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Home Improvement Cost vs. Value (2007)

This article was written by in Real Estate and Home. 17 comments.


As first-time homeowners, we watch more than our share of DIY Network / HGTV / buying and selling home shows. My wife and I work as a team: she concentrates on making home improvements, and I’m concerned with making sure things don’t fall apart. I also worry sometimes that any project we undertake might be a waste of money, or at least, not realize the return that some people promise.

I’m sort of haunted by this phrase that shows up in a commercial for DIY Network’s show “Sweat Equity”, where the host Amy Matthews is heard to say, “You’ll get two dollars back for every dollar you spend.” That might have been true when she said it, depending on which project she was talking about in the specific real estate climate she was in at the time. I asked my parents, who have dozens of years of real estate experience between them, and my father, who is as scientifically-minded as I am, found me a good resource:

costvaluelogoRemodeling Online has a “Cost vs. Value Report” that analyzes the average cost of 29 common projects one might undertake to increase the resale value of a home – if not the resale value, at least the likelihood that someone will buy it.

What’s more, they have specific information for different regions of the country, even down to the City level in some cases. Where we live, for example, remodeling the bathroom will recoup 90.9% of what it cost us, when the national average is 78.3%. But none of the projects listed indicate a cost recoupment of over 100%, nationally or regionally, so we’ll probably never get even one dollar back for every dollar we spend. But that doesn’t mean we’ll stop making improvements. It just means that the main reason to make home improvements is for the sanity of the current owners. I’m okay with that.

(Here’s a direct link to where the average numbers come from, as well as complete descriptions for each project analyzed.)

Update: Justin points out in the comments (below) that my comparison isn’t quite fair, since in the Sweat Equity scenario, you’d be doing all the work yourself. The Cost vs. Value table assumes that you’re paying full price for labor, so there’s bound to be some percentage that you’d be saving / recouping by doing it yourself.

Updated February 10, 2011 and originally published August 13, 2008. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Smithee formerly lived primarily on credit cards and the good will of his friends. He is a newbie to personal finance but quickly learning from his past mistakes. You can follow him on Twitter, where his user name is @SmitheeConsumer. View all articles by .

{ 17 comments… read them below or add one }

avatar Julie

It’s also important to do a little legwork in your specific neighborhood to avoid over- or under-improving. If you’re in an older neighborhood with homes that haven’t seen significant updates in a while, you’re not going to recoup the cost of that new kitchen by any stretch of the imagination. Conversely, if you’re in a neighborhood catering to a higher-end clientele, putting laminate or Corian counters into a kitchen or bath instead of granite, quartz, concrete or one of the other higher-end materials will cost you more when you sell than any savings you’d see at the time of installation.

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avatar APFB

If the improvements that you make to your house allow you to live more comfortably, then a prospective buyer will probably feel the same way.

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avatar Bride of Smithee

Here’s a question for your dad and other great minds, though: say we spend $5K on the bathroom remodel, so we “get back” $4500…over what? Over our home purchase price plus basic appreciation?

If that’s the case, if we sell our house after 10 years, without a remodeled bathroom, the price we paid was for a 26-year-old bathroom but we’d be selling a 36-year-old bathroom. Isn’t there a “penalty” inherent in extremely dated brass-and-glass shower doors, old fixtures, and those one-piece molded shell-shaped sink-counters? I think that’s where you get the “2 back for every 1″ math (particularly on bathrooms and kitchens, because plumbing and appliances degrade), because the sell price is affected by *not* remodeling as well.

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avatar KC

I have a question for you guys. I live in a nice townhome in a really nice section of Memphis. I’m probably going to be moving soon (6 months). What improvements can I make (I’d hire professionals, not do it myself) that will help me get the most bang for my buck?

Nothing is in dire need of repair – home has been maintained well over the years. Air cond./furnace are less than 8 years old. Nothing needs to be repaired (not even a leaky faucet).

I’m thinking of replacing the outside fence (which is 20 years old), having the interior painted (which is 8 years old), having the upstairs carpet replaced (8 years old), downstairs wood floors refurnished. I don’t plan to go so far as putting in granite countertops or anything that extreme – frankly this place will sell quickly without it. But are these the best improvements to make for the buck? Thanks.

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avatar Tom

They don’t add in the small remodel projects like painting the house. It’s amazing what fresh coat of paint will do for resale.

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avatar Smithee ♦1,358 (Quarter)

@Julie, thanks for the tip. Aside from the occasional Open House in the neighborhood, what kind of legwork could a person do?

@Bride, I honestly don’t know, but thanks for reminding us that other factors are involved. I’ll see if I can get an answer.

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avatar A.J.

I wonder if individually these projects don’t result in a positive ROI, but maybe the cumulative effect of many different renovations does. In other words, can we apply “The sum is greater than the parts” to home renovation?

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avatar marv

David Crook in the Wall Street Journals “Complete Real Estate Investing Guidebook” has some things to say about home improvement as an investment. A lot of the hype it gets in the media is just to sell you on something you don’t need. The media and the companies that profit from it turn remodeling into a “keeping up with the Jones’s” sort of thing.

from pg 14:

Home owners rarely consider maintenance or the declining value of improvements. Painting, roof repairs or new furnaces don’t pay for themselves, and remodeling is a huge loser. Entire industries have arisen to entice homeowners to spend thousands of dollars for new kitchen cabinets, granite countertops and stainless steel appliances or his-and-hers master suite bathroom spas featuring multi-head showers and Asian inspired “soaking” tubs. Architects, builders, magazine editors and real-estate agents tout such improvements as if typical homeowners absolutely must take the remodeling plunge or forever risk the value of the house and suffer the ridicule of friends and neighbors.

Remodeling magazine publishes a widely quoted annual survey of the value of home improvements. In 2005, the magazine said that an upscale kitchen remodel like you see in the glossy shelter magazines would cost $82,000 and would return just 84% four years later. Absurd. This kind of project might get raves from your friends, but it’s a fool’s financial play. A new kitchen is certainly a nice thing to have, but it’s not an investment that’s going to make you any money. That 84% return means the homeowner will lose more than $3,000 a year on the kitchen. And if the owner borrows the money to remodel the kitchen – which most do – the losses could quickly triple.

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avatar Smithee ♦1,358 (Quarter)

Here’s what My Father the Realtor said when I posed my Bride’s question to him:

“Yes, the sale price would be affected by not remodeling as well over time. What we generally say, is that you will eventually pay for maintenance, whether it is for the maintenance itself or in a lower final price you get for a home you are selling. In your scenario, I believe that the numbers reflect a situation that the remodel will help you sell the home faster at a cost of only $500. And if you sell a home faster, it will generally sell for a better price.

Remodeling now and selling in ten years means that you will have had the pleasure of the amenity for 10 years, and after that time frame may have to consider updating again should you be preparing for a move.”

The site I linked to in the first place also has some things to say on the subject.

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avatar Justin

You are forgetting the name of the show – Sweat Equity. In the link you provided, you are paying for labor, which can easily make up half the cost of a project. By doing the work yourself you will see ROR break through the 100% barrier. Its actually a clever name for a show when you think about it.

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avatar Smithee ♦1,358 (Quarter)

@Justin, You’re absolutely correct. The Cost vs. Value table does assume that you’re paying full price for labor, so there’s bound to be some percentage that you’d be saving / recouping by doing it yourself.

Assuming you do it correctly the first time.

Just how much of a percentage is saved by doing it yourself is going to vary from project to project, of course, but it’s probably at least 30% in most cases.

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avatar Julie

Along the lines of what your dad said – we had to price “limits” when we were looking: one for houses that were move-in ready and ones that would “require” upgrades (everyone will have different requirements, some more necessary than others). We were obviously willing to spend more money on a move-in ready house, and if we walked into a place that would require updating a bathroom or kitchen, finishing a basement to get the space we needed, etc., the money we’d be spending was subtracted from our best-case budget to get a figure we wanted to pay. If the asking price was close, we’d consider it. If the asking price was completely out of line, we’d move on. So I guess that’s where maintenance and aging of properties come into play.

Regarding figuring out what the neighbor’s homes look like – open houses are good, as are online listings of houses for sale and the like. It also doesn’t hurt to make friends with your neighbors so you can scope out your place. Ultimately, though, you have to find a balance between living comfortably in the home while it’s yours and being able to recoup as much as you can when you sell. The level of upgrades (the mid-range kitchen vs. the high-end kitchen, etc.) matter, as do the style of the upgrades. You might love a kitchen with butcher block counters, but many people will see it as unhygienic and/or “woodsy”, etc. and view it as something they’d immediately have to change, which makes the house “worth” less in their eyes.

And regarding selling quickly – Tom is dead on. A simple coat of paint can make a *huge* difference. Other factors to consider: Will you be competing with newer properties, and if so, will you need to make updates to compete? Styles change in 8 years so while a house may be well-maintained, it might also appear dated. Are all your bookshelves and closets at least half empty? Buyers want to make sure there’s plenty of storage, especially in attached housing. If it looks like you have room to grow, they’ll think they will to. And when you’re removing things, don’t box them up and stick them in the garage – move them to a storage unit or a friend’s basement or something. Also thin out kitchen cabinets and drawers if you can, and anywhere else where you have “attached” storage (bathroom drawers, etc.) – it’s nosy, but people will go through them. Replacing the carpet and refinishing the floors are a good idea as well considering the age of the unit. And clean like you’ve never cleaned before – hire someone if necessary. Ultimately, though, the asking price will be the biggest help or hindrance to a quick sale. This is where a realtor or agent can be invaluable – they can looking at other sales in the area, other properties on the market, etc. and advise you on an appropriate listing price.

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avatar Jesse

“Assuming you do it correctly the first time.
Just how much of a percentage is saved by doing it yourself is going to vary from project to project, of course, but it’s probably at least 30% in most cases.”

Thats being conservative. I would be more inclined to guess its closer to at least 50% on most things. I really get sick of the old cliche “Time is money” because its not true. Its a fallacy to think “Well I make $40 an hour so if I pay someone $20 an hour, I am saving money by my time.” That would only be true if the time you are paying someone to work is time you would otherwise be earning money.

That doesn’t include experience, the satisfaction of doing it yourself, and knowing it is done right (or at least what is right/wrong with it).

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avatar Luke Landes ♦127,505 (Platinum)

Jesse: Time (and effort) *is* money, but not your hourly wage because of the reasons you mention. It’s a valid way to make decisions (cost/benefit analysis, etc.) whether to do something yourself or to outsource, but you have to figure the “value of time and effort” correctly. It’s not your hourly wage or your salary divided by how many hours you contribute to your job. That result almost will always be too high.

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avatar tightwadfan

When I was looking at houses I had the price, the size of the house, and the neighborhood in mind. If there were 2 houses in the same neighborhood of the same size I wanted the house that would be cheaper. If the features of the more expensive house were worth less than the difference in price, I didn’t want that house because I knew I could get the cheaper house and make changes for less than what the more expensive house cost. Plus I could pick whatever colors, materials and appliances I wanted. Am I crazy or does anybody else think that way?

It just seems to me that at best you will only get back what you paid. I think Realtors pressure you to improve your house because they think it will make the house sell quicker, less work for them. (I think selling your house more quickly can be very valuable but it still doesn’t mean you’ll get back what you paid for improvements).

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avatar vilkri

I generally agree with these estimations and also with the comments of others. These estimations do have their limitations.

One of the limitations of these estimates is the relationship between the type of house and the quality of the upgrade. A Viking range would be overkill in a $200,000 house but appropriate in a $1,000,000 house. You would probably recoup more of the investment in the latter case.

Also, an upgrade should benefit the current owner. We live in a time when a house is no longer considered a home but an investment. But really, one’s house is also one’s home. When we start looking at our houses as homes again, we will keep our houses in good shape and upgrade them as necessary because of our pride of ownership.

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avatar LC

That website is a great resource! Even though the costs might not account for DIY labor, it does tell you what renovations in your area bring back the best average return. Important for anyone looking at spending some renovation money or buying a fixer upper!

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