This is the 30th anniversary of when we first published Cost vs. Value, and our goal remains the same: to give you and your customers an unbiased, third-party report on how much it really costs for a professional to do a typical remodeling project, as well as how much a real estate pro believes that project will increase a home’s value if it’s sold within a year of when the work was completed. By dividing the project’s value into its cost, you and your customers get a sense of how much bang for the buck you’re generating as a result. For 2017, we have collected data on 29 projects in 99 markets nationwide. Here’s what we learned.
To understand the 2017 Cost vs. Value report, think “greige.”
Greige—a mix of gray and beige—is said to be one of the hottest colors around, despite it being such a subtle tone. It’s the same thing with Cost vs. Value: This year’s report is more about several small, incremental improvements rather than colorful jolts. It’s a greige kind of year.
The 29 projects in the 2017 report paid back an average of 64.3 cents on the dollar in resale value. We add and remove projects just about annually, but if you focus solely on the 24 projects that we’ve tracked for the past six years, their payback for 2017—also 64.3 cents—is only about three-quarters of a penny higher than in our report for 2016.
Those changes are minimal because the differences in the underlying numbers are minimal. The average cost for those 24 projects rose 3%, while the value that real estate pros put on the projects went up 4.2%. Minor gains, yes, but welcome ones compared with the trauma induced by the Great Recession nearly a decade back.
Both recent and long-time trends continued. “Curb appeal” projects—changes to doors, windows, and siding—by and large generated higher returns on investment than work done inside the home. Meanwhile, projects that called for replacing something, like a door or window, scored higher among real estate pros than did remodels.
Year-over-Year Changes in Costs and Values for Each Project, by %
As was the case last year, putting loose-fill insulation in an attic is the only project that returns a higher value than its cost. It came in at 107.7%. Next up is the steel door replacement, a perennial high finisher, at 90.7%, followed by manufactured stone veneer at 89.4%.
Those projects that packed the biggest payback also are three of the five cheapest to complete, which helped their cost-recouped scores. But none of the three scored as high this year as last because the cost of doing them rose faster than their perceived value.
In general, the lower-priced the project, the higher the percentage of costs that goes to materials. Over this past year, manufactured stone veneer costs increased 4.4%, while the cost to install a steel door went up 5.8% and the price to put in loose-fill fiberglass insulation rose 5.9%.
In contrast, several of the most expensive projects—the upscale bathroom remodel, upscale master suite, two-story addition, grand entrance, and family room—saw the biggest year-over-year percentage increases in value, rising between 5.6% and 7.4%. All those increases outpaced the rise in cost to accomplish the projects, and suggest that real estate pros are rating such home improvements more highly than they did half a decade ago. Why? Because the real estate market continues to recover.
According to the National Association of Realtors, the median price of an existing home sold in September was $234,200, up 5.6% from a year before and the 55th consecutive month of year-over-year gains. Meanwhile, the S&P/Case-Shiller U.S. National Home Price Index found that the price of a new home in major metro markets rose 5.3% in August from the year before. In general, when home prices go up, real estate professionals feel better about how much a project will increase a home’s value, and they score the project accordingly.
Timing also figures here. The backup power generator had a payback in the 40s prior to our 2014 report, but that year it spiked to 67.5%. That’s because real estate pros were surveyed for that report in late 2013, just after Superstorm Sandy struck. The further we get from that event, the less of a payback the generators become; their cost recouped slipped to 54% this year from 59.4% in last year’s report.
Both cost and value vary dramatically based on where you live. For instance, a midrange bathroom remodel costs 57% more in metro New York than in El Paso, Texas. The family room addition that costs just over $79,000 in Greenville, S.C., will set you back nearly $101,000 in Seattle.
In all cases, the costs cover not just materials and labor but also such factors as subcontractor payments, taxes, worker’s comp insurance, general overhead—including the cost of an office, a website, a phone number, utilities, company vehicles, and equipment—and a reasonable profit.
(This brings up a key feature of Cost vs. Value: We base our costs on what it would take to do the same theoretical project in each of the 99 markets we surveyed. By putting the same amenities into the same-sized space, and adding the same corporate expenses, we can do apples-to-apples comparisons between markets.)
The value metric also has its share of variation, but in that case it’s the comps that matter, not the price of labor or materials. For instance, the value at resale of the same backyard patio was rated 27% higher by real estate pros in the Orlando market than by their peers in Houston. One reason why might be that median home prices in Orlando were up 14% in October from where they were 12 months earlier, while Houston’s median rose only 6.3%.
Number of Markets in Which a Project Had a 100%+ Return
In general, the hotter the market, the bigger the payback. In San Francisco, 21 of the 29 projects had cost-recouped values above 100%, and in San Jose it was the same for 16 projects. Meanwhile, there’s barely a handful of 100% projects in all of the Rust Belt markets combined. One-third of the 99 markets we checked nationwide lack a single project with over 100% return—this despite the fact that every one of the 29 projects has a 100% payback in at least one market nationwide, and about 10% of all 2,871 projects had a triple-digit ROI.
How the Regions Compare
Regional differences held true to past patterns. In the Pacific census division (California, Oregon, Washington, Alaska, and Hawaii), the average payback for all projects was 78.2%, and 10 projects posted cost-recouped levels of at least 90%. Contrast that with the East North Central states of Ohio, Indiana, Michigan, Illinois, and Wisconsin. Their average was just 54.9%, and no single project had a census division average payback of as much as 80 cents on the dollar.
Nationally, the average payback for the 24 projects that we’ve tracked throughout this decade has ranged between 58% and 66%. Costs have risen each of the past four years, following a time in which the Great Recession caused prices to fall. Values have seen bigger shifts, rising the past two years after having declined in three of the previous four.
What’s Your Type?
Consumers often are surprised to see that some of the most common remodeling projects recoup the least costs. For instance, the lowest ROI in all of Cost vs. Value is a midrange bathroom addition, with a payback of just 53.8%. Not a single kitchen or bath project ranked higher than 17th out of the 29 projects. How come?
We believe there are several reasons. First, these projects involve remodeling something to make it better, rather than replacing something that’s broken. On average, the replacement projects sport a 74% return on investment, while our remodeling projects pay back just 63.7%.
Second, K&B jobs are inside the home, and real estate pros tend to put more importance on “curb appeal” jobs, such as installing a nice entry door or re-siding the house. Exterior projects had an average payback of 74.9% nationally, while interior projects returned 63.5%.
Third, kitchen and bath jobs take a lot of skill and labor. As a general rule, the simpler the job, the cheaper it is and the more likely it will have a high ROI.
Finally—and we’re making an educated guess here—we think K&B doesn’t score as high because kitchens and baths are such personal places. Your idea of a dream kitchen might feature a highly ornamented French Provincial style, but when you put it up for sale the potential buyer might not care a whit because she prefers a sleek, ultra-modern look. The same holds true for bathrooms.
Cost vs. Value aims to remain valuable to you by keeping up with trends. This year, we focused on two such developments: indoor/outdoor living and meeting the needs of aging and multi-family households.
We addressed the first by creating a backyard patio project. It calls for installing a 20x20 flagstone patio immediately behind a house, with access through a new lift-and-slide glass door. The patio’s features include a gas-powered fire pit, chairs, a pergola, lights, and a stone-veneer modular kitchen unit. The average cost nationally for this job was set at $51,985, and its estimated value came to $28,546. That 54.9% payback put it 27th among our 29 projects; it topped 100% in only three markets.
The second project, a bathroom renovated according to universal design principles, fared better. Changes here included widening the doorway so it would be accessible by wheelchair, reinforcing the walls to support grab bars, installing a zero-threshold shower with fold-down seat, putting in a comfort-height toilet, and installing a sink with space for a person to sit at it.
This project came in at $15,730 (that’s several thousand dollars less than our traditional midrange bathroom remodel) with a payback of $10,766, or 68.4%. That puts it 17th on the list of top recouped costs.<
If you’re new to Cost vs. Value, note that in some cases were have two versions of a common job, such as renovating or adding a kitchen or bath. The baseline or standard version is called a midrange project and the higher-priced version is called an upscale project. The difference between them usually has to do with the scope of work and the complexity of the project. It also takes into account different quality standards for finishes: for instance, the midrange major kitchen remodel calls for a plastic laminate island countertop while the upscale version has a stone top.
What’s to Come?
The housing data specialist Metrostudy says its Residential Remodeling Index (RRI) for the third quarter forecasts remodeling activity nationwide will increase 4.4% in 2017 and 3.3% in 2018. That activity is for pro-worthy home improvement and replacement projects worth at least $1,000.
“Over the next few years, as mortgage rates increase, we expect more people to choose to stay put in their current homes and renovate, giving further support to a stable forecast for the remodeling industry,” Mark Boud, Metrostudy’s chief economist, said in a news release. Metrostudy is a sister company of Remodeling.
“Workers are now beginning to see more money in their pockets, and that, combined with the tight housing market, is driving remodeling activity across the country,” Boud said. “Additionally, tight supply in the housing market continues to push up home prices, allowing more owners to tap home equity lines of credit to invest in updating their homes.”
Once again, though, geography matters. Of the nation’s 381 metropolitan statistical areas, 369 were forecast by Metrostudy to show growth in 2016; the other 12 declined.