What is the Return on Investment for Home Improvements?

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by Bryan McDonald on December 21, 2009

Are you thinking of remodeling or building an addition to your house?  If so, you should look at the 2009-10 Remodeling Cost Vs. Value Report by Hanley Wood LLC.  Remodeling data for 33 projects was collected and can be broken down by region.

According to the report, in the South Atlantic region the biggest bang for your buck for a mid range home is the addition of an attic bedroom (83.1%of the cost recouped) or a deck addition (80.6% of the cost recouped).  Some of the lowest returns for your investments are a garage addition (62.2%of the cost recouped), home office remodel (48.1%of the cost recouped), and a sunroom addition (50.7%of the cost recouped).

The report notes that while the return on most home improvement investments are down, the actual costs of most home improvements have gone up.

The data indicate that the trend is still headed downward: last year’s overall cost-value ratio was 67.3%, down 2.7 points from the year before; this year’s ratio is 63.8%, a considerably larger 3.5-point drop (see the graph, Seven-Year Trend). Resale values are also down, a not surprising fact given the sorry state of the housing and credit markets. What is surprising, however, is that costs for virtually every project surveyed have gone up, albeit at a slower rate than last year. © 2008 Hanley Wood, LLC

Adding value to your house in today’s market is a big concern for homeowners.  I am constantly asked what can be done to add value to a house.  Homeowners sometimes act surprised when I tell them that there is a good chance that they will not get 100% of their money back out of a home improvement.

Jennifer Cote, owner of J.A Cote Appraisals in New Hampshire is quoted in the article.

“Low-cost improvements will typically recoup the cost,” Cote says. “Kitchens and baths always beat everything, but something not talked about too often is fixing a home’s functional value.” In many cases, this is as basic as reconfiguring existing space to bring a home up to par with its neighbors or its appraisal submarket.  © 2008 Hanley Wood, LLC

Noting that every market is different, she adds that she sees poor paybacks on elaborately landscaped yards, in-ground pools, and refinished non-walk-out basements (the adjusted value is just $5 to $10 per square foot in her market).  © 2008 Hanley Wood, LLC.

There are not many basements in Middle Georgia, but in-ground pools and extensive landscaping give a low return on investment in my market.

Homeowners in my market should also note that it can be easy to overbuild for your market.  You can overbuild for your market not just by building an addition onto your house but also by upgrading or remodeling the interior or exterior of your house.  Upgrading counter tops, cabinets, and flooring above and beyond what your neighborhood has is not a good idea and will result in a low return on your investment.  Likewise, you will not double the value of your 1200 sq. ft. house if you add an additional 1200 sq. ft. to your home that is located in an area of 1000 to 1500 sq. ft. homes.  Be sure you research what upgrades or amenities the homes around you have and the size of the other homes in your market are.

You might want to consider hiring a real estate appraiser if you are planning on adding onto or remodeling your house.  A real estate appraiser will be able to tell you how much your house will be worth after a proposed home improvement is completed.

Posted by Bryan McDonald (Follow me on Twitter)

{ 1 comment }

AppraiserJenn December 27, 2009 at 1:58 pm

Thank you Bryan!!

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