When comparing the data in this Report to actual remodeling costs and resale values in a particular geographic area, remember that averaging tends to have a leveling effect. On the "cost" side, small differences in the size or scope of a project, or in the quality of finishes and accessories the homeowner chooses, can dramatically affect the price. Although the distinction between "midrange" and "upscale" projects is intended to provide a range of pricing for a given project, in today's tight economy, many actual projects are smaller in square footage than those specified here, and actual pricing may reflect the use of fixtures and finishes from the lower end of the price continuum.
The "value" of a project at resale is also subject to forces that are difficult to predict. A remodeling project that changes how a space is used may meet an immediate need for the current homeowners, but it may be at odds with the needs of some prospective buyers. Converting an existing bedroom into a master bath, for example, may be perceived as the loss of a bedroom rather than the gain of a bathroom. Similarly, adding square footage may solve immediate space needs, but it also increases heating and cooling bills, something that may not be welcomed in this era of heightened energy awareness.
The "cost recouped" for a given project depends on a variety of factors that traditionally affect home values, including the condition of the rest of the house, the value of similar homes nearby, and the rate at which property values are rising — or falling — in the surrounding area. This last is particularly difficult to judge in the current economic climate in which the effect of distressed and foreclosed properties, which varies widely from city to city, on the value of surrounding homes is part of the equation. Additionally, in some areas of the country, a large inventory of new homes on the market at discounted prices tends to have a constricting effect on resale values of existing homes.
Where resale value is a major factor in a homeowner's decision to remodel, it is prudent to consult with a reputable local remodeler about actual construction costs and to talk with an experienced Realtor about home prices in the neighborhood.
Very High and Very Low Values
In 2005, the national average for cost recouped in three of the 22 projects in that year's study exceeded 100%, meaning that, in many cases, homeowners who had those projects built could expect to recover at resale more than they spent. While this hasn't occurred since on a national level, many cities in this year's Report show cost-recouped averages above 100% for some remodeling projects. This may seem impossible, particularly to homeowners in areas where property values are stalled or dropping, and it certainly is the exception to the rule.
But when it does occur, it is usually tied to a particularly hot real estate market or to specific projects that are either in high demand from buyers or make a big difference in how buyers perceive a property. If a remodeling project helps a house to meet buyers' expectations — adding a deck to the only house in the neighborhood without one, for example, or adding a second bathroom in an area where every other home has one — then the homeowner can expect a good return either in the form of a higher selling price or a quick sale, or both (assuming everything else about the house is up to standard). This year, replacement entry doors rank No. 1 nationally and are well over 100% in cost recouped in 48 of the 80 cities surveyed. The reason for this seems obvious: For about $1,200 for a steel entry door, you can significantly improve a home's curb appeal, and that can translate into higher resale value and less time on the market.
On the other hand, upscale projects have been moving down in the rankings for the last several years. This makes sense, considering how the economy has fared in the last 12 months. As has been the case since 2007, people continue to scale back their spending during an economic downturn.
Two projects that have been at the bottom of the rankings for several years — Sunroom and Home Office — continue to score low, not necessarily because they aren't worth the money, but because they aren't worth the money to everybody, and for different reasons.
A sunroom is a comparatively expensive project that lacks appeal to homeowners in parts of the country that are either too cold to make such a room practical or too mild to make it necessary; a home office may be essential to buyers who intend to telecommute or run a home-based business, but it's useless to many others, who may prefer an extra bedroom or an exercise or hobby room.
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