What's the Return for Remodeling?
A quick look at the parking lots of the local hardware and
home improvement stores in town gives us an indication of the amount of both
“do-it-yourself” and “large scale” remodeling projects taking place in
this area. Homeowners take pride in where they live, and the “to do” lists
for most seem to never get shorter. Whether you are sprucing up your home for
resale value or just wanting to increase your current enjoyment, there is
information available on which types of projects should provide a better return
on your investment.
Each year, Remodeling
magazine produces an annual report which compares construction costs with
resale values for many of the most common remodeling projects throughout the
nation. This is the 19 th year that the report has been published; however, this
year's “Cost
vs. Value Report” has seen a number of improvements in the way that data
is compiled as well as a change from four U.S. regions to nine. If you would
like to view the entire report, it is available at costvsvalue.com
for a small fee. There are a variety of factors that actually come in to
play when figuring the “cost recouped” for a particular house including the
condition of the rest of the home, the value and availability of comparable
properties in the immediate area, and the property values as a whole in the
surrounding area.
Overall, and as expected, prices for the majority of
remodeling projects have risen while the actual dollars that can be recouped
when selling the home have declined. This comes as little surprise due to the
record breaking activity levels we have witnessed in the past several years in
both home sales and remodeling. Even with the current year's declines, the
numbers are still quite impressive. Considering the increased value at the time
of resale, a home improvement project may only cost 20 cents to 25 cents on the
dollar. According to the report, 75 cents to 80 cents of each dollar spent on a
home improvement project are actually recaptured in the form of increased
equity.
Replacement projects rate high when measured by cost recouped
at resale. One possible reason is energy efficiency in these times of high fuel
prices. For example, replacing old windows not only saves money while still
residing in your home, but also makes it very appealing to potential buyers when
the time comes to sell. However, aesthetics is also a key motivator on choosing
which projects to take on. The power of a great first impression is one reason
to consider replacing old siding and windows.
So, which remodeling projects should you consider if return on
your invested dollars is important? In the Mountain Region, which
includes Arizona , Colorado , Idaho , New Mexico , Utah
, Wyoming , and Montana , a few key areas stand out. Adding a
two-story addition won out as the most profitable remodeling venture, with 88.3%
of the cost being recouped at the time of sale, nearly 5% higher than the
national average. However, it can also be one of the highest investments
dollar-wise, and therefore it can be somewhat prohibitive for many. Performing a
minor kitchen remodel, bathroom remodel, or finishing out a basement also were
viewed as a good choice in that they all were rated just above 86% for cost
recouped, which was slightly higher than seen throughout the nation. Replacing
windows, either with wood or vinyl, showed strong numbers at 85-86% which was
very close to the national average.
The two projects that finished at the bottom of the list for
the Mountain Region are the addition of a sunroom (65.1%) and the remodeling of
a home office (60.9%). These numbers were just a bit below the national
averages.
Whatever the rationale for undertaking a major project,
whether it is for ease of maintenance, beauty, pure enjoyment, energy efficiency
or resale, it is certainly a great benefit to be able to recoup the majority of
your expenses in the process. As our market conditions have changed, now is a
good time to engage a reputable builder to assist you. Always ask for written
bids and local current references from other remodeling projects and consult
with your local realtor on which projects have the most impact in our
marketplace. Using this information, along with choosing a knowledgeable builder
and realtor, can assist you in making the right improvement choices and
obtaining the very best price when the time to sell does arrive.
Published in the Bozeman Chronicle, June, 2007 by Robyn Erlenbush
Robyn
Erlenbush is the owner of ERA Landmark Real Estate (with offices in
Bozeman, Big Sky, Livingston and Clyde Park) and Intermountain Property
Management. She can be reached at robyn@eralandmark.com.
For more information, please see our website: StuartandSally.com
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This is a great article. And to add in on this, their are wonderful loan programs that can help buyers complete some of this renovations. Some lenders have what they call Renovation or Rehabilitation Loans that allow homeowners or future homeowners to have the home appraised with the additions/renovations before they are started. So the homeowner can see this "equity" right away. And these loans can be done as a "One Time Close" So they qualify on one loan, one set of closing costs that covers a refinance or purchase and the renovations with many programs (FHA, 30 yr, ARMS, etc) to choose from.
Talk to your lender about "One Time Close" Rehabilitation/Renovation loans it could be just what your client is looking for. If your lender does not have this loan please feel free to contact me anytime and I will be more than happy to give you, your office and/or your lender a presentation on how it works.