Remodeling magazine produces the Cost vs. Value Report each year in cooperation with REALTOR magazine. REALTORS responding to a survey in midsummer said home owners could expect to recoup a national average of 67.3 percent of their investment in 30 different home improvement projects. At the height of the housing boom in 2005, home owners could expect to recoup a national average of 86.7 percent on projects.

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Once again, exterior remodeling projects lead the way for recovery on dollars spent in this year’s Cost vs. Value survey. When you compare the national averages, replacement projects that boost curb appeal–siding, windows, and decks–give you the greatest chance of recouping your money. Inside, only kitchen remodels can compare, at least on a national level.

1. Upscale fiber cement siding (86.7%)
2. Midrange wood deck (81.8%)
3. Midrange vinyl siding (80.7%)
4. Upscale foam-backed vinyl (80.4%)
5. Midrange minor kitchen remodel (79.5%)
6. Upscale vinyl window replacement (79.2%)
7. Midrange wood window replacement (77.7%)
8. Midrange vinyl window replacement (77.2%)
9. Upscale wood window replacement (76.5%
10. Midrange major kitchen remodel (76.0%)
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To read more, go HERE.  (see the full article below.)

[SOURCE: REALTOR Magazine Online]

Remodeling magazine's annual report shows that maintenance-related projects and moderately priced upgrades are providing stable paybacks, even in a slower market.

Despite home price drops in many cities, remodeling projects are holding their own as a way for owners to add value.

Many people are wondering where their money will be safest during these uncertain economic times. When home owners turn to you for your expert advice, counsel them that some things never change: Investing in their home still pays off.

NATIONAL ASSOCIATION OF REALTORS® statistics show that home prices have fallen by an average of 7 percent nationally in the past year. But the value of home owners’ investment in remodeling projects has declined only 3.86 percent on average between 2007 and 2008, according to Remodeling’s 2008–2009 Cost vs. Value Report.

Remodeling produces the Cost vs. Value Report each year in cooperation with REALTOR® magazine. REALTORS® responding to a survey in midsummer said home owners could expect to recoup a national average of 67.3 percent of their investment in 30 different home improvement projects. At the height of the housing boom in 2005, home owners could expect to recoup a national average of 86.7 percent on projects.

Remodeling remains hot in 10 cities, where, on at least some projects, home owners can recover 100 percent of their costs. In Charlotte, N.C., for example, decks, midrange kitchen remodels, vinyl siding, and window-replacement projects all would net more than they cost, in respondents’ estimation. High rates of recovery were seen in both strong real estate markets and weak ones. 

Many cities with the highest rates of recovery were smaller—Jackson, Miss., and Billings, Mont., for example—which may point to lower labor and materials costs that are easier to recoup. 

Seattle also made the list of cities with a cost recovery of more than 100 percent on decks and minor kitchen remodels. In fact, Pacific Coast cities recorded the best payback on remodeling by a wide margin, as they did in 2007. Although construction costs on the Pacific Coast are nearly 17 percent higher than national averages, the value of renovations at resale more than makes up for those higher prices. 

The result is an average cost-recouped percentage that’s 14.8 percent higher than in the rest of the country. The toughest place to get your money back: Midwestern cities such as Chicago, Cleveland, Indianapolis, and Milwaukee.

Top 10 Project Paybacks 

Once again, exterior remodeling projects lead the way for recovery on dollars spent in this year’s Cost vs. Value survey. When you compare the national averages, replacement projects that boost curb appeal—siding, windows, and decks—give you the greatest chance of recouping your money. Inside, only kitchen remodels can compare, at least on a national level.

1. Upscale fiber cement siding (86.7%)

2. Midrange wood deck (81.8%)

3. Midrange vinyl siding (80.7%)

4. Upscale foam-backed vinyl (80.4%)

5. Midrange minor kitchen remodel (79.5%) 

6. Upscale vinyl window replacement (79.2%)

7. Midrange wood window replacement (77.7%)

8. Midrange vinyl window replacement (77.2%)

9. Upscale wood window replacement (76.5%

10. Midrange major kitchen remodel (76.0%)

The Real Deal: Examples from You

REALTORS® around the country helped us track down home owners who had recently completed remodeling projects. In all cases, the projects cost far less than the job cost estimates provided with the Cost vs. Value survey.

ATTIC-TO-BEDROOM 

Location: Oak Park, Ill. 

When Rick Nagle and Eileen Deamer of Oak Park, Ill., spent more than $35,000 to convert the attic of their 100-year-old home into a combination master bedroom and office, "resale value wasn’t our concern," says Deamer, a U.S. government employee and the married mother of two. 

The transformation turned 600 square feet of makeshift office with a toilet in the middle of the room to a colonial-style bedroom/office with two walk-in closets and an adjoining sage green bath with a walk-in shower. To allow two simultaneous uses, pocket doors separate the bedroom and office spaces.

BATHROOM 

Location: Fountain Hills, Ariz. 

"This is such a crazy market to try to judge how much a renovation is worth, but having a refurbished kitchen and bathrooms makes almost any house more salable," says Shari Gay, ABR®, sales associate at RE/MAX Sun Properties in Fountain Hills, Ariz. The owner—Gay’s sister—added Saltillo clay floor tile throughout the 1,800-square-foot home, including the new bathroom. Bathroom finishes included a new cherry vanity cabinet, a tile shower, oil-rubbed bronze fixtures, and a soothing, sophisticated yellow color scheme, which all add up to a great look. 

Total cost? About $5,000. "She’ll at least break even on the upgrades," predicts Gay. "If this were a boom market, she would get even more."

KITCHEN 

Location: Honolulu 

A kitchen is the heart of most homes. That’s why Hollywood set designer Wally White decided to spend most of his $15,000 renovation budget on upgrading the kitchen of his Honolulu studio condo. To spruce up the existing white cabinetry, which he left to save costs, the owner added bursts of color with celadon green granite countertops and walls painted in a complementary shade of light green. An undermounted white porcelain sink, a six-light halogen fixture on a dimmer, and brushed stainless steel faucet completed the look. It paid off. 

White grossed $45,000 when he sold eight months later. "The unit sold for more than any other studio—and most of the one-bedroom condos in the building," says Susan Weinik, a sales associate with Realty Executives Oahu.

BASEMENT

Location: West Brighton, N.Y.

In a modest 1950s ranch in West Brighton, N.Y., a midrange basement upgrade suited Bernard Fallon’s mother-in-law, Ligaya Nocon, just fine. After purchasing her home "on the high end of the market," according to Fallon, broker at Fallon Associates Realty in Rochester, N.Y., Nocon kept basement renovation costs under $9,000. 

She created a cottage feel by whitewashing the knotty pine paneling rather than replacing it. She also reupholstered the existing bar to cover wear and warmed up the room with wall-to-wall carpeting instead of wood or tile. "We just dressed it up for the personal enjoyment of my mother-in-law," says Fallon, "but I think it will help sell the property later."

The Specs

To help respondents determine the resale value of improvements, the survey provided specifications for each project:

• Attic Bedroom Remodel. Convert unfinished attic space to a 15-by-15-foot bedroom and a 5-by-7-foot bathroom with shower. Include a 15-foot shed dormer, four new windows, and closet space under the eaves. Insulate and finish ceiling and walls. Carpet floor. Extend existing HVAC to new space; provide electrical wiring and lighting to code. Retain existing stairs, but add rail and baluster around stairwell.
• Minor Kitchen Remodel. In a functional but dated 200-square-foot kitchen with 30 linear feet of cabinetry and countertops, leave cabinet boxes in place but replace fronts with new raised-panel wood doors and drawers, including new hardware. Replace wall oven and cooktop with new energy-efficient models. Replace laminate countertops; install mid-priced sink and faucet. Repaint trim, add wall covering, and remove and replace resilient flooring.
• Basement Remodel. Finish the lower level of a house to create a 20-by-30-foot entertaining area with wet bar and a 5-by-8-foot full bathroom; construct 24 linear feet of finished partition to enclose mechanical area. Walls and ceilings are painted drywall throughout; exterior walls are insulated; painted trim throughout. Include five six-panel factory-painted hardboard doors with passage locksets. Electrical wiring to code. Main room> Include 15 recessed ceiling light fixtures and three surface-mounted light fixtures, as well as a snap-together laminate flooring system. Bathroom> Includes standard white toilet, vanity with cultured marble top, resilient vinyl flooring, two-piece fiberglass shower unit, a light/fan combination, vanity light fixture, recessed medicine cabinet, towel and paper-holder hardware. Bar area> Include 10 linear feet of raised-panel oak cabinets with laminate countertops, stainless steel bar sink, single-lever bar faucet, undercounter refrigerator, and vinyl floor tile.
• Upscale Bathroom Remodel. Expand an existing 35-square-foot bathroom to 100 square feet within existing house footprint. Relocate all fixtures. Include 42-by-42-inch shower with ceramic tile walls with accent strip, recessed shower caddy, body-spray fixtures, and frameless glass enclosure. Include a customized whirlpool tub, stone countertop with two sinks, two mirrored medicine cabinets with lighting, a compartmentalized commode area with one-piece toilet, and a humidistat-controlled exhaust fan. Use all color fixtures. Use larger matching ceramic tiles on the floor, laid on the diagonal with ceramic tile base molding. Add general and spot lighting including waterproof shower fixture. Cabinetry includes a custom drawer base and wall cabinets for a built-in look. Extend HVAC system and include electric in-floor heating and heated towel bars.

Why Renovation Pays

Why are renovations holding their value better than home prices today? "When housing slows down, people stay put and renovate their house to make it more livable," says Paul Zuch, president of Capital Improvements, a designing, building, and remodeling company in Dallas. And by renovating before they sell, home owners get to enjoy the new space themselves, not just make the home more appealing to buyers. "It just makes sense," says Zuch.

Recent renovations also make buyers’ lives easier. "Home owners who remodel their home are providing a service to future buyers," says Eileen Nelis, a broker at Savvy and Co. in Charlotte, N.C. "When buyers purchase, they don’t want to do all that painting and remodeling, and they don’t want that price tag. They may be willing to make improvements down the line, but when they purchase, they want to open the door and have everything complete. It reduces their stress."

Making home improvements can also reduce sellers’ stress by heading off that time-honored negotiating technique—pecking away at the sales price by pointing out imperfections. "If sellers have done some improvements and dressed up their property, the improvements will help sell it," says Bernard Fallon, broker at Fallon Associates Realty in Rochester, N.Y. "If sellers don’t want to improve their property, buyers will tick off the repairs and try to take them off the price."

That doesn’t mean that every home owner should do every renovation, even in a more stable real estate market. Take Tulsa, Okla., where median home prices actually edged up slightly more than 2 percent in 2008, according to NAR. REALTORS® in Tulsa reported that, of the 30 remodeling projects surveyed, only 16 netted home owners at least 80 percent of the cost. 

"Not every neighborhood will support the additional work," says Jim Hemphill, a sales associate at Coldwell Banker Select in Tulsa, "but in older, more established neighborhoods, if you redo a kitchen or bathroom or add a master bath or bedroom, you’ll get your money out."

Despite the value, the weak economy is likely to slow seller spending on remodeling, at least in the short term, predicts the most recent Leading Indicator of Remodeling Activity computed by the Joint Center for Housing Studies at Harvard University. 

The LIRA for the third quarter of this year estimated that owners’ spending on home improvements will decline at an annual rate of 12 percent by the second quarter of 2009, continuing a two-year downward trend. Spending is unlikely to recover until the housing market turns around, according to the Center.

Yet, despite declines in overall remodeling dollars spent and a still shaky housing market, "people’s homes are still one of their best, most solid investments," notes Zuch. "Even though the markets have gone through some adjustments, it’s still smart to invest in your home."

This article was published on: 12/01/2007

It's Payback Time

Remodeling magazine’s annual "Cost vs. Value Report" shows exterior and replacement projects bring the biggest return.

ADAPTED FROM REMODELING MAGAZINE

Home rehabbers who are considering a move in the not-too-distant future should focus mostly on exterior upgrades. That’s the message from REALTORS® who participated in Remodeling magazine’s 20th annual "Cost vs. Value Report", done in cooperation with REALTOR® Magazine.

REALTORS® in 65 markets were given construction specs and costs on 29 upscale and midrange projects and asked to estimate the percentage return at resale.

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.

Nationally, projects at the bottom of the cost-recovery ladder included home office remodels (57 percent), installing a back-up power generator (58 percent), and adding a mid-range sunroom (59.1 percent).

Put Costs and Values in Context

Looked at over a number of years, some projects appear to recoup considerably less than others. Home office remodels, for instance, have been at or near the bottom of the national averages since 2005 when the project was added to the survey. People investing in a home office typically do so to fill a specific need, such as to start a home-based business or telecommute. A prospective buyer with different space needs won’t see the value, regardless of the cost.

On the other hand, since minor kitchen remodels were added to the report in 2004, they’ve consistently ranked among the highest-value projects, according to practitioners surveyed.

When looking at cost estimates for individual projects, remember that averaging tends to have a leveling effect on job cost data. Also, seemingly small differences in project size and scope, or in the quality of finishes, can dramatically affect final project cost.

It’s also important to consider whether a remodeled space reduces the perceived number of rooms or available square footage. For example, carving a half-bath out of unused storage space under a staircase is an obvious gain in usable space. But converting an existing bedroom into a master bath, while a positive development in many respects, may reduce the number of bedrooms below the minimum expectation of some prospective buyers.

Similarly, the cost recouped on a given remodeling project depends on a wide variety of factors. These include the condition of the rest of a house, the value of similar homes nearby, and the rate at which property values are changing in the surrounding area. A home’s urban, suburban, or rural setting also affects its value, as does the availability and cost of new and existing homes in the immediate vicinity.

Finally, there can be wide regional swings. A midrange bathroom remodel recovers 85 percent of its cost in the South but only 63 percent in the Midwest.

Where resale value is a major factor in a home owner’s decision to remodel, the best course of action is to consult with a local remodeler about construction cost — and look closely at the comps and market conditions.

Survey Changes Affect Results

Some of the volatility in year-to-year comparisons results from two changes to the survey itself. The first is a general overhaul of the project descriptions and cost estimates, begun in 2006 and completed this year. These changes resulted in cost increases larger than would have resulted simply from rising labor and material costs, notably for major kitchen remodels, bath projects, and siding replacements. The construction costs are more accurate than in previous years, but they combine with slower home appreciation to create a lower percentage in the value column.

The second change began in 2002 with the introduction of higher-priced upscale versions of some projects. Although the range of costs thus created made the report more useful, it impacted year-over-year comparisons. While the trend of core projects turned down in 2003, the trend for all projects peaked in 2005 before turning downward.

As we continue to survey all 29 projects, we expect trend data to become more reliable. Until then, the most useful comparisons are of national data for single projects and of regional cost and value differences.

About the Survey

Construction cost estimates for the 2007 Cost vs. Value Report come from HomeTech Information Systems, a remodeling estimating software company based in Bethesda, Md., which regularly collects current cost information from a nationwide network of remodeling contractors and suppliers and applies an adjustment factor to account for regional pricing variations. Construction cost figures include labor, material, subtrades, and contractor overhead and profit.

Over the last two years, project specifications and estimating templates have been updated to clarify dimensions, modify material specs, and ensure that special requirements such as laying tile on the diagonal were properly accounted for. In some cases, this process resulted in prices that are higher than what would be expected from price inflation alone. Although such pricing adjustments affect year-over-year price comparisons, all of the values in the 2007 Cost vs. Value Report are based on the refreshed prices, which we consider to be more accurate than before.

For each project, the value data are aggregated from estimates provided by members of the NATIONAL ASSOCIATION OF REALTORS®. E-mail surveys containing project descriptions, construction costs, and median home price data for each city were sent to more than 100,000 appraisers, sales associates, and brokers. Survey respondents were asked to use this information to estimate the value that the remodeling projects would add to the house at resale in the current market, assuming that the project was recently completed.

The survey took place over eight weeks in July and August 2007. The survey was administrated by Specpan, an Indianapolis-based market research company specializing in business-to-business Web-based surveys.

For the national averages, the confidence level is 95 percent +/–2 percent based on 2,770 survey respondents. This means that 95 percent of the time, national averages for this survey will fall within 2 percent of either side of the results of this year’s survey.

Remodeling can pay big dividends to sellers at resale.  What’s the value of a major kitchen revamp or a bathroom redo when they list their home? The seventh annual "Cost vs. Value Report" will tell you. It looks at the cost-to-construct for common remodeling projects against the added value those projects bring at resale. 

This year’s report, again published in conjunction with Remodeling magazine, includes 18 projects, many with midrange and upscale versions. This year we increased the number of cities reporting estimates from 35 to 53*.  Where we get the data Cost data for the Report come from HomeTech Information Systems, a remodeling estimating software company in Bethesda, Md.

Costs are adjusted to account for city-to-city pricing variations.  Resale values don’t reflect actual sales made on remodeling projects. Instead they’re based on NATIONAL ASSOCIATION OF REALTORS® members’ professional judgment. E-mail surveys containing cost and median home price data for each city were sent to more than 20,000 appraisers, brokers, and salespeople generating 356 responses (a 1.78 percent response rate). Specpan, a Denver market research company, managed the survey process. According to The Farnsworth Group, an Indianapolis consulting firm that analzed the survey data, the accuracy rate is plus or minus 5 percent to 10 percent.

What do the numbers mean?

Numbers may appear high or low simply because of the leveling effect of averaging and because costs, profit margins, and project scope can vary widely from market to market and even house to house.  Return on investment depends on the value of the house, the value of similar homes in the immediate area, the availability and pricing of new homes, and the rate at which property values are changing in surrounding neighborhoods.  For some projects, resale value is projected to be more than 100 percent of the original investment, in some cases, quite a bit more. This is characteristic of markets where property values are rising very rapidly but also in areas where certain types of remodeling projects are taken for granted. Ultimately, a remodel offers sellers two distinct but no less important benefits: pride of ownership and tax-free equity when they sell.

—Sal Alfano, editorial director of Remodeling magazine, and Christina Hoffmann Spira, managing editor of REALTOR®Magazine Percent cost recouped (national average)

• Major kitchen remodel ... midrange 79.4% ... upscale 80.3%
• Master suite addition ... midrange 80.1% ... upscale 77.6%
• Minor kitchen remodel 92.9%
• Family room addition 80.6%
• Bathroom remodel ... midrange 90.1% ... upscale 85.6%
• Bathroom addition ... midrange 86.4% ... upscale 81.1%
• Attic bedroom 82.7%
• Basement remodel 76.1%
• Sunroom addition 70.8%
• Deck addition 86.7%
• Window replacement ... midrange 84.5% ... upscale 83.7%
• Siding replacement 92.8%
• Roofing replacement 80.8%

And remember  . . . Don’t spend a PENNY ‘til you call JENNY!