For my entire childhood, we were in a constant state of remodel. I was knocking out plaster with a sledgehammer at age 7, painted ceilings when I grew taller than my mother and stepped on more nails than I care to remember.

We were slowly piecing it together to one day make it complete and “perfect”.

Problem was, after a few years, the rooms we had remodeled were starting to show signs of wear — broken in from 3 kids and the clutter/dust from the work in other sections of the house.

It will never be as complete as dreamed. But the quest for it and the pride from each improvement made the house more “alive” than if we had been hands-off.

I am amused by how often I make my decisions based upon my predictions of the future. To test your predictions (all irrational of course) look back five years and try to remember what the next five years were to look like. This and mind reading seems to be two preoccupations that experience shows to be impossible and yet I continually engage in them.

Derek – spot on. Homeowner’s are by nature, irrational because buying a house mixes social and economic behaviors. We may (or may not) count the hard costs that we inject into a house (improvements) but we lose sight of the soft costs (sweat equity).

On the other hand, with some sweat equity, we most assuredly can impact the value of a house whereas there’s not much we can do to influence stocks/bonds, et al.

Pam, I think one thing to remember regarding warranties and product life is that little devil called ‘planned obsolescence’. There’s a reason appliances aren’t made the way they used to be – it’s bad for residual sales. The key is to rationalize (sorry for using that term here!) the opportunity costs and break costs into a common denominator for comparison and evaluation, which of course is the last thing manufacturers want. They know that we are predictably irrational!

The auto industry is a great example with their 100,000 mile warranties. Who drives a single car 100,000 miles anymore and exercises the full value of that warranty?? (Which is why they offer it.)

The biggest mistake homeowners make however is refinancing. I cringe every time a friend comes to tell me what a great guy/gal their banker is because they just re-finance and saved hundreds per month, and, and they didn’t even have to pay closing costs!! Party time. Until I show them that their 30-year mortgage is now 37-years and how much those 7 extra years add up to. Ouch. Pricing is all relative, right? And people actualy BELIEVE that the bank on the other side of that contract had their best interests in mind. Predictably irrational.

I have another related observation for you to consider. People way too often view their home as an investment much like a stock or bond or CD. In the long haul however, when you truly consider the massive costs of ownership, repairs, and maintenance it’s not so good. In fact it goes beyond being an under-performing asset in most cases I suspect. When you consider your sweat/toil and all the above mentioned costs I suspect many home purchases are financial liabilities. That’s not to say we shouldn’t buy homes–I love being a homeowner. Just don’t expect to get rich with your purchase. I’ve conveyed these thoughts to many friends/family members when they are purchasing and they aren’t very rational in criticizing my analysis

D

Home buying is one of the few areas where an extended warranty is a good idea.

Something (or many things) breaks in the year after you move in. The warranties usually cost about $300, and most charge a $35 service fee to come out, but everything after that is covered. So it’s good to save up problems if you can – like a slew of electrical or plumbing problems.

In the houses I’ve had warranties on, they’ve paid for new toilets, sinks, water heaters, air conditioners, whole house heaters, water pressure regulators, dishwashers, stove heating elements, exhaust fans, thermostats, faucets, electrical outlets and light switches.

A home warranty is an especially good deal if you can get the seller to pay for it as a condition of the sale!

However, expensive doesn’t equal good. And neither does long-lasting equal good. I think you sort of have to be in the home renovation business long enough to see the lifespan of things, and to really experience the materials. Case in point: Granite countertops. Laughably expensive, but need continual care, sealing, etc. Silly expense.

Things to spend money on (but not crazy amounts), because the money returns at resale:
Weatherproofing and energy efficiency (dual-paned windows are an especially smart buy)
Structural integrity items (cheap decks on stilts? No)
Bathroom and kitchen upgrades (excellent return on investment, unless you go nuts)
Landscaping upgrades (but don’t go crazy unless you already are)
Flooring and countertops (this is where lasting actually means something)
Roofing
Heating and AC
Garage or carport

Things not to spend money on, because buyers will not be impressed, and might even underbid because you’re silly:
Expensive carpets, wall coverings, and designer paints.
This year’s color scheme and fashionable countertop option (when does fashion not equal victim?)
Overly expensive “green building” stuff. “Green” is not regulated, so it doesn’t really mean anything.
Indoor affectations like fountains and statuary
Really specific things like dog runs or putting greens
Pools and hot tubs, unless they are de rigeur in your area

On the other hand…cars are lasting longer