Trends - 2016 Cost vs. Value Report

Article Provided by Remodeling.hw.net

R&C Realty - Professional Opinions on Value

As real estate professionals at R&C Realty, we value our knowledge of the market and personal experiences to sell your home as quickly as possible for the highest value. I'm sure you have watched those television shows where the owner adds granite countertops to the kitchen and it magically raises the value $6,000. What those episodes don't show you is they probably paid almost $6,000 to have it purchased and installed (unless they have the right connections). Those shows do not have full-time professional agents working across a wide array of price ranges with varying client needs. We do this every day.

The article below analyzes what projects have the best return on improvements. Full article is available by clicking the "Remodeling" title below. The hardest hitters are front door upgrades, garage door upgrades, master suite improvements, and minor kitchen upgrading.

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Only 64.4% of Investment Recouped if not done WISELY!

Bigger and more expensive projects, rising new-home prices, curb appeal, and energy efficiency all contributed to a slight gain in remodeling projects’ payback at resale, the 2016 Cost vs. Value report shows.


The average cost and average return at resale for the 30 projects in this year’s report resulted in an average of 64.4% of a project’s investment dollars getting recouped if the home is sold within a year. That’s up from 62% in the 2015 report and the second-highest return in the past eight years.


Because costs change independently from real estate pros’ assessment of value, each year the resulting cost-value ratio will have a different reason for why it changed. This ratio expresses resale value as a percentage of construction cost: When cost is higher than value, the ratio is less than 100%; when value is higher than cost, the ratio exceeds 100%. It’s the “bang-for-the-buck” meter.


In last year’s report, the overall cost-value ratio went down from the previous year because valuations were cut on about half of the 36 projects tracked. This time, the average return went up largely because real estate professionals were more optimistic, lowering their estimates of resale value on only five of the 30 projects surveyed.


Of the 25 projects for which the real estate pros increased estimated paybacks, many of the biggest percentage gains were for higher-dollar “upscale” projects, a term we use to denote jobs that are more expansive and complicated than our baseline “midrange” projects. In fact, four of the top five gains in cost recouped were for upscale projects. Topping the list was the fiberglass entry door, up 21.2%. Then came the two-story addition, an 8.1% higher recoupment than in the 2015 report; the master suite, up 6.5%; and the major kitchen remodel, 4.2% higher.


Through last October, prices for existing homes were up 5.9% from the year earlier, and that’s on top of a 5.7% gain for all 2014, the National Association of Realtors reports. Meanwhile, the annual rate for new-home starts through November was tracking more than 15% above its November 2014 pace. Prices have been doing well too, with the Case-Shiller Index of prices for 20 major markets up 4.7% in August from the same month in 2014.


“We’ve seen a steady ramping up on both the sales and construction side,” said Jonathan Diehart, director of custom services and published research at Metrostudy, the data unit that’s a sister company to Remodeling. “I think over time that really starts to loosen up prices a bit and allows some of these [remodeling] factors to become more significant as part of the price. When times become more difficult, the price becomes competitive. When times are better, the price bands get bigger [on homes of equal size]. It’s no longer ‘It’s a 2,500-square-foot house so it should cost this,’ but rather ‘It’s a 2,500-square-foot house that has this and this.’”

New This Year: Fiberglass Attic Insulation

We’ve been asked for years to add an energy efficiency project to Cost vs. Value, but we’ve hesitated to do so because such projects often measure their payback in years, while the value part of Cost vs. Value is meant to reflect resale value within 12 months of the project. The influence that geography plays in energy projects also daunted us, as did the fact that lots of utilities and governmental entities have incentive programs that can artificially reduce installation costs. But ultimately we decided to take the leap, and boy are we glad we did.


The fiberglass attic insulation project produced the top return on cost of any of the 30 projects in this year’s Cost vs. Value group. Our cost source, RemodelMAX, estimated the project would cost an average of $1,268 nationwide. Real estate professionals responding to our survey estimated that work would increase the price of a home at resale, within a year of the project’s completion, by $1,482. That’s a 116.9% return.

Other Heavy Hitters

Last year’s No. 2 bang-for-the-buck project, manufactured stone veneer, again came in second with a 92.9% return. It was followed by the midscale garage door replacement at 91.5%, a steel entry door replacement (last year’s No. 1) at 91.1%, and the upscale garage door replacement at 90.1%.


In contrast, the five projects with the worst returns all scored cost-value ratios between 56.2% and 57.7%. From the bottom up, they are: midrange bathroom addition, upscale bathroom addition, upscale master suite, upscale bathroom remodel, and composite deck addition.


As a general rule, the simpler and lower-cost the project, the bigger its cost-value ratio. Four of the five projects that cost less than $5,000 for a pro to do were ranked in the top five for cost recouped, and the remaining one was the cheapest project in the $5,000-to-$25,000 price range. No project costing more than $25,000 ranked better than 15th. This is in part because the simpler projects tend to require less time and skill by a professional remodeler. It stands to reason that it’s far easier to replace a steel entry door than it is to design, source, and build a two-story addition.


Note as well that 12 of the 15 highest-scoring projects were for work done on the exterior of the home. This showing jibes with academic research and real estate professionals’ comments touting the value of projects that promote “curb appeal.”

Replacement vs. Remodeling

Replacement jobs—such as door, window, and siding projects—generated a higher return than remodeling projects. That’s been the case since at least 2003. But in this latest report, the gap between the average replacement and the average remodeling job shrank by about two-thirds, to just 4.2 percentage points. Replacement projects averaged a return of 61.5% while remodeling projects scored 57.3%.

When grouped by job type, window and siding jobs fared better than kitchen and bath work, again perhaps because of curb appeal. Window and door jobs had percentage returns ranging from the upper 60s to upper 70s, while most kitchen and bath jobs were in the 50s and 60s. But across the board, all these jobs saw slippage in their cost-value ratios; the only one that rose was minor kitchen remodels, whose payback climbed to 83.1% in the 2016 report from 79.3% the previous year.

Disclaimer:

The opinions expressed are not necessarily those of R&C Realty. We are not guaranteeing the above mentioned projects to improve the value of a home by the numbers suggested. All figures are provided by remodeling.hw.net which analyzes trends across the entire United States and is not specific to Texas only. The materials is this flyer is for general informational purposes. We assume no responsibility for the accuracy or timeliness of any information provided herein or by any linked site or publication. We recommend any and all upgrading and repairs be done by licensed professionals.