Homeowners who are hoping to make cost-effective improvements should not be fooled by national statistics. The value that a particular remodeling project adds to a house is largely a local phenomenon.
In its latest study of costs versus value, Remodeling magazine reported that on a national average, home buyers can expect to recoup 88 percent of what they spend updating an outmoded kitchen.
If you are in Los Angeles, however, the resale value of a new kitchen with 30 feet of midpriced cabinets, custom lighting, resilient flooring, laminated counter tops and energy-efficient appliances can be nearly twice what you paid.
On the other hand, if you happen to live in Philadelphia or Topeka, Kan., you will be lucky if you get back half of what you spent, even though a kitchen is usually a major selling point.
Why such a wide discrepancy? The pay-back value of home improvements is
”highly sensitive to local preferences,” said Wendy Adler, Remodeling editor.
”It depends on taste, lifestyle, cost, weather and the age and style of the house,” she said. ”Sometimes it boils down to the actual neighborhood.” It is important to make sure that the improvements fit both the home and the neighborhood. Don`t make so many improvements that your house sticks out from its neighbors.
Probably the worst thing you can do from a cost-versus-value standpoint is put a $50,000 kitchen in a $100,000 house. The market just won`t pay you back for it. But if you spend the same amount on the kitchen in an area in which homes cost $300,000, you are much more likely to recoup a larger portion of your investment.
Also, the improvement should be appropriate for the house itself. It is silly to remodel a year-old bathroom, for example, or replace a perfectly acceptable kitchen range just because you are tired of it.
Of course, the pay-back value of any home improvement should be secondary to personal preference. After all, it is your home and you should be comfortable in it.
”Homeowners should remodel because the house isn`t satisfying their needs for one reason or another,” Adler said, ”not to make money. Remodeling gives you the chance to match your home to your lifestyle, which is why remodeling has become so popular.”
At the same time you don`t want to waste your money on unnecessary or frivolous improvements that won`t pay off when it comes time to sell. That is where surveys such as Remodeling`s come in handy.
First, borrow from the magazine`s methodology to determine which improvements are best in your area. Adler and her staff asked real estate brokers in 40 markets to estimate the resale value of 11 major remodeling projects. Adler recommends talking with realty brokers rather than appraisers or remodeling contractors.
”People want to know how much money they can expect to recoup from a particular improvement, and that`s the language realty brokers speak,” she said.
”Appraisers talk in terms of the value of the entire house rather than the sales appeal of a new master bedroom suite or a sun room addition.”
Generally, according to this and other studies, large projects such as a dramatic makeover of an entire room will net the greatest return on your investment. Similarly, items that are most visible, such as new appliances, a fireplace or skylights, also yield good results.
Less noticeable improvements such as more insulation or new siding do not earn the highest returns, but that does not mean that they are bad things to do.
”If it needs it, do it,” Adler said.
Also realize that while some improvements may not add much to value, they can detract from the sales appeal if they are not made.
A new front door is a case in point. It will not make an otherwise rundown house look better, but an ugly, scarred or chipped door will make a nice house look rundown. At the same time, a new door could be the detail that gives an undistinguished place a bit of sparkle.
Once you decide what you want to do, use the study to figure out how to go about it. The brokers were asked for ”pay-back tips,” and they responded with numerous practical suggestions to increase the saleability of the improvements:
– Even a ”minor” kitchen renovation, which was rated second only to a major kitchen overhaul as the most cost-effective improvement, should include a built-in dishwasher and light fixtures and counter tops.
– Adding a family room also is worthwhile in most markets, but this improvement pays off best in a neighborhood in which homes of the same size or larger already have been updated.
– The bathroom is another good place to spend your money, according to the survey. Buyers view bathroom remodeling as a ”major project and prefer that the work already be done,” one broker said.
– Combining two existing bedrooms into one larger master suite may also be a good idea, but only if the house is left with at least three bedrooms. Ditto for a deck, as long as it opens from a public area. If it opens from, say, the master bedroom, it is considered too much of a luxury.
While remodeling contractors probably won`t be able to speak to the resale value of particular projects, the true professional should be able to give you pay-back tips like these.
They know which products are best, what will and won`t work and what other owners in similar situations are doing. Moreover, if you are considering a series of improvements, they can help you plan the entire sequence so you won`t ever have to rip out the work you just had done.
Realize that projects that are professionally designed and constructed almost always pay off better than those performed by do-it-yourselfers.
Remodeling`s survey does not cover every city and state, nor does it include every type of improvement. But it does take a close look at the 11 most frequent improvements and the improvements for which the pay-back is not clear, and it covers enough cities to present at least regional trends.
Because the magazine is a trade publication, it is not available from your local newsstand. For a copy of the 1989 Cost vs. Value Report, send your request with your name, address and a check for $4.50 to Remodeling, Dept. MJK, 655 15th St. NW, Suite 475, Washington, D.C. 20005.
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Shopping for a home? ”How To Determine Quality Construction” gives detailed advice on how to tell whether your dream house is as solid as it looks. For a copy, send your request with your name, address and $1.25 for each copy to Lew Sichelman, in care of The Chicago Tribune, P.O. Box 91428, Cleveland, OH 44101-3428. Be sure to include the title.
