Take a look at this year’s Cost vs. Value Report and you will notice some familiar projects ranked at the top. For the third year in a row, Siding Replacement–Fiber-Cement is the project with the highest percentage of cost recouped. In fact, the projects with the top-three highest returns on investment (Deck Addition–Wood and Siding Replacement–Vinyl, are ranked two and three, respectively) did not change from last year.
A cursory glance tells us that siding and window replacement projects garner by far the most consistent returns (they claim seven of the top nine spots in the Report). And it’s not hard to figure out why.
“Items that add to curb appeal will always have higher returns,” says Sean Remington, a Realtor with Keller Williams Realty, in Albuquerque, N.M. That’s the old adage, but that replacement projects continue to perform relatively well in a down economy is also a reflection of shifting values among consumers.
“Consumers are much more knowledgeable about energy efficiency and realize that the return on investment for windows especially is pretty [favorable],” says Tim Cebulski, a Realtor with Century 21–Bob Capes Realtors, in Columbia, S.C.
Jane Paulus, of Edina Realty, in Edina, Minn., agrees. “With the rising cost of energy, these updates are essential” to saving money every month, she says. “There’s a necessity attached to [these projects] that isn’t there with larger projects.” Perhaps unsurprisingly, kitchens and baths performed best among more traditional remodeling projects. “Returns have remained fairly steady among kitchen and bath projects because this is still where people want the money spent, so long as it’s spent wisely,” says Lauren Holmes, managing broker at Crye-Leike Realtors, in Atlanta. “If you go too crazy, then it limits the buyer appeal.” This sentiment is reflected in the data. The Upscale Major Kitchen Remodel is the only kitchen project not in the top 10 in ROI, and its returns decreased 4.69% (fourth highest) from 2007.
DOWN BUT NOT OUT
Rounding out the bottom of the national list in terms of average ROI are niche projects such as Home Office Remodel and Sunroom Addition. However, the numbers don’t necessarily tell the whole story.
While Realtors in Florida and New Mexico reported that their oppressive climates make sunroom additions and other outdoor projects undesirable, Realtors in South Carolina, Georgia, and Massachusetts said that such projects were finding an audience. “We spend a lot of time outdoors here [in Georgia],” Holmes says. “A nice outdoor kitchen or sunroom can add a lot to a home.”
Tim Cebulski, in South Carolina, agrees. “People are always looking for outdoor gathering spaces,” he says. “Buyers are willing to pay for them, so it makes sense to try to provide them.”
One of the most significant trends emerging from this year’s data is that larger, more expensive projects are losing value at a higher rate than most of the smaller projects.
The four most expensive projects in the Report (Upscale Master Suite Addition, Upscale Major Kitchen Remodel, Two-Story Addition, and Midrange Master Suite Addition) all rank among the six projects that lost the greatest percentage of their ROI from 2007 to 2008.
Paulus believes that it is a reflection of a shift in buyers’ priorities. “The credit crunch and energy crisis are kind of making us rethink the idea that we need the biggest car and the biggest home on the block,” she says. “Some of these two-story additions look great, but heating and cooling all those high spaces can be pretty intimidating financially.”
The possible exception to this trend is in urban areas where homes tend to be smaller and space is at a premium.
“I believe additions are still paying off,” says Cebulski, of his downtown Columbia, S.C., market. “But you have to be selective about the area. Additional living space [in these areas] can make all the difference.”