Mark Robert Halper

Our annual Cost vs. Value Report is in its 19th year of supplying average construction costs and resale values for a range of common remodeling projects. Published each November, the report is among the most frequently cited research in the housing and real estate industries. It is also among the most widely misapplied, misquoted, and misunderstood research we undertake. Every year I hear from hundreds of remodelers that the job costs are too high or too low. I get even more questions from real estate writers who want to know why replacement projects get such a high return or why we don't include data for adding a swimming pool. Before the barrage begins again this year, I thought I would get some of the more common objections out of the way.

Take Me Higher Let's start with why the report's job cost numbers may not exactly square up with your estimates for the same projects. The main reason is that the data we publish are averages. The national numbers are the most reliable statistically, but because they factor in projects in locations as diverse as Norfolk, Harrisburg, and San Francisco, they may bear no relation to job costs in your locale. We attempt to mitigate this situation by providing two sets of specifications for most projects. “Midrange” projects are pretty plain-Jane — laminate countertops, white fixtures, painted trim, you get the idea —while “upscale” specs introduce much higher-end finishes such as granite countertops, tile floors, hardwood trim, and the like.

We've also introduced nine regional data sets. These are designed to match up with those used by the U.S. Census Bureau and, although they are slightly less statistically accurate, they are likely to be more useful because they sample a smaller geographic area.

If our costs are too high, raise your prices and you'll still look good by comparison. Where prices are too low, make sure to compare the size and specifications of our project to yours. As every professional knows — but most homeowners don't — the size and shape of a room and the finishes selected can make a huge difference in cost. And if remodeling contractors are busy in your market, that will also tend to raise prices.

Buyer Expectations A lot of real estate writers ask how it's possible to get more than 100% of construction cost back at resale. Usually a couple of factors are in play. First, although most people look to our report for pricing information, it is also a reliable indicator of which housing markets are hot and which are not. In 2002, for, house values in certain downtown neighborhoods in Washington, D.C., increased more than 30% in nine months. Obviously, when housing prices are rising that rapidly, the value of remodeling projects goes along for the ride.

But even under more typical market conditions, certain projects can command high values at resale because of buyer expectations. A bathroom addition is a good example. If a house with 1.5 baths is located in a neighborhood where surrounding properties have 2.5 baths or more, most prospective buyers won't even get out of their cars. Add a bath to that house, however, and the situation immediately changes. Not only does the added bath bring the house in line with buyer expectations, but because it's brand new it probably compares well with other homes in the neighborhood and is more likely to sell at a price that returns more than the bath cost to build.

Last Word About the swimming pool project: We keep a list of projects we'd like to add, and there are quite a few in the queue ahead of pools. As for why replacement projects usually fare well, think “curb appeal” and “low maintenance.”

I know this isn't the end of it. I'll still get questions about when we're going to include a garage addition or air conditioning or umpteen other projects. To which my answer is: Patience.

Sal Alfano
Editorial Director