Remodeling: Cost vs. Value - How much will your investment return?
Ever sit at home and watch any of the many home remodeling shows on cable where the homeowner is looking to turn a quick profit after sprucing up a very bland home? If you haven’t, it goes like this:
- The Buyer buys a home in poor condition at a price below market value (hopefully?).
- So called ‘expert’ comes in and brings up the “Wow” factor, by telling the owner/flipper things like “This $800 of new sod can raise the property value by $3000!!!” or “This $10,000 kitchen remodel should bring you back 20K, nice and easy!!!”
- The Owner, thrilled by their impending windfall, dishes out the cash necessary, usually just right before finding a ton of wood rot in the bathroom, which they have no choice but to fix, and not fitting into the remodeling budget. But all the other improvements should bump up the value to cover the little expenses, right?
- And the show ends, usually with owner getting realistic quotes from ‘actual’ professionals, and settling for a good deal less than their asking price.
Personally, I like the shows that follow the pros around a bit better. They do simple cosmetic fixes, and repair where necessary.
The reality of remodeling, however, is not as television friendly. Rarely do remodeling projects return more than 100% of the cost. What’s notable about the Cost vs. Value report (below) is that the returns on remodeling average 70-80%. Traditionally the best returns come from projects such as Kitchen and bathroom remodels, upgrading flooring, and cosmetic refinements such as exterior remodels and beautification. Then again, many of these projects are sales friendly. Ads for homes often have a short synopsis, and terms such as “granite countertops”, and “Hardwood flooring” make for quick selling points that pop out to potential buyers. If there’s a picture attached to an ad, then of course the exterior upgrades and carefully manicured landscaping will instantly draw interest.
But keep in mind, that’s only my opinion. What truly matters is numbers, research and statistics. Over the last few years, I’ve followed up with the Cost vs. Value report prepared in conjunction by Remodeling Magazine and Realtor magazine with the support of surveys completed by thousands of members of the National Association of Realtors, a market research firm, as well as an estimating software developer.
The most recent edition for 2007 has the figures given and comparisons to previous years, or the trends, so to speak.
Of projects that saw national cost recovery rates of more than 80 percent in 2007, only one — a minor kitchen remodel, with 83 percent of cost recovered — was a strictly interior job. The others were an upscale siding replacement using fiber cement materials (88.1 percent), a wood deck addition (85.4 percent), midrange vinyl siding replacement (83.2 percent), and upscale vinyl and midrange wood window replacements (81 percent and 81.2 percent, respectively).
On most projects, the value of remodeling trended down in 2007 compared with 2006. No project exceeded an 88 percent return. The likely culprits for the year-to-year drop: rising remodeling costs and slowing home appreciation brought on by the lackluster housing market in many areas.
The story was somewhat different in the Pacific region, however, where REALTORS® estimated cost recovery of more than 100 percent for six projects: a wood deck addition, a minor kitchen remodel, fiber-cement siding replacement, wood window replacement, and an upscale wood and vinyl window replacement.
What is there to learn from the Cost vs. Value report? Depends on what type of project your thinking of tackling. Maybe that home office works out great for you, and whichever line of work your in, so long as you’re sticking around for the foreseeable future. However if you build a home office with the intentions of Wow-ing a potential buyer, the numbers show that your remodeling dollars would be better spent elsewhere.
Remodeling Magazine’s Cost vs. Value 2007 report
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