Investing in Maine Real Estate

Home Remodeling: Cost vs Value 

Given that America’s homeowners spent more than $139 billion on home improvements and repairs over the past year, (according to data from Harvard’s Joint Center for Housing Studies), understanding the cost / value equation of home improvements is valuable information for anyone who is considering embarking upon a remodeling project.

For the past twenty years Remodeling Magazine has been publishing an annual report that measures the cost of home remodeling projects versus the value those improvements may generate in the real estate market. Their Cost vs Value Report estimates the average cost of remodeling projects across the United States in three major categories:

			Home Additions
			Remodeling Projects
			Replacement

Eight major sections of the home are included, such as bathrooms, deck, family rooms, master suites, basements, etc.

Based on research collected by Specpan (a research company affiliated with the National Association of Realtors) and Hometech Information Systems, the report includes data from over 60 metro areas nationwide.

The report includes a wealth of information. For example, nationwide, a bathroom addition that cost $28,918 could be expected to have a value of $21,670 upon sale - a 75% return. Or, vinyl window replacements costing $10,160 would bring in $8,500 upon sale - an 84% return on investment.

That's just mid-range. For upper end projects, you see that wood replacement windows costing $16,910 may recoup 82.5% of their value of $13,952. And high end roofing costing $24,693 would bring in $18,012 or 73%.

Four projects, reported each year since 2002 (see below), have shown the greatest return at resale on a national basis. Two of the projects, siding and windows, reflect the importance consumers place on curb appeal and insulation; the others, a kitchen and a bath project, are consistently high performers in most markets.

This data is both important and timely as home sellers are considering upgrades as a way to be more competitive when they are ready to go on the market. The key question is: What is the market value without the upgrades versus with them. If there are unrealistic expectations on the first part of this question (current market value) then upgrading won't matter.

Replacement Projects Offer Highest Return

In the report dated December 2006, of the top 10 projects nationally measured by cost recouped at resale, seven – including the top three – are replacement projects. An upscale fiber cement siding replacement returned 88% of the investment. Midrange vinyl siding replacement was second at 87.2%, and midrange wood window replacement edged out minor kitchen remodeling for third at 85.2%. Only roofing replacement finished outside the top 10 projects, at 73.9% for a midrange job, and 72.9% for an upscale one.

Energy efficiency in the face of high fuel prices could be a logical reason why replacement projects are high-value performers.

Given the lower values of current projects versus prior years, should there be a cause for alarm? According to experts the unusually strong housing market over the past few years has boosted both remodeling and new construction activity. For many home owners, the appreciation in house prices significantly added to their net worth. Similarly, home improvement projects often paid for themselves through a comparable increase in the home’s value.

In today's market, as appreciation rates modify and the market returns to normal, home improvement projects can be viewed as costing approximately 25 cents on the dollar - with 75 cents being allocated to the increased value of the home.

Download Complete Remodeling Reports   ..2006 Cost vs Value Report ..2004 Cost vs Value Report   Detailed statistics from major metropolitan areas across the nation, complete with information by major home remodeling project. Reports compiled in conjunction with NAR.