Realtors Assess Resale Value of Remodeling Projects in Shifting Markets

The resale value of many remodeling projects has not kept pace with the costs of those projects, according to Realtors and remodelers who recently participated in Remodeling magazine’s 2006 “Cost vs. Value Report.” Produced for 19 years by Hanley Wood, LLC, this is the ninth consecutive year the report was completed in cooperation with REALTOR Magazine, as National Association of Realtors members provided their insight into local markets and home buyer preferences in 60 different cities across the country.

The report shows that prices for most remodeling projects continue to increase, though their resale value has decreased. This trend reflects a return to a more balanced real estate market in many areas of the country. As in 2005, kitchen and bathroom remodels are still near the top of the list in terms of costs recouped, on a national average.

In 2006, the national average cost for a major kitchen remodel was $54,241, and the return was $43,603, for an 80.4 percent return on investment. By comparison, in 2005, a major midrange kitchen remodel cost an average of $43,862 and returned $39,920, or 91 percent of the costs to remodel. Midrange bathroom remodels recouped 85 percent of their cost in 2006, with remodeling expenses averaging $12,918 and resale values averaging $10,970. Last year, the same project cost $10,499 and returned $10,727, or 102.2 percent.

“Our Realtor members visit hundreds, if not thousands, of homes with their buyer clients each year, and have a unique understanding of what home buyers value in their local markets,” said NAR President Pat Vredevoogd Combs of Grand Rapids, Mich., vice president of Coldwell Banker–AJS–Schmidt. “As real estate markets shift in many sections of the country, homeowners must rely on the guidance of real estate professionals who are immersed in the industry. Realtors’ insight into buyer preferences and their connections to local remodeling experts help them add value to the real estate transaction, whether their clients are preparing their home for sale or just want to be informed about resale value down the road.”

The report compares construction costs with resale values for 25 common remodeling projects in 60 cities. This year the report provides data for nine U.S. regions, rather than four as in years past, following the divisions established by the U.S. Census Bureau. The projects represent additions, remodels and replacements. Nationally, replacement projects tended to return more value than additions or remodels, but, as in previous reports, the desirability of different remodeling projects varied by region and metropolitan area.

The most profitable projects nationally, from a resale value, were midrange vinyl and upscale fiber cement siding replacements, at an average of 87.2 and 88 percent costs recouped, respectively. Most of the regions reflected that, as well; some type of siding replacement ranked among the top three projects in terms of costs recouped in every geographic area except the Mountain region, composed of Arizona, Colorado, Idaho, Montana, Nevada, New Mexico and Wyoming. The least profitable project was a home office remodel; this project returned the lowest percentage of remodeling costs at resale in all but the South West Central (Arkansas, Louisiana, Oklahoma and Texas) and Pacific (Alaska, California, Hawaii, Oregon and Washington) regions.

Homeowners in the Pacific and South Atlantic (Delaware, District of Columbia, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia and West Virginia) regions could expect to see some of the highest percentages of remodeling costs returned at resale, while homeowners in the West North Central (Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota) and East North Central (Illinois, Indiana, Michigan, Ohio and Wisconsin) experienced some of the lowest returns.

Combs cautioned consumers to look beyond the data. “Many factors affect a home’s value and, consequently, the resale value of any given remodeling project,” she said. “The home’s overall condition, availability and condition of surrounding properties, location, and regional economic climate are all factors that influence value in real estate. When considering a remodeling project or preparing a home for sale, consumers should rely on industry professionals, such as Realtors, who have the expertise and experience to help homeowners protect their investment.”

To read the full project descriptions, visit www.remodelingmagazine.com. The site also includes project data for each of the nine regions. The full study, as well as city-specific reports, which are available for the first time, can be ordered by visiting www.costvsvalue.com. Members of the media can obtain a sample report by sending an e-mail with press credentials to costvalue-cs@hanleywood.com. “Cost vs. Value” is a registered trademark of Hanley Wood, LLC.

Hanley Wood, LLC, is the premier media company serving housing and construction. Through four operating divisions, the company produces award-winning magazines and Web sites, marquee trade shows and events, rich data, and custom marketing solutions. The company also is North America’s leading provider of home plans. Founded in 1976, Hanley Wood is a $240 million company owned by JPMorgan Partners, LLC, a private equity affiliate of JPMorgan Chase & Co.

The National Association of Realtors, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.3 million members involved in all aspects of the residential and commercial real estate industries.
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For more information, contact:
Sara Weis, 202/383-1013, sweis@realtors.org

Basements add to the bottom line

Some blast new rule on square footage; others say it's fairer

By John Rebchook, Rocky Mountain News November 2, 2006

Residential real estate broker Sonja Leonard Leonard believes that a year-old rule that requires basements to be included in a home's square footage is contributing to the Denver area's record number of foreclosures and growing mortgage fraud.
She argues that, under the new rule, buyers think they are getting a much bigger house than they really are.
Other brokers, however, believe that the Metrolist change, which went into effect Jan. 1, reflects how other listing services calculate square footage and provides a better picture of suburban homes with sometimes luxurious walk-out basements.
But Leonard Leonard, who has been selling and investing in real estate for the past 27 years, counters that most houses in the central city neighborhoods her company serves don't have those big walk-out basements.
One home on Williams Street, for example, was recently listed as 3,200 square feet, but half the space was the basement.
"What is so frustrating about this is that it leads us right into the path of fraud and sleazy appraisers," she said. "People are thinking they are buying homes for $150 per square foot, when it is really selling for double that. I've seen homes magically blossom from 2,000-square-foot homes to 4,000-square-foot homes because the basement is included."
She argues the new rule allows brokers to list a "coal room" in the basement as if it were equivalent to a finished basement. A more precise definition of "finished" space is needed, she said.
Ed Hardey, a RE/MAX 2000 broker and a member of the Metrolist board, disagrees.
"Part of our challenge is that we have 18,000 brokers who use our service, and we can't please everyone," he said "A large number of brokers wanted us to change the rule to reflect what is happening in a lot of homes, especially outside of the older neighborhoods in the city. Some basement walk-out space is nicer than the rest of the living space in the house."
Hardey said there is no evidence that the rule is contributing to foreclosures or mortgage fraud, or is affecting the sale price of a home. He argues that no one buys a home without touring it first.
He said he's spoken to several hundred brokers about the change and that the vast majority have no problem with it.
Hardey said the rule only affects 4 percent of the homes in the central Denver area but a much higher percentage in the suburbs.
Chris Mygatt, president of Coldwell Banker in Colorado, said brokers want consistency.
"My opinion is that what is important is that all homes in the marketplace are compared equally," Mygatt said. "And I would say that 20 years ago, basements typically weren't important living areas, but that has changed a lot in recent years."
Basement rule at a glance
Square footage of the above-grade living space shall be specified on the property data form in the square feet field. Basement square footage is never allowed in the square feet field, but the finished portion of a basement may be included in the finished square feet field. The form has three mandatory square feet fields:
• Square feet: Includes the square feet of the main, upper and lower levels. When lower level is included, the type of lower level must be identified.
• Finished square feet total: Includes all finished main, upper, lower and basement square footage.
• Total square feet: Includes main, upper, lower and basement, regardless of whether the area is finished.

For more info on basements, go to www.ColoradoDreamHomes.net