint, including laying down new carpet, putting up curtains or painting.

If these new safety guidelines apply to your home, be prepared for a sea of plastic coverings – and a higher price. These new rules “will be a game changer and will be an additional cost to do the work,” says McCadden. It requires containment in the work area to prevent the spread of dust as well as specific cleaning and cleaning-verification practices. The EPA says the regulations will cost contractors an average $35 per project, including costs for materials, such as plastic sheeting as well as labor. McCadden says that’s a gross underestimate. “It’s misleading for homeowners who might think a contractor is gouging them on price because of this extra cost,” he says.

On this, too, homeowners should ask prospective contractors about their plans. The EPA advises that homeowners find out if their contractor is trained to perform lead-safe work and to review a copy of their training certificate.

Posted in: Home Improvement
Tags: grand renovation, home improvements, home remodeling, home renovation, Housing Market, remodeling a home, remodeling projects, resale value

From SmartMoney.com:

Is that a hair fracture in the buyer’s market?

Sellers for months have been slashing prices, making gratis home improvements and absorbing closing costs to get prospective buyers to bite. But a recent report by Zillow, the Seattle-based online real estate service, suggests negotiating power among buyers is starting to weaken — if only slightly.

According to the report, home buyers nationwide negotiated a median 2.9% off the final listing price in September, down a bit from 3% the previous month. Buyers’ negotiating power peaked in January when they were paying 4.5% less than the home’s last listing price, Zillow says.

…

So how can prospective home buyers maximize their leverage with sellers? Here are a few tips.

Make sure you’re fully preapproved for a mortgage. This means your lender verified your income, checked your credit report and approved you for a mortgage of a certain amount over a fixed timeframe. When a buyer has that preapproval letter in hand, “they become a more attractive buyer than others who don’t have that [and] they have a lot more weight,” says JP Endres-Fein, a realtor with Homes of Westchester in New York.

For more tips on getting preapproved, read our story here.

Get the home’s total history. You want to know how long the home you’re interested in has been on the block. Often times, a seller will work with one real estate agent or company that will list the home on its local Multiple Listing Service. If the home doesn’t sell, the homeowner will go with another company and lists the home separately.

Ask your realtor to pull the home’s total history – how many times the house has been on the market, for how long, if there was a price adjustment and what the starting price was, says Endres-Fein. The information should factor into your negotiation approach. “The longer the house has been on the market, the more that says to me it started out overpriced,” she says. “If the home is on the market for just a week or two, the seller will stay firm. They’re less likely to negotiate down.”

Ask about the seller’s timeline. Try to find out if the seller has a specific deadline. If they already bought a new house, are close to closing or have to move for a job transfer, they might be more amenable to negotiations. Just keep in mind that if you ask the seller or seller’s agent, you may not get a straight answer. They don’t want to necessarily give away a weakness. Endres-Fein suggests having your agent ask the person representing the seller a general question, like “Is there anything we need to know about the timing of the sale?”

Time the tax credit. If you’re hoping to take advantage of the newly extended home buyer tax credit, you’ll have more negotiating power now than later, says Jay Papasan, the vice president of publishing at Keller Williams Realty. Papasan expects many buyers will procrastinate and wait until the spring to get serious about buying in time for the credit. (The new law covers home purchases that are under contract by April 30, 2010 and closed by June 30, 2010. Read our story for more on the extended credit.)

Buyers will find the best deals with the least competition in December and January, traditionally the slowest months in real estate – and before a lot of other buyers have made the decision to jump in, Papasan says.

Posted in: Home Buying
Tags: Home Buying, home improvements, negotiating power, negotiation, prospective home buyers, real estate agent, realtor, zillow

HomeGain.com, one of the first websites to offer Web-based free instant home values, announced that it has released the results of its nationwide home improvement and home staging Home Sale Maximizer survey.

HomeGain’s recent survey shows the top do-it-yourself home improvements that Realtors recommend to home sellers. HomeGain received responses from nearly 1,000 Realtors nationwide and configured a list of the top 12 do-it-yourself (DIY) home improvements that cost under $5,000 and benefit sellers most when they sell their homes.

According to the HomeGain survey, the top five home improvements that Realtors recommend to home sellers based on cost and return on investment (from highest to lowest ROI) are:

1. Cleaning and de-cluttering ($200 cost / $1,700 price increase / 872% ROI)
2. Home staging ($300 cost / $1,780 price increase / 586% ROI)
3. Lightening and brightening ($230 cost / $1,300 price increase / 572% ROI)
4. Landscaping ($320 cost / $1,500 price increase / 473% ROI)
5. Repairing plumbing ($385 cost / $1,250 price increase / 327% ROI)

Cleaning and de-cluttering continues to rank as the top suggested home improvement (since the survey was originally conducted in 2000), recommended by 98% of Realtors, costing less than $200 and returning a value of nearly $1,700 to the home’s sale price, or an 872% return on investment.

“Many Realtors agree, especially in a buyer’s market, that sellers who make these recommended home improvements often get their homes sold faster and at higher prices,” stated Louis Cammarosano, General Manager at HomeGain. “We have customized our Home Sale Maximizer online home improvement tool to help identify and prioritize the projects that can increase the salability and selling price of a home.”

Rounding out the top 12, the list of low cost, do-it-yourself home improvements includes: updating electrical, replacing or shampooing carpets, painting interior walls, repairing damaged floors, updating kitchen, painting outside of home, and updating bathroom’s.

The home improvement projects with the highest price increases to a home’s resale value are updating the kitchen ($1,200 cost / $2,850 price increase), followed by painting the outside of the home ($900 cost / $1,815 price increase) and home staging ($300 cost / $1,780 price increase).

“Inexpensive cosmetic home improvements and basic improvements greatly enhance the value of the home,” stated Carol Wilson of Carpenter Real Estate in Indianapolis, IN, HomeGain AgentEvaluator member since 1999.

Posted in: Home Improvement
Tags: free instant home values, Home Improvement, home improvements, home sellers, home staging, realtors, return on investment