Remodeling returns: These home projects pay you back big- Rebranded

  • This year, the renovation offering the best return is a new garage door, according to a report from Remodeling Magazine.
  • Second is manufactured stone veneer, returning 97 percent of its initial cost for resale. Front door replacement, especially steel, rounds out the top three.
  • The least sexy upgrades tend to offer the best returns.

Today’s housing market is leaner, pricier and more competitive than ever – and that has more homeowners deciding to remodel rather than move. Home renovation is a booming business. The choices for upgrades are endless, but some offer a far better payback than others.

Just a year ago, more expensive renovation projects were considered more valuable when reselling the home, but that has changed. There is strong and growing demand today on the lower, more affordable end of the market; that is where the real shortage of listings lies. Fancier homes with high-end finishes are more plentiful and in less demand.

“If you spend lots of money to upgrade with the idea of selling, you may have a bit of a challenge because you’re pricing yourself out,” said Craig Webb, editor-in-chief of Remodeling Magazine, which just released its annual “Cost versus Value” report. Researchers there estimate the cost of specific projects in specific housing markets and then survey local real estate agents, asking them to estimate how much higher a home’s selling price would be if the project were completed within a year of the sale.

“Last year, the big-ticket items rose more in value than the smaller-ticket items in terms of the payback. We think the reason why they’ve changed is a general belief by Realtors that the more you spend on a house the harder it is to sell it,” added Webb.

This year, the renovation offering the best return is a new garage door, according to the report. It is low cost on the front end but offers 98 percent return on investment when factored into the resale value of the home. Second is manufactured stone veneer, returning 97 percent of its initial cost for resale. Front door replacement, especially steel, rounds out the top three.

Others offering great returns are deck additions and minor kitchen remodels, not the fancy chef’s kitchen with the double dishwashers and a see-through Sub-Zero refrigerator. In other words, the least sexy upgrades offer the best returns.

“Sexy is subjective. You may want to produce the kitchen of your dreams and make it look just like it did when you were watching ‘The Brady Bunch’ growing up. The next person may come in and look at all the thousands of dollars you spent and say, ‘I hate this,'” said Webb.

The value of all renovation projects this year actually fell, because the cost side of the analysis rose. A severe labor shortage, combined with the extraordinary demand for building products, especially after multiple natural disasters, have caused remodeling prices to skyrocket. The simpler the project, and especially one utilizing less labor, the higher the returns.

That is why homeowners are likely to get more value from upgrading their current space, rather than adding onto it. Fancy master bedroom suites actually have one of the worst returns on investment, despite the added square footage.

But that doesn’t really matter to Washington, D.C., homeowner Emma Chanlett-Avery. She and her husband are remodeling their Washington home, enlarging their current kitchen, adding on a family room and a master suite above the addition. They moved in five years ago, and they want more space for their two young children. Cost versus value wasn’t really a driver in their design plans.

“It was a balance because we always had the possibility of resale in mind, but we think we’re going to be here for a while so mostly we were focusing on things that would make our life here with our family better or more comfortable,” said Chanlett-Avery.

And that is a common theme, as homeowners now are staying in their homes longer than they have historically. Part of that is an outgrowth of the housing crash; people are simply more conservative when it comes to buying big and leveraging big to do it. They are also aging in place, staying closer to children and grandchildren, rather than moving away to traditional retirement communities. A home that may have been designed for a young family is now being remodeled to accommodate elderly parents.

“Working with a client for the first time, the first question I ask is how long do you plan on living in the house because living there is going impact what you do,” said Justin Sullivan, president of Impact Construction, which is doing the Chanlett-Avery project. “If you’re just going to live in a house for five years, you’re going to get 50-60 cents on the dollar. if you live in the place for 10-15 years and raise a family, you’re still going to get money back plus the intrinsic value of living there, enjoying the additional space.”

Sullivan disagrees with the study’s finding that additional square footage is not as valuable as existing upgrades.

“I think it depends on the neighborhood where you live and what it is costing per square foot. If you look on Redfin [a real estate brokerage] and see properties selling for $400-$500 per square foot, and it’s only going to cost $300-$350 per square foot [to build], you can do the math when you sell the place and say we should be at worst even here.”

As with everything in real estate, location matters. Square footage may be more valuable in some suburban neighborhoods than it is in trendy metropolitan downtowns. Value is also higher in markets where home prices are appreciating faster. A new garage door offers a 98 percent return nationally but gives back 120 percent in Pacific coast markets.

Calculating returns is, of course, most useful if you plan to sell your house soon, but there is definitely value in-house pride – living day to day in a space that you designed in a fashion that makes you happy.

Courtesy of  CNBC.com and  credit to Diana

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Here’s how much your home remodel will pay you back- Rebranded

  • Remodeling spending is expected to approach $340 billion in 2018, a 7.5 percent increase over last year, according to Harvard’s Joint Center for Housing Studies.
  • More homeowners may be remodeling, but those that do high-end projects are seeing less value in those remodels.
  • The average payback in a home’s resale value is 56 percent of the cost of the remodel.

As home prices and mortgage rates rise, more and more homeowners are choosing to stay put and remodel.

Yet, depending on the project, some of the returns are diminishing. Remodeling spending is expected to approach $340 billion in 2018, a 7.5 percent increase over last year, according to Harvard’s Joint Center for Housing Studies.

“Steady gains in the broader economy, and in home sales and prices, are supporting growing demand for home improvements,” said Chris Herbert, managing director of the Joint Center for Housing Studies. “We expect the remodeling market will also get a boost this year from ongoing restoration efforts in many areas of the country impacted by last year’s record-setting natural disasters.”

More homeowners may be remodeling, but those who do high-end projects are seeing less value in those remodels — that is, the expensive upgrades and additions are paying back less in the resale value of homes, according to an annual cost versus value report from Remodeling magazine.

“It’s not clear if this is a sign of nervousness among real estate pros in the face of a booming housing market or if nationwide affordability concerns are leading pros to question the value of renovations that would make a house even more expensive at resale – particularly with the new tax law regarding the deductibility of mortgage interest and state, local and property taxes,” Craig Webb, editor in chief of Remodeling, wrote in a release.

For those who remodel, the average payback in a home’s resale value is 56 percent of the cost of the remodel, but for those who replaced things like garage doors or windows, the payback is a much higher 75 percent. That is according to real estate professionals surveyed by the magazine.

Those values change, however, depending on geography. After all, all real estate is local. The highest remodeling returns are on the West Coast, where the average payback is 64 percent of the cost. In the Mid-Atlantic, that falls to 51 percent.

As for types of renovations, external changes are paying back big time. Things that increase curb appeal, as well as outdoor living, are seeing the greatest increases in payback value: garage door replacement (up 18.6 percent), wood deck additions (up 17.7 percent) and manufactured stone veneer installation (up 15.7 percent).

Those that saw the least gains in value were interior projects: Master suite additions (down 14.7 percent) and major kitchen remodel (down 10.9 percent).

Homeowners who decide to rein in their big ideas are also seeing bigger returns. Minor kitchen remodels pay an 81 percent return, while major high-end kitchen remodels just 59 percent. It’s the same for bathrooms. Why? Taste. Not everyone likes the latest expensive trend. They do like appliances and fixtures that are functional and new.

“You might want a kitchen that looks like a 1980s replica from ‘Stranger Things,'” Webb said, referring to the television show. “But the person you’re selling to might hate an avocado and burnt orange color scheme. So regardless of what you spent, to the prospect that kitchen needs to go.”

Courtesy of CNBC and credit to  Diana

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Money Tips for Home Remodeling

Money Tips for Home Remodeling

By Amy Hoak, MarketWatch

A 20-year-old house in suburban Atlanta is getting a makeover to create a more open floor plan for its kitchen, dining room and living room. The homeowners had wanted to make the improvements for a while, but because they purchased the home when prices were at peak levels, their plans were shelved.

Until now.

“The rebounding economy gave us the confidence to invest in our property — even though it is still worth less than what we paid, at peak,” said Jeffrey Ulrich, who lives there with his wife and three children. “At the same time, we have no intention of going anywhere else. This is our home, and we made a decision to invest in our everyday living, and think it will pay dividends now and in the future.”


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Researchers at Harvard University’s Joint Center for Housing Studies think there will a fresh crop of homeowners like Ulrich, finally going forward with postponed remodeling plans in 2014. In fact, they are expecting 10% to 15% growth in remodeling spending through the third quarter of this year, compared with the same period a year ago — which would add up to a “very good year for the industry,” said Abbe Will, the research analyst who puts together Harvard’s Leading Indicator of Remodeling Activity. The projection is based on a wide variety of housing data.

“Homeowners are starting to feel much more confident about the fact that their homes are not just retaining value, but are starting to see home-price increases in many markets,” Will said. To fund these discretionary projects, there’s an improving environment for home-equity lending; until just recently, home-equity loans and lines of credit were nearly impossible to get.

Remodelers are getting more requests for kitchen and bath remodels, home exterior improvements, changes to help homeowners age in place — even additions, said Tom O’Grady, chairman of the National Association of the Remodeling Industry’s strategic planning and research committee, as well as president of O’Grady Builders, based in Drexel Hill, Pa.

The increased demand had many remodelers entering 2014 with jobs in the pipeline, something that hasn’t happened for years, he said. Remodeling activity started slowing back in 2006, O’Grady added.

Read: 7 features of an age-in-place community.

Renovation of distressed properties is also helping fuel the remodeling industry, as owners invest money into foreclosures and short sales that have been neglected over the years, Will said.

Before you remodel

If you’re planning a remodel of your own, consider the following before hiring a contractor. It will make for a smoother process, and ensure you’re getting the most for your money.

Collect ideas: Go online to get ideas, and share pictures that you like with your contractor, Ulrich said. That will help you communicate your desires, and will make it easier for the contractor to quote jobs. “It puts everyone on the same page from the beginning,” he said.

Set a budget: For yourself, set a maximum budget and make sure you have a contingency for any splurges you may want to make or problems that you could run into, said Liza Hausman, vice president of community for Houzz.com, a home remodeling and design website. Then, create a goal budget to share with your contractor. As much as you can, research materials to understand what they’ll cost. That will help you understand whether your budget is realistic.

Take a breath: Don’t rush into major remodeling jobs if you’ve just moved in. “Live in the home for a few years so you know what you want to fix,” Hausman said. Only then will you understand how your house works — and what really needs improving.

Research contractors: Contractors should be licensed and insured. Read online reviews, but make sure that the site you’re using allows both positive and negative reviews (some only post the positive), Hausman said. Don’t forget to ask for referrals from former clients, and reach out to them to find out how they liked working with the contractor, she said.

Break down bids: Bids should include detailed information on what everything should cost, including materials and labor, Hausman said. But there can be wide variations when it comes to material costs, she said. Find a contractor who can “value engineer” your project and “help you find ways to pull stuff out or do things in a creative way,” so you’re spending your money in a smart way and getting elements that are the most important to you, she said.

Trust your contractor: Choose a contractor you trust, but also make sure that the person who gets the job is a good communicator. That will go a long way to making sure you’re happy with the final result. “We’ve heard plenty of horror stories from friends,” Ulrich said. His contractor was good about following up after the initial inquiry — and Ulrich took that as a good sign.

Start with a small job: Although he had a good feeling about the team doing the work, Ulrich gave his contractor a smaller project, a bathroom remodel, first, before hiring him to do his large-scale great room project. “How you’re treated on a small project is going to be how you’re treated on the big project,” he said. “They treated us like the most important customer they had, and it showed.”

Prepare for inconveniences: Workers will be in your home all day, and if you’re redoing a kitchen, take-out dinners will become the norm. And then there’s the dust. But remember that remodeling requires a spirit of adventure, Ulrich said. “Take a deep breath and say ‘This is all going to turn out great, and it’s a small price to pay for decades of enjoyment.’”

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