The value of any home improvement is what the homeowner is willing to invest and how much value the ultimate home buyer will pay for that improvement. Home improvements are, and always will be, a balancing act between immediate value to improve the current homeowner's quality of life and ultimate resale value.
While each homeowner has different values, there are general standards for any community, and within that community, for homes within a price range. Houses exceeding a certain size are expected to have a two-car garage. Homes with 3 bedrooms are expected to have a deck. These features are what home appraisers use to develop price projections, i.e. they will subtract or add value (dollars) when a home lacks a garage or includes a fireplace.
For perspective, let's first look at what happened in 2008 in the stock market. Your car's value after 5 years of ownership is another interesting comparison.
Your House Versus the Stock Market?
How much your home appreciates or looses during a price decline should be compared to other investments.
- With $250,000 invested in the stock market and average losses of 30% in 2008, you would now have $175,000 remaining in your investment account.
- If your home was initially worth $250,000 in 2007, after subtracting the average US drop in housing prices which was 7%, your home would now be worth $232,500.
In this example, your home retained significantly more value than your stock market investments.
Your House versus Your Car?
They say your car looses value when you drive it off the lot. After this, the standard depreciation rate for a car is between 15% and 20% each year although cars in demand may not depreciate as quickly. Let's look at an example.
- 5 years after buying a car for $25,000, it could lose 75% of it’s value and be worth just $6,250.
- Investing the same $25,000 in the right home improvements, is likely to recoup 75% of the cost, or $18,750 when you sell your home … or almost $24,000 with 5% appreciation over 5 years.
While many people continue talking about doom and gloom in today’s housing market, investing in home improvements is one of the best alternatives you have available to balance your portfolio. If you have credit card debt, pay that off first and after setting aside emergency funds, consider which home improvements will benefit your family and pay you back when you sell your home.
2008 Remodeling Cost versus Value Report
Remodeling magazine’s 2008 Cost vs Value report provides data to help you evaluate different projects based on projected value when selling your home. For example, if you invest in a minor kitchen remodeling project, you can expect to recoup 79.5% of the cost on resale.
Statistics from the National Association of REALTORS® show that home prices fell an average of 7% nationally in 2008 while the value of home improvements declined only 3.86%. In fact there are hot cities like Charlotte, NC. where some remodeling projects are still projected to recover more than 100% of their costs, something that was quite common just a few years ago.
By reviewing this information, homeowners who are undecided about which project to tackle, can make an informed decision about investing today for the greatest return at time of resale. The remodeling projects with the highest cost to value ratios are holding steady year-to-year (see earlier articles/newsletters). These include the following Top 10 projects that focus on increasing a home’s energy efficiency or enhancing homeowner lifestyles:
- Midrange kitchen remodels, both minor at 79.5% and major at 76.0%
- Siding replacement – vinyl 80.7%, fiber cement 86.7% and foam backed vinyl 80.4%
- Window replacement – both vinyl and wood, mid-range and upscale (4 of top 10) ranging from 76.5% to 79.2%
- Deck additions – wood at 81.8% (with composite lower at 73.7%, upscale 63.2%)
- … and if we stretch the “Top 10,” we have bathroom remodels recouping 74.6% (and upscale bathroom remodels 70.7%)
These projects have a high correlation with the most critical factors that influence home sales, namely curb appeal (siding, windows and decks) and kitchens and bathrooms. In addition to increasing your home’s value, new energy efficient windows and siding (enable you to add insulation too) provide great opportunities to lower your energy costs year after year.
Top Priority = More Living Space
If your top priority is more living space, here's how those projects rank in terms of value based on projected increases in home’s selling price.
- Decks (top 10) provide some of the best returns with wood decks value of 81.8% and composite decks resale value – mid-range 73.7% and upscale at 63.2%
- Attic-to-bedroom conversion projected to return 73.8%
- Basement entertainment area with bathroom should return 72.9%
- Two story addition (family room, bedroom and bathroom) is the second largest project with a projected cost of $146,538 but you should recoup 70.7% on resale.
- Garage additions provide resale value at 66.6% of initial cost.
- Master bedroom suite when created as an addition over a crawlspace, offers a projected return of 66.0%
- Family room on crawlspace foundation (keeps cost down) has projected value of 65.9%
- Sunrooms are costly averaging $71,745, and return only 56.7% on average.
- Home office remodeling projects are fairly expensive at $28,094 and offer relatively low resale value (54.6%) because many home buyers are not looking for this feature..