AAOA Blog

by Dian Hymer, Inman News

Most homeowners expect the value of their homes will increase when they spend money on remodeling. However, this is often not the case. The recent Cost vs. Value Report prepared by Remodeling magazine in conjunction with the National Association of Realtors makes this point abundantly clear.

The Cost vs. Value Report was based on a survey of more than 100,000 appraisers, real estate sales agents and brokers in 65 different markets around the country. The survey included information about construction costs and specifications for 29 mid- to high-range projects. Those who participated in the survey were asked to estimate the percent returned on resale for each project.

In general, the value of remodeling was down in 2007 compared to 2006. This was attributed to rising renovation costs and a slower rate of home-price appreciation.

Also revealed in the report is a trend toward renovation projects that improve the exterior of a home. Nationally, of those projects that paid back more than 80 percent of the cost on resale, only one — a minor kitchen remodel that returned 83 percent — was an interior renovation. It’s noteworthy that since a minor kitchen remodel was added to the survey in 2004, it has consistently ranked amongst the highest-value projects.
Other high-returning exterior upgrades included: upscale siding using fiber-cement material; a wood deck addition; mid-range vinyl siding replacement; and mid-range to upscale window replacement. All of these improvements returned in the 81 to 88 percent range.

Nationally, the maximum percent returned on a renovation project was 88 percent. However, the Pacific region (Alaska, California, Hawaii, Oregon and Washington) bucked the trend with six projects paying back more than 100 percent of the amount spent for renovations. These included: a wood deck addition; a minor kitchen remodel; fiber-cement siding replacement; wood window replacement; and upscale wood and vinyl window replacement.
According to the Cost vs. Value Report, there is a wide range of payback on renovation projects to be expected from different regions. For example, a bathroom remodel recouped 69 percent nationally. In the Mid-Atlantic region the return was 60.7 percent, but it was 84.1 percent in the Pacific region.

HOUSE HUNTING TIP: Given current real estate market conditions and regional variability in the amount you can expect to recoup on a remodel, it’s wise to know your local area well before embarking on a major project. Check costs with a local contractor and talk to a local agent whose opinion you trust before you start, particularly if you have resale in mind.
Just as it isn’t wise to buy a home if you plan to move again soon, it’s also not smart to do a major renovation unless you plan to stay put for awhile. The more you spend, the more money you could lose unless you own the property long enough to benefit from years of appreciation.

Homeowners who are planning to fix up their homes for sale in the near future can gain insight from the results of the Cost vs. Value Report. First impressions have always been an important element in selling homes. So, put some effort in improving the exterior appearance of your home and yard. If your home has limited outdoor living, adding a wood deck can overcome this deficiency.

It may seem ridiculous to improve the kitchen for someone else when you could never seem to find the time to fix it up for yourself. But, since minor kitchen remodels have such a high rate of return, it’s a project well worth considering if your kitchen is dated.

THE CLOSING: It could make the difference between selling or not in the current challenging home-sale market.

Dian Hymer is author of “House Hunting, The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide,” Chronicle Books.
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Copyright 2008 Dian Hymer

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