The resale value of many remodeling projects has not kept pace with the costs of those projects, according to Realtors and remodelers who recently participated in Remodeling magazine’s 2006 “Cost vs. Value Report.” Produced for 19 years by Hanley Wood, LLC, this is the ninth consecutive year the report was completed in cooperation with REALTOR Magazine, as National Association of Realtors members provided their insight into local markets and home buyer preferences in 60 different cities across the country.
The report shows that prices for most remodeling projects continue to increase, though their resale value has decreased. This trend reflects a return to a more balanced real estate market in many areas of the country. As in 2005, kitchen and bathroom remodels are still near the top of the list in terms of costs recouped, on a national average.
In 2006, the national average cost for a major kitchen remodel was $54,241, and the return was $43,603, for an 80.4 percent return on investment. By comparison, in 2005, a major midrange kitchen remodel cost an average of $43,862 and returned $39,920, or 91 percent of the costs to remodel. Midrange bathroom remodels recouped 85 percent of their cost in 2006, with remodeling expenses averaging $12,918 and resale values averaging $10,970. Last year, the same project cost $10,499 and returned $10,727, or 102.2 percent.
“Our Realtor members visit hundreds, if not thousands, of homes with their buyer clients each year, and have a unique understanding of what home buyers value in their local markets,” said NAR President Pat Vredevoogd Combs of Grand Rapids, Mich., vice president of Coldwell Banker–AJS–Schmidt. “As real estate markets shift in many sections of the country, homeowners must rely on the guidance of real estate professionals who are immersed in the industry. Realtors’ insight into buyer preferences and their connections to local remodeling experts help them add value to the real estate transaction, whether their clients are preparing their home for sale or just want to be informed about resale value down the road.”
The report compares construction costs with resale values for 25 common remodeling projects in 60 cities. This year the report provides data for nine U.S. regions, rather than four as in years past, following the divisions established by the U.S. Census Bureau. The projects represent additions, remodels and replacements. Nationally, replacement projects tended to return more value than additions or remodels, but, as in previous reports, the desirability of different remodeling projects varied by region and metropolitan area.
The most profitable projects nationally, from a resale value, were midrange vinyl and upscale fiber cement siding replacements, at an average of 87.2 and 88 percent costs recouped, respectively. Most of the regions reflected that, as well; some type of siding replacement ranked among the top three projects in terms of costs recouped in every geographic area except the Mountain region, composed of Arizona, Colorado, Idaho, Montana, Nevada, New Mexico and Wyoming. The least profitable project was a home office remodel; this project returned the lowest percentage of remodeling costs at resale in all but the South West Central (Arkansas, Louisiana, Oklahoma and Texas) and Pacific (Alaska, California, Hawaii, Oregon and Washington) regions.
Homeowners in the Pacific and South Atlantic (Delaware, District of Columbia, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia and West Virginia) regions could expect to see some of the highest percentages of remodeling costs returned at resale, while homeowners in the West North Central (Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota) and East North Central (Illinois, Indiana, Michigan, Ohio and Wisconsin) experienced some of the lowest returns.
Combs cautioned consumers to look beyond the data. “Many factors affect a home’s value and, consequently, the resale value of any given remodeling project,” she said. “The home’s overall condition, availability and condition of surrounding properties, location, and regional economic climate are all factors that influence value in real estate. When considering a remodeling project or preparing a home for sale, consumers should rely on industry professionals, such as Realtors, who have the expertise and experience to help homeowners protect their investment.”
If you would like a FREE copy of the 2006 “Cost vs. Value” Report for Minnesota, please contact me via email with your name, address, email address, and phone number and I will send a copy right away.
(article courtesy of Sara Weis, http://www.realtor.org/)