Tuesday, November 25, 2008

Cost vs. Value Report - 2008

Remodeling Magazine, published by Hanley-Wood, LLC, Washington, D.C., has been publishing the "Cost vs. Value Report" annually for more than twenty years. The 2008 version compiles information for 79 markets, (up from 64 in past years) on 29 upscale and midrange home improvement projects estimated by HomeTech Information Systems (www.hometechonline.com), which publishes estimating software for professional remodelers.

What do the latest numbers have to say? Home prices have fallen from the summer of 2007 to the summer of 2008 (Cost vs. Value information complied during each summer) but that the value of improvements have fallen less which means that improvements continue to add incremental value. The national average percentage that homeowners can expect to recoup was 67.3% versus the high reached in 2005 of 86.7%. Higher cost estimates for projects coupled with lower resale prices have tipped the percentages to below 100% with minor exceptions. What I noticed in going through the report, with few exceptions, was that the percentage of cost recouped on upscale additions and remodels were generally lower than midrange additions and remodels. This stands to reason as many upscale remodels are not undertaken using an investment return mentality.

Repeated this year is an online source (requires registration) for free city reports. If interested, go to www.costvsvalue.com. A map on the site shows cost comparisons by region.

Here are samples of 2008 midrange projects for the Pacific Region along with its average percentage of cost recouped:

* Bathroom addition - 76%
* Deck addition (wood) - 97%
* Family room addition - 75%
* Master Suite addition - 74%
* Bathroom remodel - 76%
* Home office remodel - 65%
* Major kitchen remodel - 87%
* Minor kitchen remodel - 96% (one of the projects I have advised clients to consider)
* Roof replacement - 79% (may be needed for buyers to obtain fire insurance coverage)
* Siding replacement - 84%
* Windows replacement (vinyl) - 94%


Hope this information is of help to you as you decide on remodeling projects to either enhance the value of your home for immediate reselling or to enjoy the lifestyle benefits of the improvements and have no plans to sell. Please remember that not all remodeling projects will result in higher resale values. Many folks think that someone will want to pay $100,000 more for their remodeled home that costs them $50,000 to complete. Perhaps, but it depends upon on the project, the neighborhood, the likely market conditions upon completion, and other factors. If you are considering remodeling for a sale or just want to see what projects may cost and understand the process, I recommend reading the book "Remodel or Move?" by Dan Fritschen. His website at www.remodelormove.com has a remodel or move calculator to help you with your decision.

For more information and to view the entire Cost vs. Value Report online, please visit www.realtor.org/realtormag. If you want a professional opinion of how the market will react to your proposed project and as a way to save time, money and hassle, please contact me. I would provide you a market assessment of your contemplated remodeling project and if you want, a referral to a licensed trades-person who can provide free estimates or just to talk it over as you firm up your plans, please let me know. I would do this whether or not you would be doing the project for resale as I work exclusively by referral so regularly provide referrals to my clients to help them maintain or improve their homes. By the way, the only thing I get for a referral of this type is the satisfaction that you will be well-cared for by a licensed professional.

Thanks for reading!

1 comment:

dan said...

Tom, thanks for posting this summary, I think you are right on. These average are interesting and accurate by no ones home is average. To really figure out the type of appreciation you will get with a remodel you need to look at what a remodel will cost in your area and what a buyer would pay you for those improvements. A good place to start is by using the calculator at www.remodelormove.com which provides a rough estimate of the cost to remodel for kitchen, bathroom, 2nd stories and other common remodeling projects.

A conversation with a real estate agent is really the only way to get an accurate idea of what the improvements will do to the sale price of a home - if a home is already the largest/nicest in the neighborhood - any change will be hard pressed to increase the value. But it a home is average or below average..and homes in the area that are nicer or larger sell for a few hundred thousand more..then it is very possible to do a remodel and have the home appreciate the total cost of the remodel.