Remodeling can be expensive, but it’s often justified because, as many claim, it will add value to their home. But is this completely true?
As we’ll see, renovations may not, in fact, be a strong financial investment, but that doesn’t meant they’re not worth doing!
Does Remodeling Enhance Home Value?
A Look at the National Averages
To understand whether or not a remodeling project will enhance the value of your home, you have to take an honest look at the numbers. One of the best sources for financial information regarding home improvements is Remodeling Magazine, which conducts comprehensive surveys every year to determine the financial cost and benefits of specific projects.
According to the 2018 survey, for nation-wide averages there is not a single project that will return 100% of the cost in home value. Some, however, do come close. Garage-door replacements, for example, cost an average of $3,470 and add an average of $3,411 to the home’s value, which means they recoup 98% of the cost. Manufactured stone veneer is another project that has a strong average recoup, with a cost of roughly $8,200 while adding almost $8,000 in value to the property. This means the project has a recoup of 97%. Across the nation, these are the only two that have a national recoup average over 91%.
Steel entry-door replacement (91%), wood-deck additions (83%), and minor kitchen remodels (81%) are the only remaining project that bring more than 80% in value recovery.
Not surprisingly, the most expensive projects, in general, have the worst cost recoup. In fact, of the seven most-expensive projects, which are all over $50,000, none recoup more than 59% of their value. The most expensive, which is an upscale master suite addition, has a national average cost of $256,229 and only adds $123,797 in home value. If these numbers are accurate, you’ll lose an average of $132,502 on this project.
In contrast to this trend, four of the five least-expensive projects bring over 90% recovery, including steel entry-door installation and garage-door replacement.
But what about common home upgrades like kitchen and bathroom remodeling? If your goal is to have a quality return in home value, it’s best to go small. A midrange minor kitchen remodel returns an average of 81%, while a midrange major kitchen remodel returns 59%. An upscale major kitchen remodel, which costs an average of $125,721, recoups about 54%. The overall lesson? If spending money to gain home value is your goal, think small.
Regional Data: Slight Changes, Similar Results
Remodeling Magazine doesn’t just look at the national averages. They actually provide regional data as well. The Pacific region, which includes California, Oregon, Washington, Alaska, and Hawaii, actually has two projects that recoup over 100% of their value, although they are both smaller projects. Adding manufactured stone veneer costs about $8,500 in the Pacific Region, but adds over $10,000 in home value, giving you a 126% return. Garage door replacement also has a recoup over 120%.
Once again, we see the trend of high-expense projects adding a fraction of their costs to the home value. In the Pacific region, we see that an upscale master suite addition costs an average of $276,069, while only adding $144,042 to the home’s value, for a recoup of just over 50%. Midrange master suite additions and upscale major kitchen remodels both cost over $134,000, but bring a return of 63% and 57% respectively. Again, the seven most-expensive remodeling projects don’t go over 63% in cost recoup.
Bottom Line: Remodel for Personal Enjoyment and Sale Speed
So all this brings us to an important question: when should you remodel? If the vast majority of projects do not recover the financial investment, does that mean it’s never a good idea to remodel?
Of course not! We can think of at least three reasons why you may want (or need) to remodel.
First of all, the remodel may be necessary to simply make the home livable. Repairs such as roof repairs, garage-door replacement, or new window installation may be required, so you really have no choice. It’s like changing the oil in your car; it’s just part of the cost of ownership, and your car doesn’t gain $30 in value every time you change the oil! Also, some of these repairs, such as window replacement, may bring better energy efficiency, so there could be a cost gain that is not factored into Remodeling Magazine’s calculations.
Second, you may want to sell your home, and making renovations such as these could help you sell the property faster. While some will tolerate a home that needs work, most homebuyers want a move-in-ready home with all the modern styles and amenities. Updating the bathroom could help you attract more buyers.
Finally, and maybe most importantly, you’ll want to consider remodeling and renovations to improve and personalize your home. If you want a remodeled bathroom, then by all means you should have a remodeled bathroom. If you can’t stand the cabinets in your kitchen, then you deserve to have them replaced. If a new addition would give your family more space, then by all means look into it. It can’t all be dollars and cents, sometimes you have to make choices that will make you happy, even if it won’t make you money. For example, the addition of a wood deck to your home costs an average of $10,950 across the country, but only adds a little over $9,000 in value, for a return of roughly 83%. Does this mean you should never add a deck? Certainly not. If you and your family will get years of enjoyment from a wood deck, then by all means you should have one built!
Helping Build Your Future Through Mortgages and Renovation Loans
If you want advice on financing sources for your renovations, or if you simply want to explore future mortgage options, contact San Diego Purchase Loans today. With a common-sense approach to mortgage approval, we’ll help you find the right loan options for your specific needs.
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