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Does remodeling pay? Our annual report gets to the bottom of the age-old question.
Not long ago, remodeler Bob DuBree got the news that he'd lost a big job. The clients, a husband and wife, had a budget of $100,000. With that, they wanted to add bedroom space and a new kitchen and perform substantial exterior repairs, including patio and siding work. The house itself was worth about $150,000, and Dubree's proposal for all the work was for $140,000.
"They flat out said they couldn't justify spending that much money on the house," says DuBree, owner of Creative Contracting, North Wales, Pa. "The husband said, 'We're never going to get the money as cheaply as we can get it now,' and the wife said, 'We'll never get the money out of it.'"
Remodeling isn't cheap, and getting something back for the money spent is often a client concern. Yet remodeling is one of the few products or services that actually yields some kind of return -- value added to the home.
But just how much value does a project add? Our annual Cost vs. Value Report is intended as a general guide to the cost of specific remodeling and home improvement projects and the amount those projects would add to a home price, should the house be sold, for whatever reason, a year later.
Say, for example, that a Minneapolis homeowner lays out $18,096 to add a bath. If the house were sold a year later, real estate pros in the Twin Cities area believe that extra bathroom would add $18,800 to the selling price, a 104% return.
The cost figures in the report are compiled by HomeTech, an estimating software maker whose products are used in the field by many Remodeling readers.
The value numbers are based on the opinions of some 200-plus real estate agents and appraisers located in the 35 metro markets listed as the top remodeling markets by the Harvard Joint Center for Housing Studies. For the very large metro markets (New York, Los Angeles, San Francisco, and Washington, D.C., metro areas) we've included submarkets as well. Caney Research contacted real estate agents and appraisers and compiled the statistical information.
This year we've made a major change to the report. For five of the "core" remodeling projects -- major kitchen remodel, bath remodel, bath addition, master suite, and window replacement -- we present two project descriptions, two price points, and two value numbers. For example, our mid-range bathroom remodel is priced at $9,720, as a national average. The high ticket bath remodel is priced at $22,639 and includes a number of luxury amenities.
We've included mid-range and upscale projects because different remodeling companies target different types of customers. Those catering to upscale clients might regard the $43,213 listed as the average price of our mid-range kitchen remodel as too low for their market, or for their type of client. For that remodeler, $43,000 and change might cover just some portion of the materials -- the cabinets, countertops, and flooring, for example. On the other hand, many contractors might find that same $43,213 appropriate or even on the high end for the kitchens they work on.
There are many variables that determine what homeowners can expect to recoup from their remodeling investment: the value of the home, the value of similar homes in the neighborhood, the rate at which property values in the neighborhood and the area are rising, and the quality of the design and construction performed by the remodeler.
The cost of materials and labor vary from market to market. Typically, the markets where home prices go up fastest also tend to be the most expensive remodeling markets. Compare San Francisco remodeling prices, where the cost of building a mid-range kitchen is $48,495, to those of Norfolk, Va, where the same kitchen costs $38,008 -- a 25% difference. Then compare return: 97% in San Francisco vs. 58% in Norfolk. Note that the median price for a home in San Francisco was $321,700 in 1998 and had jumped to $475,900 by 2001, whereas in Norfolk, the median price of a home went from $109, 400 in 1998 to $112,300 in 2000, the last year for which there were figures.
Building the mid-range master suite addition of our project description would cost $55,775 in Tampa and $79,133 in Minneapolis. Difference? $23,358, for the same project, with the same materials. Geography makes a difference.
"What I tell people," says remodeler Todd Perry, Leading Edge Homes, Wellington, Fla., "is that if they want to get a true assessment of what the house will be worth after I've put on the addition, they should talk with a Realtor active in that neighborhood who can give them comps on other homes in the neighborhood with similar amenities."
What's important to remember when reading the Cost vs. Value Report is that what we're giving you is an approximation, a figure relative to specific homes and neighborhoods.
In a neighborhood where property values are stagnant or in decline, a major cash outlay for a remodeling project is unlikely to recoup much of its cost. On the other hand, in a neighborhood experiencing a rapid run-up in property values, the return could well be higher than the report cites.
And what about the lousy house in a great neighborhood? As Sacramento real estate agent Tamara Dawn points out, "you can have a hot market, where people are willing to bid $20,000 more than the asking price, and a home that's not been well-presented is going to sit there."
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