When it comes to remodeling projects with the greatest return on investment, there is only one kitchen and bath project in this year’s Cost vs. Value top 10: the minor kitchen remodel, with a national average of 78.3% cost recouped. This project includes replacing cabinet fronts, the oven, and the cooktop, and installing new laminate counters, resilient flooring, a sink, and a faucet. According to the Report data, the return on a minor kitchen remodel has slowly decreased during the past four years, dropping from 101% in 2005.

The Pacific region has always offered the best return on most remodeling projects, including a minor kitchen update, and the trend continues this year, with a return of 94.8%. San Francisco and Honolulu keep their No. 1 and 2 spots, respectively, from 2008–09, but this year, they are joined by Anchorage, Alaska, and El Paso, Texas.

Remodelers and Realtors in all four of these cities tell REMODELING that while a minor kitchen remodel may rank high on the Cost vs. Value Report in terms of return on investment, in reality, both kitchen and bath remodeling offer strong value. In fact, bath projects seem to be more popular this year, perhaps because homeowners are being cautious in their spending and remodeling these smaller spaces is more affordable.

Real Value

The El Paso real estate market is not as depressed as markets in other parts of the country, says Adele Morton, manager of business development and relocation with Century 21 The Edge. Though she says that any kitchen improvement, from minor to extensive in scope, adds value to a house, “smaller jobs give you more bang for your buck.”

A full kitchen remodel helps sell a house faster and for a little more, Morton says, but does not necessarily give the seller the full value for what they invested. “Everyone wants all the perks, but rarely do they pay full price,” she points out. “Because it is a buyer’s market, the properties that are most attractive with the best kitchens, bathrooms, and the best curb appeal, those get shown and those get sold. Buyers are getting more for their money.”

Morton says that all her buyers want a good-quality stove with a microwave hood, a dishwasher, and granite countertops. In bathrooms, they want a jetted tub in the master bath and double sinks in both the master bath and hall bath.

Remodeler Jim Martin of Jim Martin Construction, in El Paso, has remodeled 18 bathrooms and two full kitchens this year. Most of the work has involved the master suite, updating 1960s and 1970s vanities, lights, and tile. The two kitchens he worked on were full remodels within the existing footprint. Last year, he had his best year in 28 years in business and completed 10 kitchens and 15 bathrooms. He says that most of his clients are not thinking about resale value, but they are still being cautious with their investment.

Jamey Wood, an agent with Prudential Jack White Real Estate says that Anchorage’s fast home equity growth of 10% to 15% per year has slowed to a more realistic 3% to 5% this year. He believes that the 105% cost recouped for a minor kitchen remodel in Anchorage is too high. “That stuff helps, but you’re not getting 105%,” he says. In his market, simply updating a laminate countertop and adding a tile backsplash will provide a 100% return.

However, Wood adds, bath remodels are huge. “Baths with old tile and fixtures ... If you spend $1,200 on a new tile shower or spend $300 to $350 for a new tile floor, you get a 70% to 80% return. Even if you don’t replace the tile, but re-grout, seal, and caulk it, you will get a good return.” Overall, he tells clients that their best investment is neutral paint and new carpet. “You could spend $1,500 to $3,500 on that and it’s worth $5,000 from the buyer,” Wood says.

Remodeler Dominic Ahumada says that even with the slowdown, the Anchorage real estate market is stronger than in other areas. He says it helps that the city is surrounded by mountains, water, and military bases, so there is no land for new construction. The owner of Equity Builder Home Improvement says that most of his clients want minor updates and repairs, including new flooring, countertops, and paint. “They are holding on to their money,” he says, “just to be safe.” He points out that sellers with high-end homes are spending more because those houses are more difficult to sell.

Honolulu Holds Its Own

Honolulu remodeler Chuck Siebenthal, president of Seven Valleys Design/Build, says that his clients want a high-end kitchen that involves a full gut and taking space from the nearby living or dining rooms to expand the footprint of the room. Most of these homeowners have their own financing and want a remodel that suits their lifestyle. Many include a master bathroom remodel as part of a larger project. “Even in this strange market with everyone hit by a recession,” he says, “most of the work we’ve been doing is complete home renovations.” Unlike the other islands or the other U.S. states, the island of Oahu, where Honolulu is located, has not been as hard hit by the recession. “We don’t have foreclosures like on the outer islands,” Siebenthal says. “On the big island [Hawaii] foreclosures are really bad, in line with Phoenix and Las Vegas.”

Bay Area Budgets

Realtor Kay Korbel, an agent with Legacy Real Estate & Associates says that the Bay Area market is fractured and varies from city to city, so there is a disparity in the value and perceived value of properties. Korbel is based in Fremont, Calif., about 45 minutes outside San Francisco, where ­— due to low supply of houses — sellers are not motivated to remodel. However, updated kitchens and baths are important in homes listed at more than $400,000 because move-up buyers are moving based on want, not need, and many do not have time to remodel after they move in. Buyers of houses under that price are likely looking for a bargain and are willing to renovate.

San Francisco remodeler Steve Olson of Olson Design & Construction says that property values have dropped significantly in the city, so remodeling with the sole purpose of raising property value is not a good investment. “People are uncertain and want to see if their property value will hold,” Olson says. In contrast, two years ago many of Olson’s clients began projects right after moving in to their newly purchased home. “They were tearing out brand new kitchens and bathrooms,” he says. “Now they are so strapped financially that they are buying and sitting on it for awhile.” Last year, clients would say, “Let’s start at $100,000 for a kitchen remodel and see where we go. No one talked about a ceiling.” Now they are more budget-conscious and concerned about additional costs. Olson says that the Cost vs. Value Report’s minor kitchen remodel cost ($24,402) does not reflect his clients’ spending. He considers his clients to be average home buyers, but for them a small lower-priced kitchen remodel would cost about $85,000 to $90,000. Olson says that he has noticed an increase in calls for master bathroom remodels, but he prefers to work on a bathroom as part of a larger remodel.

—Nina Patel, senior editor, REMODELING.­­