It would be nice if you could count on getting one dollar back when you sell your house for each dollar you invested in renovations. Most people hope for more than a dollar-for-dollar return. In reality, many improvements return less than the amount invested.
For example, the 2004 Cost Versus Value Report, recently published by the National Association of Realtors, reported that nationally, the average percent recouped on a bathroom remodel was only 90.1 percent. It was 88.1 percent for a deck addition, 81.2 percent for a family room addition, and a mere 79.4 percent for a major kitchen remodel.
Does this mean that remodeling is a waste of your time and money? It can be, especially if you go about a renovation in a haphazard fashion. It’s important to do due diligence investigations before embarking on a remodel project, just as you would if you were considering buying a new home. There are many variables to consider.
First, consider that the figures quoted above are national averages. The amount recouped on a remodel depends in large part on where you live. There’s significant variability from one city to the next, according to the NAR report.
For instance, nationally, homeowners recouped only 90 percent on a bathroom remodel. But, the amount recouped for the same job was 109.7 percent in New York City, 100 percent in San Francisco, and only 61.3 percent in Denver, on average.
The return on a remodeling investment will also depend on the value of your home, particularly in relationship to the value of homes in your neighborhood. If you have a small home in a neighborhood of larger, more expensive homes, you could come out ahead by enlarging your home.
However, it’s important to keep costs in line so that you don’t end up over-improving your home for the neighborhood. Buyers tend to discount a home that’s priced above the value of other homes in the neighborhood.
Before remodeling, it’s also important to consider your competition. In some areas, certain remodeling projects are taken for granted. For instance, if you’re in an upscale neighborhood of older homes where most homeowners have remodeled their kitchen and bathrooms, you will be penalized price-wise by the market if your home is outdated.
In areas where home prices are rising rapidly, you’re likely to recoup more on your remodel investment than you would during times of meager appreciation. With this in mind, you’re more likely to recoup your investment over the long term.
HOMEOWNER’S TIP: There’s a subjective factor that can’t be overlooked when remodeling. This factor is often referred to as pride of ownership. And, don’t discount the value of creature comfort. There’s a certain sense of well being to be derived from a home that suits your lifestyle while aptly reflecting who you are.
Despite these factors, from an investment standpoint, it makes sense to consider resale value before making an investment in a major renovation. This doesn’t mean that you should remodel your home with someone else in mind. But, if you’re aim is to recoup as much of your investment as possible, it’s wise to consider home buyer preferences in your area. If your remodeling is not in tune with what buyers want, it could actually decrease the value of your home. Also keep in mind that while trends vanish quickly, quality and good taste are timeless.
THE CLOSING: The NAR Cost Versus Value Report was based on professional judgment rather than on actual sales data. Therefore, the report is somewhat subjective. However, it does point out the importance of carefully considering before remodeling.
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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