The Neighborhood Matters
Before Kevin and Julianne Warren spent $42,000 to remodel the kitchen in their nicely detailed 1950s ranch house, the home was probably worth about $150,000. But their location, the Forest Hills section of Grand Rapids, Michigan, gave them confidence that the improvements were a smart bet. "This is a high-end neighborhood for schools. Everyone tries to get into this area," Kevin says.

Even better, the Warrens' home is surrounded by properties worth $200,000 or so. That means they haven't priced themselves out of the local market, a very important consideration with any remodeling project. "Are you going to do work that makes your house worth $300,000 when it's sitting in a $100,000 neighborhood?" asks Israel Ramos, a real estate agent in Phoenix, Arizona.

"Don't exceed the ceiling for the neighborhood, or you won't get your money back." Just as your home's cost should be in line with your neighborhood, your improvements should be in line with the value of your home. In Seattle, real estate agent Kay Rigley recently discovered that a former client spent $90,000 on remodeling two bathrooms, complete with heated floors and Italian tile. "I said, 'I wish you had talked to me first,'" she says. Between what they paid for the property and other improvements, the owners spent more than half a million dollars on a home that Rigley estimates is worth $450,000 at most.

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