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Market Watch

Remodel Returns

Posted on January 3, 2010 by ERA Landmark

Remodeling magazine, in conjunction with REALTOR® magazine, recently released its 2009-10 annual report on the relationship between the cost of remodeling projects and the value that it brings at the time of resale. This is the 22nd year of analyzing national and regional data for 33 of the most popular remodeling endeavors. The projects ranged from a 48.1% return on investment to a 128.9% return. Overall, the Pacific region still retains the position of best return in most categories. San Francisco, CA, Honolulu, HI, Anchorage, AK, and El Paso, TX are all high on the list.

Many “back to basics” type projects have remained at the top of the rankings again this year, with exterior replacement projects leading the way. Curb appeal has always reigned high for potential buyers, and these type of remodels can also be less expensive than the majority of those listed. For instance, replacing a home’s front door with a new steel entry door gives the highest return on investment and is also the least expensive suggestion on the list at a cost of approximately $1200. Furthermore, many exterior projects increase a home’s energy efficiency which has become more important in recent years, and some savvy buyers will pay essentially “full price” for upgraded windows, siding, etc. 

The minor kitchen remodel is one project that is always noteworthy for consideration. By definition, this includes replacing cabinet fronts, the oven and the cooktop, and installing new laminate counters, resilient flooring, a sink, and a faucet. While the percentage of cost recouped has declined over the past few years, this is still seen as a project that is worth taking into account. The total price tag is categorized in the mid-level with ideally 78.3% of the cost being recouped. Minor bath remodels are also looked upon favorably.  Most professionals agree that smaller projects generally give you “more bang for the buck”.

Another item to note is that the payoff for the remodels also seems to vary based on the initial value of the home. For instance, in the San Francisco area, fully updated kitchens and bathrooms are encouraged for homes over $400,000 due to the fact that this is considered the move-up price range, and these buyers are basing their homebuying decisions on wants, not needs. They generally do not want to bother with upgrading key items once they have moved in. More entry-level homes are under the scope of buyers who are looking for a good deal and will be more willing to do their own renovations once the home is purchased. 

In our local market, there is evidence that remodeling is playing a role in our economy.  For instance, according to the City of Bozeman’s November building permit statistics, of the 71 permits issued, only 15 of them were for new housing units. The remainder of the permits were categorized as residential or commercial remodels, which include re-roofing jobs, fire suppression system installations, window replacements, sheds, and the addition of decks, a laundry room, and a breakfast nook, among many others.  The year-to-date numbers for 2009 show a total of 1230 permits issued with only 174 new housing units. To compare with the other statistics (January through November) of each year since 2000, this year had the highest total number of permits issued, yet the lowest number of new units. 

With current real estate market values and tighter credit conditions, many remodeling plans have been postponed. It has become more difficult to take out a home equity line of credit for remodeling. However, for those who can qualify, now may be the perfect time to consider a project. Materials and labor costs may be more reasonable than in years past. The trends show that smaller, low-maintenance projects that are more functional and fewer frills will probably lead the way. With homeownership still serving as the largest financial asset most people will ever have, investing in your home still pays off.

Categories: Lifestyle


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