Rethinking Cost vs. Value for Home Remodeling Projects

Hanley Wood Media Inc. publishes a study each year in Remodeling magazine on the cost of various home improvement projects and the estimated value added to a property from each project. 

The study provides a wealth of information and is well worth downloading, which you can do from the website costvsvalue.com. The download is free, but you’ll have to provide them your contact info.

Before providing some guidance on how to best use the report, some key results from the 2018 study for metro Denver are worth noting:

• • Garage door replacement is the only project that provides a return in excess of 100%.

• • Stone veneer on the exterior, a minor kitchen remodel and addition of a wood deck are projects where you recoup 80% of the cost of the projected in increased home value.

• Twenty-one different home improvement projects are analyzed covering a wide range of popular projects both inside and outside a home.

How should you use the Cost versus Value report?

First of all, the report provides great information on the cost of various projects because of the methodology used by Remodeling magazine. They do a detail scope of work for each project that specified materials to be used, number of hours required to complete the work and typical contractor profit margins.

These scope of work documents go to RemodelMAX, which gets estimates for each project in 149 different markets around the country. The cost estimates are not just generic national or regional averages, but are city specific.

As a result, the cost information for each project is a great starting point for deciding which projects you want to do and how to prioritize them. If you want to remodel your kitchen, replace your windows and build a patio, you can get a ballpark budgeting cost for each and decide the order in which you want to get them done.

Secondly, the report may be less reliable when it comes to the market value added to a property by each project. Remodeling magazine asked real estate agents in each of the 149 markets to estimate the likely increase in value for each project if the house was sold a year after project completion.

Agent opinions on value increases from a given project will vary widely. The projected value increase is much less objective than the information on project costs. 

That said, our strongly rising home prices make the value side of the equation less concerning. Price increase make almost any home improvement project profitable.

Think of it this way:

You do a major kitchen remodel to the average single-family home that had a price at the end of March 2018 at $510,000. You spend $60k on the remodel and this adds $40k in value, according to the Cost vs. Value report. The house is now worth $550k.

That $550k house is likely to appreciate at 5% to 8% over the coming year, making it worth $577k to $595k next March. The added value plus the overall price appreciation has given you additional equity in the range of $67k to $85k – more than paying for the improvement you made. 

It’s hard to see how you can go wrong in today’s market environment with home improvements. The improvement itself will add some value even if the exact number in the Cost vs. Value study is off to some extent. Market appreciation will cover the rest of the cost in almost all cases. 

A great strategy for a house you know you want to sell in the next 2 to 5 years is to make improvements now. They’ll add value to your property and you’ll get to enjoy them for a time before you sell. When you do sell, the improvements you make today will not have gone out of style and will make your property even more attractive to buyers.

In addition to real estate agent guidance …

stagers and interior designers can get you some great advice on the type of materials to be using to maximize your resale potential. Certain types of cabinets and countertops and fixtures will have a broader market appeal than others. Paying attention to these kinds of issues will pay big dividends when you know you will be selling the property in the near term.