Repairs and Improvements - Splitting hairs over which is which .....

Real Estate Agent with RE/MAX Suburban

Repairs and Improvements -  Let's split hairs over which is which .....

You know the 'gray' areas .... you say potato, I say potatoé .....

My observations from an e-newsletter that was recently sent to me about home repairs and improvements.  Many people just don't understand the difference and really ... is there a difference?  I just don't mean for IRS qualifications, I mean is there a difference in real life?

"Don't Confuse a Repair with an Improvement - Unfortunately, not allhome repairs,home improvements, home expenses are treated equally for the purpose of determining your home's basis [for tax purposes]. The IRS considers repairs to be part and parcel of home ownership -- something that preserves the home's original value but does not enhance its value. This may not always seem true. For example, if you bought a foreclosure and had to fix a lot of broken stuff, the home is obviously worth more after you fix those items, but the IRS doesn't care -- you did get a discount on the purchase price because of those unmade repairs, after all. It's only improvements, like replacing the roof or adding central air conditioning, which will help decrease your future tax bill when you sell your home. For gray areas (like remodeling your bathroom because you had to bust open the wall to repair some old, failed plumbing), consult IRS Publication 530 and/or your accountant."   - 10/6/11

Ok, clear as mud. So is a roof a repair or an improvement?

So let's dissect this bit of home ownership
that makes everyone so confused.  A repair is something that preserves the home's original value but does not enhance it's value.  I agree with that statement thoroughly.  If you need a new roof, you must replace that roof in order to keep your investment in good condition.  All homes need and have roofs.  So will you get a return on your investment if you select up and get a better grade of roof?  Will it actually make your home sell for more money at this time in the market?  

Personally I say NO.  All homes need roofs.  If a seller chooses to spend another $5000 on designer roofing shingles it will make the curb appeal of the home better but I will argue the fact that you will find a buyer willing to give you an extra $5000 for it.  It will add visual value and give the home a better overall appeal but it will withstand the snow, rain and cold just like the regular roof without the $5000 price tag.

home repairs,home improvements,An example of a worthwhile improvement - A home where 1.5 baths are the neighborhood standard and you put in another full bath.  Cha-ching.  Good improvement and probably worth every penny you will pay.  This will definitely make the home more functional and update closer to today's preferred living standards.  If you decide to line the walls in marble and go totally ape with upgrades over and above the neighborhood norm, will you get your money back?  Personally I say NO.

There is a gray area for what a future buyer will be willing to pay for 'improvement insanity'.  They will pay for the improvements but the gray area becomes even foggier about what amount, if any, can be recovered.

The best advice would be to do basic improvements and repairs within your neighborhood norms and stay budget conscious throughout the entire process.

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Alan May
Jameson Sotheby's International Realty - Evanston, IL
A moving experience!

this is an interesting point.  Yes, all homes need a roof.  Although I would argue that a roof installed this year, vs. a roof that was installed 21 years ago... might (and that's the operative word) engender a higher purchase price, simply because the new owner can presume that they might not have to replace it as soon.

Oct 11, 2011 10:12 AM #1
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg Real Estate

Dearest Alan:  Might is the operative word BUT will a buyer actually pay more for the home with the newer roof vs the 21 year old roof?  How much?  I've never had a buyer say they would do that yet.  BUT, I have had buyers say that it's better to have the newest roof and that would be a 'value plus'.  No one again ever said they would pay more.  It's like a value plus because the home has the color carpeting they prefer.

Oct 11, 2011 10:50 AM #2
William Feela
Realtor, Whispering Pines Realty 651-674-5999 No.

Many people have a hard distinguishing the difference.  Some think that everything is an improvement, but many things are a necessity.

Oct 11, 2011 01:26 PM #3
Sidney Kutchuk - Realty Works Temecula Kutchuk - Realty Works Temecula
Realty Works Temecula - Temecula, CA
Realty Works Temecula

Lyn:  The same thing comes up when negotiating repairs/improvements.  Some things must be done and others are just more convenient if they are done. 

Oct 11, 2011 01:59 PM #4
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg Real Estate

Jane: Excellent word choice = convenience. Again, that means it has value, time & hassle value but will people actually pay a higher price for it?

Bill:  Exactly. Most owners think that every nail, blob of spackle is an improvement when many times they MUST be done to keep your home in good working order.  That equates to repairs & maintenance.

Oct 12, 2011 02:16 AM #5
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

Oh, and toss in the word "remodeled" . . . YIKES.  I've seen "remodeled" tossed about too, and it just had some updates.  Good post Lynn and points to ponder.

Oct 13, 2011 12:38 PM #6
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