Does Remodeling Still Add to the Value of a House?

Real Estate Agent with Benchmark Realty TN 288457
Remodeling magazine's annual "Cost vs. Value Report" is to be published Nov. 1, so up-to-date information on how much bang you can get for each buck invested in rehab projects isn't public yet. Magazine editorial director Sal Alfano said the raw numbers indicate that the days of seeing returns of at least 80 cents to 90 cents for each dollar invested in renovations are mostly behind us.

The record-high returns on remodeling investments in 2004 and 2005 are history, Alfano said. In 2007, just 14 percent of remodeling projects had a return of at least 75 percent. That was down from 16 percent in 2006 and 20 percent in 2005.

The best return in 2007 came from replacing old siding with fiber-cement material: Homeowners got an average of 88.1 cents for each dollar invested after they sold their houses. Fiber-cement siding also brought the best results in 2006, at 88 cents to the dollar. But bigger remodeling projects involving kitchens and bathrooms apparently no longer guarantee the giant returns of previous years.

The 2007 decline "reflects the slowdown in the real estate market" and high materials costs, Alfano said in an e-mail. The return is not bad, he said, because homeowners are paying "12 cents and 43 cents on the dollar to remodel (their) home," depending on the type of project being done. And, he said, "you get the use of the newly remodeled space until you sell."

David Merrick, owner of Merrick Design & Build of Kensington, Md., says it does not pay to try to outplay the market.

If the market is hot, "adding a bathroom doesn't matter" much in resale value because people will pay almost anything just to get a house, he said. In a slower market, buyers may be looking at criteria other than a property's condition, he said.

"Where I work, a lot of the price is related to the school district," Merrick said. "A house can cost $200,000 more just because you've crossed the school-district line. So whether there is a new bath or kitchen doesn't matter."

A property must be usable and presentable to sell, he said, so repairs are important. Sometimes paint and decluttering are enough, he said, but sometimes a house just looks dated.

Before spending more than you can get back, though, he suggests talking to a real estate agent familiar with the neighborhood. "You have to look at these on a case-by-case basis," he said.

Deciding whether to rehab before selling "really depends on how bad your kitchen and baths are," said Christopher Landis of Landis Construction in Washington. Adding square footage through renovations "gets you every dollar back," he said.

Real estate investor Joe Rinker can testify to that, and to how the overall housing market has led to some rethinking of how much to spend on renovations.

Rinker, a real estate agent and the owner of a Maryland renovation company, said he remained sold on the value of capturing "found space" in renovation projects. Houses with unfinished basements, attics and porches are golden - if the rehab does not cost more than the neighborhood can bear, he said.

"You get more bang for the buck by finishing off a basement, especially if you can finish it off and add a bathroom at the same time," he said.

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Eric Sunsdahl
Citizens State Bank NYA - Norwood Young America, MN
Very nice post here, hope you dont mind showing it to some of my customers?!
Oct 18, 2007 01:29 PM #1
Kris Krajecki
Kris Krajecki - FOX VALLEY MORTGAGE - Huntley, IL - Huntley, IL
Mortgage Broker Huntley, IL

I just finished the basement...hope it helps!


Oct 19, 2007 03:17 AM #2
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