What’s the Return for Remodeling?

A quick look at the parking lots of the local hardware and home improvement stores in town gives us an indication of the amount of both do-it-yourself and large scale remodeling projects taking place in this area. Homeowners take pride in where they live, and the to do lists for most seem to never get shorter. Whether you are sprucing up your home for resale value or just wanting to increase your current enjoyment, there is information available on which types of projects should provide a better return on your investment.

Each year, Remodeling magazine produces an annual report which compares construction costs with resale values for many of the most common remodeling projects throughout the nation. This is the 19 th year that the report has been published; however, this year’s “Cost vs. Value Report" has seen a number of improvements in the way that data is compiled as well as a change from four U.S. regions to nine. If you would like to view the entire report, it is available at costvsvalue.com for a small fee. There are a variety of factors that actually come in to play when figuring the cost recouped for a particular house including the condition of the rest of the home, the value and availability of comparable properties in the immediate area, and the property values as a whole in the surrounding area.

Overall, and as expected, prices for the majority of remodeling projects have risen while the actual dollars that can be recouped when selling the home have declined. This comes as little surprise due to the record breaking activity levels we have witnessed in the past several years in both home sales and remodeling. Even with the current year’s declines, the numbers are still quite impressive. Considering the increased value at the time of resale, a home improvement project may only cost 20 cents to 25 cents on the dollar. According to the report, 75 cents to 80 cents of each dollar spent on a home improvement project are actually recaptured in the form of increased equity.

Replacement projects rate high when measured by cost recouped at resale. One possible reason is energy efficiency in these times of high fuel prices. For example, replacing old windows not only saves money while still residing in your home, but also makes it very appealing to potential buyers when the time comes to sell. However, aesthetics is also a key motivator on choosing which projects to take on. The power of a great first impression is one reason to consider replacing old siding and windows.

So, which remodeling projects should you consider if return on your invested dollars is important? In the Mountain Region, which includes Arizona , Colorado , Idaho , New Mexico , Utah , Wyoming , and Montana , a few key areas stand out. Adding a two-story addition won out as the most profitable remodeling venture, with 88.3% of the cost being recouped at the time of sale, nearly 5% higher than the national average. However, it can also be one of the highest investments dollar-wise, and therefore it can be somewhat prohibitive for many. Performing a minor kitchen remodel, bathroom remodel, or finishing out a basement also were viewed as a good choice in that they all were rated just above 86% for cost recouped, which was slightly higher than seen throughout the nation. Replacing windows, either with wood or vinyl, showed strong numbers at 85-86% which was very close to the national average.

The two projects that finished at the bottom of the list for the Mountain Region are the addition of a sunroom (65.1%) and the remodeling of a home office (60.9%). These numbers were just a bit below the national averages.

Whatever the rationale for undertaking a major project, whether it is for ease of maintenance, beauty, pure enjoyment, energy efficiency or resale, it is certainly a great benefit to be able to recoup the majority of your expenses in the process. As our market conditions have changed, now is a good time to engage a reputable builder to assist you. Always ask for written bids and local current references from other remodeling projects and consult with your local realtor on which projects have the most impact in our marketplace. Using this information, along with choosing a knowledgeable builder and realtor, can assist you in making the right improvement choices and obtaining the very best price when the time to sell does arrive.

Published in the Bozeman Chronicle, June, 2007 by Robyn Erlenbush

Robyn Erlenbush is the owner of ERA Landmark Real Estate (with offices in Bozeman, Big Sky, Livingston and Clyde Park) and Intermountain Property Management. She can be reached at robyn@eralandmark.com.

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