Remodeling in 2010? Additions are out, replacements are in
House prices are still dropping, so it pays to know which upgrades will deliver the best return when you sell your home. An annual remodeling report finds 4 basic replacements are likely your smartest choice.
Remodeling is a better investment in some years than others. This year is among the worst if you’re hoping to recoup much money when you sell, says a newly released report. Homeowners are getting back just 64%, on average, of a project’s cost, compared with 87% in 2005, according to Remodeling Magazine’s 2009-2010 Cost vs. Value report.
Some projects pay back better than others. You get more bang for the buck putting money into a basement or attic upgrade than adding a wing to the house. Some of the highest-return projects include a deck addition and quick, conservatively priced replacements of old siding, entry door or windows. (If you want a different perspective, personal-finance guru Liz Pulliam Weston calls remodeling “a waste of money.”)
The report compiles responses from about 4,000 members of the National Association of Realtors in 80 cities to survey questions about 33 hypothetical projects. “I think what the real-estate agents are saying is you’re taking a big risk if you’re buying these high-ticket items, because the market is slow. Buyers are looking for utility,” says Sal Alfano, the magazine’s editorial director. “They’re not so wowed these days as they were three or four years ago.”
A retreat from overbuilding
Some contractors are dropping their rates to get work, so it might seem a good moment, if you have the money, to do a big, blow-out addition. And maybe it is, if you can keep the house long enough. But today, a high-end master suite remodel, for example, returns just 56% of the cost, on average, compared with 80% in 2005.
“You’re not seeing the big 750-square-foot additions being put on the side of a house like you were a few years ago,” says Martin Conneely, owner of Conneely Contracting, in Arlington, Mass. “Our biggest (jobs) right now are maintenance replacements (of windows, doors, siding and roofing), basement renovations and moderately priced upgrades in the kitchen and bath.”
Despite widespread talk of falling labor prices among remodelers, the cost of construction overall hadn’t changed much. Return on investment (ROI) is dropping because, in a market flooded with foreclosures, even if labor costs are dropping, the price of existing homes is at such a discount that anything newly built can’t compete.
The 22-year-old Cost vs. Value survey makes clear that return on investment depends greatly on where you live. The highest payback is in the Pacific region (Alaska, California, Hawaii, Oregon and Washington). There, although costs are double the next-most-expensive region (the Mid-Atlantic, including New Jersey, New York and Pennsylvania), high resale values more than compensate.
Peter Michelson, CEO of Renewal Design-Build in Decatur, Ga., cautions homeowners to be aware that projects described and priced in this report can — and often do — cost considerably more than the amounts given.
ROI is better in the West South Central (Arkansas, Louisiana, Texas, Oklahoma), South Atlantic (Washington, D.C., Delaware, Florida, Georgia, Maryland, the Carolinas, Virginia, West Virginia) and East South Central (Alabama, Kentucky, Mississippi, Tennessee) regions.
Residents of the Mountain states (Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona and New Mexico) and New England (Maine, Massachusetts, Connecticut, New Hampshire, Rhode Island, Vermont) enjoy average returns.
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It’s hardest to make a buck back on your project in the Middle Atlantic, West North Central (Iowa, Kansas, Minnesota, Missouri, Nebraska, the Dakotas) and East North Central (Indiana, Michigan, Ohio and Wisconsin) regions.
The math didn’t always come out so poorly. As recently as 2005, few homeowners bothered to figure out if their plans meant overbuilding for the neighborhood, Alfano says. They just commissioned the work they wanted and assumed prices would rise to cover their costs.
They were largely correct until 2006, when payback began shrinking along with the scale of jobs that homeowners were undertaking. “The projects that were evaluated as having the most return were not kitchens and baths so much anymore. All of a sudden it was these exterior replacements: roofing, siding and windows,” Alfano says.
It was the beginning of the end of the housing boom. “Today, resale value has come to the forefront. People are much more conscious of building for the neighborhood, and they’re worried about their mortgage rates and their jobs.”
I have many years in the trades, with a BS in engineering and many years as an estimator/project manager. If you spend ANY money right now, beyond basic "clean up/paint" type items, it's money in the toilet. You will ONLY get back what the same model DUMP in your area gets! And you better use YOUR LABOR!
Years ago, I took some appraisal classes, to learn more about real estate. What RE people tell you is what benefits THEM, THEIR sale, THEIR commision.
A house is priced on 1) location 2) size 3) #BR/BA. Thats about ALL. There are almost NO places in a spreadsheet to adjust for "My house looks better than yours".
Banks/S&L's right now will ONLY lend on the above formula. PERIOD. They WON'T lend more because "the property is pretty". A rule of thumb used to be appraisers could raise a price 5% for "condition". Any more than that, the lender likely balked. Guess what they will lend for now?
Only spend what it costs to GET IT SOLD. If it needs more, you would be better off to LOWER the asking price.
REMEMBER- YOUR PLACE IS NOT worth more than the same model fleabag around the corner, not by very much!
Our last place had $30K in improvements, most of it materials only, MY LABOR! We could only get 50% back, which would have been abour 25% if it had not been my labor! It was always "Well, the same model (fleabag) around the corner is $25K less----".
We would have been better off to live in the DUMP it was when we bought it, then sold it as a DUMP! We would have netted more profits!
Sorry, I KNOW you love your house, and you are convinced it's worth more than "The other ones". I get it, I'm always working on my property, while others in the area do very little.
But I have to resign myself MOST of the money I spend, mostly for materials only, is gone forever, despite what RE people say. REMEMBER-It's their job to get your place sold, no matter how much they have to convince you to dump into it, money you WILL lose (beyond basics). It's a matter of their commision!
It's worth what someone will pay for, and ONLY worth what the appraiser says it's worth and what the banks will NOW lend on! 1) location 2) size 3) #BR/BA. END OF EQUATION!! GR
$19,731 to replace a roof?!?! I just replaced my roof with a 40 year shingle and at that price I'd have to have over a 10,000sq ft house to even come close to the $20,000 the author is listing.
These numbers are so outrageous the author should be ashamed for not asking her husband what things actually cost.
While working in real estate, I watched sellers gut their kitchens to update them and *get more money* for their house and at the same time the buyers would walk into those just remade new kitchens and talk about gutting them because the fridge should be over there instead of over here....."over there" being where the fridge was prior to the sellers doing the renovation. Buyers tear out brand new cabinets and counter tops and replace them with brand new cabinets and counter tops...going from walnut to oak when the sellers had oak to begin with and got rid of it...what a waste of money and resources. Landfills are not getting more empty.
Here is a major clue........make updates or renovations to your house because it is your HOME and you are the one living there. Your home should make you happy. Only switch paint colors to the Contractor Cream, Realtor Tan, and Subdivision Gray when it is time to sell. Install new carpet or give a carpet allowance in your seller's offer.
Rebuilding the inside of a 1970's split foyer so it feels like a new house is a waste of time, money, and resources.....it is still a 1970's spilt foyer...which never should have been built in the first place.
If you are afraid or too cheap to *have a little bit of work done* on a house you will buy...then you need to not buy the house, because owning a home is a constant dance of doing a little bit of work on the house.
Each area is unique. Where we live, housing *prices* remained steady when real estate in other regions turned money as though people were buying gold...even *if* buying a simple painted pasteboard box. A factor influencing home sales everywhere right now? Jobs. I would not consider our area 'robust', but jobs are still around (if one is willing to--or can--accept a reasonable wage). Availability of at least some jobs, combined with *affordable* (consistently affordable) housing, great public schools and tons of things to do in any spare time, means that homes sell here (fairly quickly without a bunch of *updates*). If staying in your home, remodeling/expanding is always your choice. If you might need/want to sell within the next two years, improve only that which might be problematic in garnering a 'clean', 'solid', home inspection. If there are potential problems with the plumbing or roof, *fix*; if at all possible now...before you try to sell. Otherwise, stick to cheaper updates like removing wallpaper that is 30 years old, paint; flooring *if* too shabby to be proud in showing, etc. There are still 'flippers' out there. They may be discounting a great deal to move their properties, but at least they are making aesthetic improvements to existing homes in installing new cabs, flooring and fixtures (which provides buyers a good balanced selection of that which they might care to buy into). Some markets in other regions of our state *remain* overpriced across the board. When that happens, homes tend to sit on the market for well over a year due to lack of practical affordability for most. Sellers *can* always move their property by lowering their asking price. But no seller should have to 'wow' a potential buyer with expensive aesthetic improvements that becomes somewhat style-specific (and impossible to guess what might appeal to someone else). Success in selling today is all about 'What do you absolutely *need* by selling?' If the price must be too high for any seller to get their money back? Sellers may be sitting on what they valued so much....for perhaps a very long time.
I have had work done on my home and can let you in on a BIG SECRET! Pssst...contractors that are licensed and carry work comp, liabilty insurance etc. need to actually make a PROFIT! How much will you be sued for if a handy man does the job "on the cheap" I have a friend that was sued by an uninsured worker after he cut off his thumb laying a hardwood floor for him. The "settlement" amount was over $100k. He really "saved" money didn't he.
In addition, how much will it cost you to re-do the work if it is done improperly, not to mention the time you invest in it yourself. You so graciously gave us the price breakdown on a "do-it-yourself" project but failed to calculate how much your time/labor was worth? I am in the financial industry and can give you a hint, your time is money!
Im thinking of remodling my walk in closets. Would this be a positive
When people look to buy a house, when a realtor prices a house and an appraiser appraises a house they all use recent local/neighborhood prices and the $/sq.ft price to determine the appropriate price. People looking in a neighborhood do not want to spend more money on a house then the other houses in the neighborhood. If equivalent houses are selling significantly less (8% or more) they are not going to want to pay more no matter how nice the bathroom, yard etcetera is.
Remodel a whole house for profit or remodel a part but do not expect to get your money back.
Realtors will say remodeling pays when they are not listing your house. However they will tell you what your neighborhood equivalent houses are selling for when they want to list it. You will find the truth with realtors about your remodeling value when they bring you an offer, want you to reduce your price or upgrade/remodel to make your house more desirable (not more costly) then other houses at your price. Remodeling does not increase the value of your house for resale only the appeal of your house for the going price in the neighborhood.
I am sure you can see a basement costing $62,000 if you paint the walls with real gold but seriously. I finished a basement in St. Louis that gave me a work area, bedroom, bathroom with custom tile shower, large laundry, wet bar, and a large theater/game room. It cost me about $25,000 for the 1400 sq ft. They are saying $62,000 for 600 sq ft and a bathroom. Yes, I did most of the work myself but most builders don't even charge that price. I recently bought a new construction home. The builder offered to finish the basement to include 2 bedrooms, full bath, wet bar, and large family room. The total sq ft will be about 1300 sq ft (there is a utility room and large storage area that will remain unfinished). They quoted the price at about $35,000. Twice the space of the basement in the article but half the price. Neither of those cases were some cheap shortcut finish. That is the same finish as the upstairs as far as trim, doors, cabinets, tile, carpet, etc. The St. Louis finish even includes $2500 for a Dricore sub-floor to keep the carpet off the concrete. I decided against the builder and I am doing it myself again. I estimate I can do it for about $25,000 like the other basement I did.
I don't get $16,142 for a 5x7 bathroom either with standard fixtures. That comes out to $461/sq ft. You can do VERY nice tile floor for $10/sq ft so $3500. A toilet is less than $500. A shower is less than $1000. A vanity for a bathroom that size would be less than $5000 if not less than $2500 or even $1000. Lighting would be less than $1000. Shower hardware and sink hardware would be less than $1500 if not less than $1000 (full body sprayers are $1000 and I wouldn't call them "standard fixtures"). Paint would be $500 as would trim boards and a door handle. That pretty much covers everything for no more than $13,000 which includes a very nice (better than "standard fixtures") tile floor, vanity and shower/sink hardware. Even if you had to hire everything out, a standard size bathroom with standard fixtures should not cost more than $10k. If you spend $16k, you are wasting a lot of money. If you have the know how, you can do it yourself for less than $7,500.