The economy is reviving, and so is our appetite for spending on home improvements. By 2014, remodeling had nearly returned to the levels of early 2007, when the housing market hit a peak, according to researchers at Hanley Wood, publisher of Remodeling Magazine. They expect remodeling to grow 4 percent in 2015.
Today is different, though: When you sell a home, you can’t recover as much of your remodeling costs as you could then. Remodeling Magazine blames today’s “tepid housing market and rising job costs.”
Home remodeling rarely earns a profit, anyway. But today’s return on investment (ROI) of 62.2 percent is low. ROI for remodeling reached a high of 86.7 percent in 2005, according to the magazine’s 2015 Cost vs Value report. It fell to 57.7 percent in 2011-2012 and has been making a wobbly recovery since.
Remodeling is recovering,
payback is not
The Cost vs. Value report each year identifies remodeling projects with the best and worst ROI. The magazine collects data on costs, sale prices and desirability of home features from building and real-estate professionals. It looks at both midrange projects and upscale ones, those with a more expensive “scope of work, complexity and quality of finishes.”
If the Property Brothers have you lusting after high-end kitchens, and you’re telling yourself you’ll get the money back when you sell the house, the message from this report is: Get a grip. Upscale projects have some of the most disappointing payoffs in Remodeling Magazine’s survey, including (No. 8) an upscale kitchen remodel.
This doesn’t mean don’t do it. It means that remodeling is consumption — spending for enjoyment on something whose value will diminish, not grow, like a TV or new shoes. (A really expensive pair of shoes.)
Your project’s return on investment might be better or worse than the national averages below. ROI depends a lot on where you live.
Remodeling Magazine’s 10 home improvements with the worst payoff in 2015 are:
1. Sunroom addition
- ROI: 48.5 percent
- Cost: $75,726
- Resale value: $36,704
This isn’t a sunroom kit but a fairly expensive 200-square-foot addition to the home’s footprint with a new roof and skylights, foundation, energy-efficient windows and automatic shades.
2. Home office remodel
- ROI: 48.7 percent
- Cost: $29,066
- Resale value: $14,155
This project envisions transforming an existing 12-by-12-foot room into a home office with custom cabinets, a laminate desktop, wiring for electronics, drywall, paint and carpeting. It’s not a high-end job, but it’s expensive to do.
Realtors say that sinking money into a home office is a poor investment, generally, because many homebuyers would rather have flexible space to use for their own needs, such as a spare bedroom, game room, den, guest room, sewing room or nursery, for example.
3. (Upscale) master suite addition
- ROI: 53.7 percent
- Cost: $236,363
- Resale value: $126,860
Buyers may appreciate a project like this one, a 32-foot-by-20-foot addition filled with custom cabinets and bookcases, higher-end appliances, a walk-in closet and a hospitality center with bar sink, under-counter refrigerator, stone countertop and microwave. But they’re unlikely to pay top dollar for it.
Adding new space to a home involves costly excavation and foundation construction, points out HouseLogic, a National Association of Realtors’ site, which adds:
Payback on a master suite addition depends more on how it compares with other houses on the block. If your neighborhood is filled with empty nesters with two-bedroom houses, you probably won’t recoup your investment in a luxury master suite. But if master suites additions are common in your area, you’ll recoup more.
Instead of adding on, take advantage of existing space, if possible, by converting an attic or basement, for example. You’d save 20 percent to 60 percent on construction, increasing the rate of return for this project, HouseLogic says.
4. (Upscale) garage addition
- ROI: 54.7 percent
- Cost: $85,592
- Resale value: $46,791
This aspirational garage is a finished addition to the home. The interior walls hold modular cabinets above and below, and the work surfaces are equipped with task lighting. Such customized improvements are expensive. Be prepared to enjoy them, but understand that your home’s buyers probably won’t pay anything near the full construction value for them.
5. (Midrange) bathroom addition
- ROI: 57.8 percent
- Cost: $39,578
- Resale value: $22,875
This addition involves constructing a new 6-by-8-foot bathroom over a crawl space. The materials aren’t fancy — a fiberglass tub-shower with a tile surround, for example — but adding to a home’s footprint is expensive, as are the costs of new wiring, plumbing and bathroom appliances.
6. (Upscale) bathroom addition
- ROI: 58.6 percent
- Cost: $76,429
- Resale value: $44,750
This project adds 100-square-feet to the home, placing a new master bathroom over a crawl space. It’s a beautiful room, with ceramic-tiled walls, a sophisticated custom shower with body-spray fixtures, and a frameless glass enclosure, a custom whirlpool tub, dual-sink, stone countertop and a separate compartment for the toilet.
7. New (upscale) composite deck
- ROI: 58.9 percent
- Cost: $36,385
- Resale value: $21,437
Composite decking is growing in popularity and the material lasts longer. Popular Trex decking, for example, has a 25-year limited warranty. In comparison, a pressure-treated pine deck lasts around 15 years, says The Baltimore Sun, although diligent maintenance can extend its life.
Composite is low-maintenance, too, but it is by no means cheap, said Dave Lombardo, president of American Deck & Patio, in an interview with the Sun:
[C]onvincingly natural-looking composite decking can run the customer 2½ to seven times as much as pressure-treated pine. There’s also a higher installation cost, Lombardo says: “The installation cost delta varies from 15 percent to 45 percent based on contractor and amount and type of composites selected.”
Lombardo told readers to stick with four major composite brands — Trex, Fiberon, CPG [Azek and TimberTech], and EverGrain.
Desirable as composite deck products are, pressure-treated wood is more-affordable and earns a much better return — around 85 percent, on average, according to the report.
8. (Upscale) major kitchen
remodel
- ROI: 59 percent
- Cost: $113,097
- Resale value: $66,747
Once again, the upscale remodel project is not a great investment. This project includes 35 linear feet of “top-of-the-line” custom cabinets in cherry, built-in appliances, a commercial-grade range, stone counters, lots of great lighting, a high-end sink, a new island and a cork floor trimmed in cherry. Sweet. And expensive.
“Appraisers and buyers rarely value top-of-the-line appliances at anything close to their purchase price,” writes The Washington Post.
Keep costs down when remodeling a kitchen by maintaining the room’s current footprint and configuration, The Post says. “Avoid moving plumbing and electrical items if possible — at least try to keep your stove (especially gas stoves) and sink in the same location.”
A less-expensive version of a full-scale kitchen remodel carries a better return — 67.8 percent — and costs $57,768, Remodeling Magazine says.
9. (Upscale) bathroom remodel
- ROI: 59.8 percent
- Cost: $54,115
- Resale value: $32,385
When Angie’s List surveyed 1,000 professional remodelers in 2014, they said bathroom remodels are the most popular home improvement today. This project adds nothing to the home’s footprint but uses existing space to expand a 35-square-foot bathroom to 100 square feet. It’s an upscale job, and, like the upscale bathroom addition, it uses pricier and finer fixtures, appliances and finishes.
A lower-end version of the bathroom remodel pays back much better, at 70 percent, the report found.
10. Backup generator
- ROI: 59.9 percent
- Cost: $12,135
- Resale value: $7,263
Backup generators aren’t sexy. When homeowners splurge, they prefer spending on home theaters and kitchen upgrades. You will appreciate a generator when it’s needed most, but it’s hard to spend money on one when you don’t.
