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This article was published on: 12/01/2002

COVER FEATURE: Remodeling’s payoff

2002 COST vs. VALUE REPORT

With home values in most markets appreciating at a steady rate and stock values swinging wildly, mostly in a southward direction, it’s no wonder many Americans are looking to real estate as a safe haven for their money. Naturally, many buyers and sellers want to increase the return on their real estate nest egg through remodeling projects. Call it this decade’s version of a retirement savings program.

In the State of the Nation’s Housing: 2002, the Joint Center for Housing Studies at Harvard University reports that spending on home additions and alterations soared to $99 billion in 2001, up 10 percent since its previous peak in 1996 and up 62 percent since 1991.

But just how much value does a remodeling project add when it’s time to sell? To help you counsel your clients on their remodeling ventures, REALTOR® Magazine and Remodeling magazine have teamed for the fifth straight year on the “Cost vs. Value Report.” The report outlines the costs of specific remodeling and home improvement projects and the estimated percentage return in various markets should the house be sold a year later.

Most of the remodeling projects we feature—in addition to providing peace of mind and comfort to their owners—provide a decent return at resale time. And a few projects are worth their weight in gold. Say a Minneapolis homeowner laid out $18,096 to add a bathroom. Real estate practitioners in the Twin Cities area say, if the house were sold a year later, the extra bathroom would add $18,800 to the selling price, a 104 percent return.

The costs for our featured home improvement projects were estimated by HomeTech, based in Bethesda, Md., which publishes estimating software for professional remodelers. The value numbers are based on the opinions of more than 200 real estate salespeople and appraisers who work in the 35 metro areas listed as the top remodeling markets by the Joint Center.

Caney Research contacted salespeople and appraisers and compiled the statistical information. Because of wide price and value differences within four large metro areas—New York City, Los Angeles, San Francisco, and Washington, D.C.—this year Caney broke each of those markets into submarkets.

If you work with clients who can afford high-end remodeling work, you’ll benefit from another major change in the five projects featured here: midrange and upscale project descriptions, price points, and value numbers.

What’s important to remember when reading the “Cost vs. Value Report” is that return on investment is an approximation, a figure relative to specific homes and neighborhoods. In a neighborhood where property values are stagnant or in decline, a major remodeling project is unlikely to recoup much of its cost. In a neighborhood experiencing a rapid run-up in values, on the other hand, the return could well be higher than the report cites.

Many variables—including the value of similar homes in the neighborhood, the market’s health, and the quality of the design and construction—help determine what homeowners can expect to recoup from their remodeling investment.

In addition, the cost of materials and labor can vary dramatically from market to market. The midrange master suite described on page 35 would cost $55,775 in Tampa and $79,133 in Minneapolis. That’s a 42 percent difference for the same project with the same materials.

The bottom line? For the most part, remodeling is a plus. As Sacramento, Calif., practitioner Tamara Dawn, ABR®, CRS®, points out, “A home that’s not presented well will sit unsold, even in a hot market.”

THE PROJECTS

Percent cost recouped (national average) Pg

Pg.

Midrange

Upscale

32

Kitchen remodel

67%

80%

34

Bathroom remodel

88%

91%

35

Master suite addition

75%

77%

36

Bathroom addition

94%

81%

37

Window replacement

74%

77%

 


Editor’s note: Remodeling magazine, published by Hanley-Wood LLC, Washington, D.C., has been publishing the “Cost vs. Value Report” annually for more than a decade. We’d like to thank the editors and designers at Remodeling, as well as the contributors for helping us bring this report to you.

Remodeling magazine’s “Cost vs. Value Report.” ©2002, by Hanley-Wood LLC. Republication or redissemination of the report is expressly prohibited without written permission of Hanley-Wood LLC. See the Reader Service card, after page 44, for information about ordering reprints



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2002 Cost vs. Value Report Introduction


Kitchen remodel

Bathroom remodel

Bathroom addition

Master suite addition

Window replacement

Family-room addition

Two-story addition

Basement remodel

Roof replacement

Siding replacement

Contributors

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Previous reports:

2001 Cost vs. Value Report

2000 Cost vs. Value Report