Cost vs. Value: Remodeling Projects that Pay

Remodeling magazine’s 2008 "Cost vs. Value Report," done in cooperation with REALTOR® Magazine, has just been released. If you have been on the fence about whether to tackle that kitchen remodel or bathroom addition, be sure to check this out! The 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.

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%)

On the local front, Atlanta homeowners can see even better returns!

Additions (midrange/upscale)

Bathroom - 66.1% / 68.9%
Deck (composite) - 75.9% / 65.9%
Deck (wood) -
83.9%
Garage - 70.1% / 66.8%
Master Suite - 71.4% / 65.3%

Remodels (midrange/upscale)

Basement - 78.1%
Bathroom - 75.5% / 72.2%
Kitchen (major) - 79.1% / 73.3%
Kitchen (minor) - 79.9%

Replacements (midrange/upscale)

Roofing - 72.5% / 69.2%
Vinyl Siding - 82.6% / 84% ***
Fiber Cement Siding - --/ 91% ***
Vinyl Window - 79.4% / 82.4% ***
Wood Window - 78.9% / 77.5% ***

*** A quick note on these items. In older homes, particularly in Atlanta's intown neighborhoods where the historic character of the homes are highly valued and sought after, I would NEVER recommend replacing the original doors and windows if you can help it. If they must be replaced, make sure to use high-quality solid wood options that mimic the original detailing as closely as possible. Similarly, while vinyl siding is inexpensive and very low-maintenance, it will actually DECREASE your home's value in these areas. If siding must be replaced, fiber cement siding (often called Hardi Plank) is only marginally more expensive than vinyl but it gives the appearance of traditional wood siding. In more suburban areas where the homes have been built in the last 20 years you will start to see a greater return for using vinyl windows & siding, but in most cases in metro Atlanta it is always smarter to go with wood.


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."