Smaller Remodeling Jobs Deliver Better ROI

Written by Posted On Thursday, 22 January 2015 08:10

Your home may need some work, but that doesn't mean you want to lose money on it when you sell. That's why you might be interested in the 2015 Remodeling Cost vs. Value Report from Remodeling Magazine and the National Association of REALTORS®.

It may surprise you to learn that large remodeling jobs won't return their full cost in home price gains, while other could return 100 percent or more of their cost.

Any improvements should help your home sell faster and for more money in the aggregate, but if you're choosing remodeling projects, you may need to decide which ones are more important for resale, and which ones will bring you and your family the most enjoyment.

Keep in mind that buyers may not get excited about your choices unless the improvement is attractive and makes sense for them, too. It also has to look organic to the home, not like an add-on or afterthought.

Think of how you want the home to flow. Floors in new additions should be installed at the same levels as the original house, whereas a step-down is a dead giveaway that the home has been expanded and not very well.

According to Remodeling Magazine editor-in-chief Craig Webb, the simpler and lower-cost the project, the bigger its cost-value ratio is likely to be. Three of the four projects that cost less than $5,000 for a professional remodeler to do were ranked in the top five for cost recouped at resale, while no project costing more than $25,000 ranked any better than 14th.

That's useful to know if you want to do improvements according to resale value. For example, replacing the front door with a steel entry door returns more than 101.8 percent of its cost, but if you don't need a new door, that won't make much difference to you.

Further, the cost-vs.-value ratios aren't based on real property resales. They're based on resale value as a percentage of construction costs, as well as surveys of Realtors and their opinions of value in their own markets.

Explains Webb, "When cost and value are equal, the ratio is 100%; when cost is higher than value, the ratio is less than 100%; when value is higher than cost, the ratio exceeds 100%."

That means there could be wide regional variations in the value of most home improvements. Within the 102 markets surveyed in the 2015 report, only 269 of the 3,672 total projects recouped 100 percent. The steel entry door job recouped all its costs and more in 43 markets. Midrange garage door replacements topped 100 percent in 28 markets.

Suggests NAR's vice president of business-to-business communications Stacey Moncrieff, "The replacements that offer the greatest payback are the ones that are most obvious to buyers when they first view a house in person or online, such as new door or garage door."

When grouped by job type, siding jobs fared better than most, said Webb, perhaps because of a rising perception nationwide of the value of curb appeal. Out of remodeling jobs, kitchens still reign supreme returning nearly 20 percent of value on resale.

New to the annual list is manufactured stone veneer, which returned 100 percent of investment in 27 markets, followed by upscale garage-door replacements which topped 100 percent in 17 markets. Midrange wood window replacements returned all costs in 16 markets, while minor kitchen remodels did so in 15 markets.

To Moncrieff, the Cost vs. Value Report is a starting point, but she says there are also factors that vary from house to house and sale to sale, such as what updates are typical for the neighborhood, the quality of the work, and how important the improvement is to a particular buyer.

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