The Cost vs. Value report’s fan club consists of four quite different sets of members. Two of them probably won’t like what’s in this story.
That’s because those two groups are the real estate professionals and the home flippers. Both look to Cost vs. Value as a convenient forecast of how a remodeling or renovation project will increase a home’s value when the house is sold within a year of when the project occurred. They scan the numbers for jobs that deliver the biggest bang for the buck, preferably producing a higher addition to resale value than was spent to have a pro do the work.
Unfortunately, for this group the report will disappoint. Only one project out of the 30 on this year’s list—involving loosefill attic insulation—carries a cost-value ratio above 100%. And as these charts show, cost-value ratios have been trending lower, or at least failing to rise much, for many of the most common remodeling projects for most of the past decade.
On the other hand, if you’re in one of the Cost vs. Value fan club’s other two groups, these numbers matter less than one of the underlying factors that helped create them. That’s because these two other groups are the professional remodelers and the types of homeowners who plan to remain in their renovated house for at least five years after the work is done.
Neither of those audiences worry about the value part of Cost vs. Value, because home prices—the chief influencer of changes in project values—can fluctuate so much in just five years. It’s really the costs that they care about, as those are the numbers most likely to influence what homeowners need to pay for work and remodelers can expect to get. And in general this past decade, those numbers have been going up.
The fact that a minor kitchen remodel costs roughly one-third that of a midrange major remodel and one-sixth of an upscale major remodel no doubt helps explain why its cost-value ratio consistently tops the others.
Consider the upscale major kitchen remodel, one of the most expensive projects on our list. In 2005, this project cost $81,552 and delivered an increased value at resale of $69,194, for an 84.8% cost-value ratio. In this year’s report, remodelers nationally can expect to collect $119,909—a 47% increase—for doing the same work as a decade ago. However, over that same period Realtors boosted their estimated value of that work just 6.5%, to $73,707 from $69,194. That caused the category’s cost-value ratio to plummet to 61.5%.
Even projects with a much lower share of labor costs as a percentage of the total job have seen increases. In 2005, a vinyl siding project cost an average of $7,239 nationally and delivered value worth $6,914 for a whopping cost-value ratio of 95.5%. In contrast, for this year’s report the same project costs 70.4% more, reaching $12,341, while real estate pros’ estimate of the value it would add went up only 30.6%, to $9,032. As a result, the cost-value ratio fell to 73.2%.
A two-story addition used to top all similar projects in terms of bang for the buck. For this year’s report it rebounded a bit to again lead the family room for payback. (Note: We no longer track attic bedroom and sunroom projects.)
It’s notable that just about every project scored highest in 2005. That year is regarded as being just before the peak in the new-home market, and a time when remodelers were well on their way to what’s generally regarded as their industry’s high-water mark in spring 2007.
Then the bubble burst. By 2008, real estate pros had begun reducing their numbers. Values for the 17 projects we’ve been tracking all this century dropped 1.4% in 2008 and then fell another 3.4%, 2.6%, 5.6%, and 0.6% in the four succeeding surveys. It was only in the survey conducted in 2013 (which went into our 2014 report) that real estate pros began to push up project values again.
Excluding midrange remodels, this group has continued to see a bunching of cost-value ratios over the years. In our 2002 report, there was a 13-point gap between midrange and upscale additions. This year, it’s 0.5 point.
Costs didn’t respond to the housing crash as quickly. They went up 2.4% in 2008 and then 2.2% and 3.5% in the succeeding two years. Our consultant, RemodelMAX, finally started to see costs drop as of our 2011 survey (which went into our 2012 report); they fell 1.8% that year. Costs declined another 5.2% the next year, then began increasing again.
The changing relationship between midrange and upscale projects also bears watching. When Cost vs. Value started, there was only one category per project. But when remodelers requested we create different levels for the same project group to better reflect differences in the field, we came up with upscale versions of several projects, such as for kitchens and baths.
These upscale projects can cost several times more than a midrange job and thus historically had far lower cost-value ratios than their midrange cousins. But in several areas, the difference in cost-value ratios appears to be shrinking. In the major kitchen remodel category, for instance, the gap was as large as 10 percentage points as recently as the 2011 report. This year’s report cuts that point difference to just 3.8.
Meanwhile, the upscale bathroom addition project had a cost-value ratio in 2002 that was about 13 points lower than the midrange version. Then a strange thing happened: In the 2015 report, the return on upscale bathroom additions outscored, by 58.6% to 57.8%, the cost-value ratio for the midrange project. It turns out that this wasn’t a fluke: The upscale project has kept its advantage in this year’s report, albeit by just half a point.
This year’s report omits midrange window projects and keeps solely the upscale ones. For those two, the gap between window and vinyl continues to narrow; this year, there’s just a 1.2-point difference.