What’s the return on your investment?

by Dan Krell
© 2012

If you’ve been wavering over the decision to moving into a new home versus renovating your current home; or maybe you’re planning a sale this year and thinking of making improvements to improve the home’s appeal- here’s a resource to help. According to the Remodeling 2011–12 Cost vs. Value Report (www.costvsvalue.com), you can get an idea of how much return on your investment you might get from some of the most popular renovation and addition projects that people undertake.

The 2011-2012 Cost vs Value Report, published annually by Remodeling Magazine, is now available and compares the top remodeling projects and the value that you might recoup at resale. The Cost vs Value ratios were collected for major cities/regions across the country. While project costs were obtained from a construction estimates database compiled by Home Tech Publishing, the project resale values were obtained through a National Association of Realtors® survey of appraisers, agents and brokers.

It is noted that a project Cost vs Value ratio is typically higher in “hotter” real estate markets, and can sometimes exceed 100% (recouping more than was spent on the project at resale). This idea is consistent with the annual Trends in Cost vs Value, which indicates that the average return on investment was higher when the housing market was at the peak in 2005. Of course a major reason for decline in the Cost vs Value ratio from the peak has been the retreat of home prices nationwide. There is speculation that since the national ratio decreased less this year than recent years, the housing market may be bottoming out.

Besides differences in local home prices, differences in regional Cost vs Value ratios can also be attributed to variances in labor and materials costs. Some experts point to a glut of construction workers who are seeking work as a reason for decreased labor costs in some areas; while material costs have not changed much or have become more expensive.

The Cost vs Value Report groups the Washington DC area in the South Atlantic region, which was ranked as the third highest Cost vs Value ratio out of nine regions. The South Atlantic region averaged a ratio of 67.3%, while the highest performing region was Pacific with a ratio of 71.3% was and the lowest performing region was the West North Central with a ratio of 49.5%.

Enough of the technical stuff…
The top Cost vs Value ratio midrange job for the Washington DC area is a garage door replacement, which is estimated to recoup about 93.2% of the cost at resale; followed by a wood deck addition, which is estimated to recoup about 91.3% of the cost at resale (compared to a composite deck addition which is estimated to recoup only 78.8% of the cost).

The top “upscale” project is a fiber-cement siding replacement, which is estimated to recoup 89.7% of the cost at resale (compared to foam backed vinyl siding, which is estimated to recoup only 78% of the cost). The “upscale” garage door replacement is estimated to only recoup 81.4% of the cost (compared to the replacement described above).

Additional projects and descriptions of the projects with costs can be viewed in the Cost vs Value Report. The full Washington DC area renovation/addition Cost vs Value report can be downloaded at costvsvalue.com.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of January 2, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

Renovation considerations

If you’re considering giving your home a makeover, you’re not alone. Desires to modernize and renew your home may increase as the years go by and trends and styles change.

There are plenty of options to make your home feel fresh as well as increase your enjoyment while in your home. Before you begin, there are two considerations that might cross your mind: “how much of a budget do I have?” and “what upgrades recoup the highest percentage of the cost if I decide to sell my home after I make the improvements?”

First, have you been saving for renovations? It is very important to create a renovation budget to fit your financial picture, and then stick to it. Even modest improvements can meet your needs, so don’t be tempted to go beyond your initial plan or over budget.

When renovating/upgrading your home, consider the long term resale value. Today’s designer trends could become tomorrow’s designer don’ts. Whether you’re planning a minor kitchen upgrade or planning a major addition, design experts have often recommended that home owners consider substance and function over style.

Before working on your home, Mark Anderson (2011, The designer discount. MoneySense, 13(1), 63) discusses the need to consult with a professional designer to assist you in your renovations. He suggests that many home owners who design their own spaces tend to focus on what’s trendy at the time without consideration of the fact that most trends are short lived. The longevity of the freshness of your upgrades can depend on your improvement choices.

The most sought after home improvements have typically been in the kitchen. The kitchen tends to be of major focus because it is a room that many people use as the hub of their lives. You might observe that trends are increasingly transforming the kitchen from a meal center to a lifestyle center by centralizing one’s daily activities around the room (as can be observed by adding shelves, built-ins, and computer desks as well as removing walls between the kitchen and other rooms). When updating the kitchen, experts warn not to go overboard as modest upgrades are often enough to increase your enjoyment.

When selling a home, curb appeal is always a consideration. So it’s no wonder that home owners typically go for the facelift equivalent by updating the exterior by replacing exterior doors, windows and siding. Not only can new exterior doors, replacement windows and siding give your home a fresh and modern look, these items could possibly add to your home’s overall insulation efficiency.

So, now that you’ve spent your money, you’re probably wondering “how much can I get back if I decide to sell my home?” Remodeling Magazine (remodeling.hw.net) publishes an annual “cost vs. value” report that provides regional estimates and averages of improvement costs and the estimated average amount that could be recouped if the home is sold at time of improvement. The magazine estimates that for our region, a minor kitchen upgrade could cost around $20,000 and might recoup about 74% of the cost at resale; while a major kitchen upgrade could cost about $55,000 and only recoup about 68.7% of the cost. Additional recoup estimates include: 102% for the cost of a front door; 72% for the cost of new siding; and about 71% for the average cost of replacement windows.

by Dan Krell
© 2011

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

Home renovations reservations

by Dan Krell © 2010

If you’re like the typical home buyer, you’d prefer to purchase a new home. However, most new homes are too big and too expensive. Buying an older home that has been renovated or updated may be a viable alternative. However, renovations and updates can vary in scale and quality; having a sharp eye and a thorough home inspection can assist you in revealing workmanship issues.

If you are considering purchasing a home that has been renovated or updated, the first question you should ask the seller is, “who completed the work?” Additionally, you should ask if there are warranties and if the warranties are transferrable. Many home renovations are completed by reputable, licensed contractors or builders who are familiar with the permitting process as well as building code requirements and sometimes offer a limited warranty.

However, the quality of the renovation/update is often reduced by some contractors who cut corners to save time and money; component installation is frequently the culprit of these problems and may be due to installer inexperience and/or carelessness. Poor workmanship can make the most expensive material look cheap. All identified issues should be pointed out to the seller to be repaired or replaced.

Although you should hire a licensed home inspector to conduct a thorough home inspection, you can sometimes identify quality issues in a renovated/updated home without much effort. The most common workmanship problems noticed by laypeople in a renovated/updated home are in the kitchen, bathrooms, and flooring; identified quality issues may be an indication of other underlying problems.

When looking at a renovated/updated kitchen, check the cabinets and appliances. The cabinets should be securely fastened to the wall; loose or inappropriately secured cabinets indicate a potential problem that could cause the cabinets to come crashing down at a later time. Refrigerator doors should open freely and should not be obstructed by cabinets or walls. The stove should have an anti-tip device installed; this is a safety device that can prevent a hot stove from falling on a child or an unsuspecting adult. The dishwasher should not feel loose and should be secured to the counter; an unsecured dishwasher can “walk” while operating and have the potential to pull plumbing components apart.

If plumbing is not installed properly, leaks can develop and obviously create future problems. Toilets should be firmly secured to the floor; a loose toilet can break the wax seal and result in a leak. Checking the water flow from the faucets may reveal plumbing problems; poorly connected pipes can sometimes be revealed by feeling the pipes under the sink for drips while the faucet is running.

Renovated/updated homes often have new flooring. Poor workmanship can be easily spotted if tiled or wood floors are not flat, even, and square to the walls. The carpet should feel taut; loose carpet is a trip hazard. Although problems in the subfloor cannot be easily detected, red flags should be raised if there are cracked tiles or uneven floors.

Remember that your keen eye is not a substitute for a thorough home inspection; a licensed home inspector should inspect all systems within the home (including plumbing, electrical, HVAC, etc). However, any issues you uncover while viewing a home will not only help you decide on purchasing, but can also assist you in determining your offer.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of August 30, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.

Remodel instead of Move?

Moving up has been a right of passage for families for years. Families have been moving up for one reason or another, usually because of the need for space or just to move to a new neighborhood. However, spiraling home prices made many to rethink the usual move up, and instead make improvements on their homes. Rather than buying the four bedroom colonial they need due to a growing family, homeowners are adding rooms and enlarging the spaces they already inhabit. They’re thinking remodel instead of moving.

If you are unsure of making improvements or selling your home, there are some factors to consider. RemodelorMove.com (www.remodelormove.com) lists the top reasons for remodeling instead of moving includes: you like remodeling; you like your home floor plan; you like your neighbors; you like your yard; you have a great location; you will get exactly what you want; and you feel that it can enhance the value of your home. If you’re trying to decide whether remodel or move, you may find some of the reasons to remodel resonate.

If you decide to remodel rather than move, there are some considerations. According to RemodelorMove.com you should consider how long you are going to be in your home, the costs involved, and the timing of the remodeling before you move.

If you are planning to stay in your home less than a year, you should consider the actual cost of the improvements against the return you may get on your upcoming sale. However, if you plan to be in your home for a few more years or longer consider the factors of personal pleasure and comfort.

If you are concerned with cost vs. value, a great resource that every turns to for their annual report is Remodeling Magazine (remodeling.hw.net). According to Remodeling Magazine, return on investment depends on the value of the house itself, the value of similar homes in the immediate area, and the rate property values are changing in the surrounding neighborhoods. Some projects will recoup more than 100% of the original investment, however overall in 2004 the return of investment was 80.3%.

The following are the top improvements listed listed in this year’s Remodeling Magazine annual report in order of return on investment: minor kitchen remodeling -92.9%; siding replacement-92.8%; midrange bathroom remodeling- 90.1%; deck addition- 86.7%; upscale bathroom remodeling- 85.6%; and window replacement- 84.5%. You can view the rest of the 2004 report on the website.

Both selling and remodeling can be large propositions that can bring a lot of joy. There are many resources available to help make your decision. But you should verify the information you get, especially from the internet. Additionally, you should consult a local contractor and a Realtor to assist with costs of improvements and neighborhood home values.

By Dan Krell © 2005.