Originally Published: November 29, 2018 5:55 p.m.
There have been several calls over the past month from homeowners inquiring about various remodeling components to improve their home. These phone calls made me ask, “I wonder what a smart decision for return on investment would be.”
Now that we are nearing the end of 2018, I did some research to find what the cost vs. value would be on project types for regional data, getting as close as I possibly could to Yavapai County, which was Phoenix.
The project type with the largest return on investment for Phoenix was adding manufactured stone veneer with an 82.3 percent cost recouped. Replacing an entry door was second at 82 percent cost recouped. These improvements were compared with the entire Regional Mountain Zone, and garage door replacement was a 96.7 percent cost recouped with manufactured stone veneer second at 93.8 percent regionally.
Looking at the national average for project improvements, manufactured stone was first with 97.1 percent cost recouped, and garage door replacement was second with 98.3 percent cost recouped.
These project types were from an all-inclusive list of 21 different home improvements.
The average cost and average return at resale for the first half of 2016 resulted in an average of 64.4 percent of a project’s investment dollars getting recouped if the home is sold within a year. That’s up from 62 percent in the 2015 report and the second-highest return in the past eight years.
As a general rule, the simpler the project and the lower its cost, the larger the cost-value ratio. It stands to reason that it’s far easier to replace a steel entry door than it is to design, source, and build a master suite addition, which came in at a cost recouped of 43.6 percent in Phoenix, 47.4 percent Regional Mountain Zone and 48.3 percent national average.
It is important to remember that while any home improvement that brings you joy is priceless, not all add as much value.
It is important to remember that the more time you plan to live in your home, the less risk a remodel is, and very few remodels are worth taking out a loan for, and what remodel will bring you the most amount of joy?
Think smart with a remodel. Do not be jealous of your neighbors’ new master bath just because it has heated floors, and a steam shower. To be honest, you have been thinking about renovating your bath. I know I have and a steam shower is on the top of my list! Just remember that resisting the urge to keep up with the neighbors makes you the smarter neighbor.
We have seen so many local homeowners add improvements that have made their home difficult to sell. Recently, a homeowner enlarged their master bath to add a huge spa tub by reducing the size of an adjoining third bedroom, converting a nice-size bedroom to a very small “storage” room, which now is making the home difficult to sell for two reasons: Spa tubs are on their way out and families are looking for three bedrooms. This feature actually has decreased the home’s value significantly.
Renovating your home into the nicest digs in the neighborhood always comes with big risks. It is best to think twice before replicating the neighbor’s fancy improvements because you could end up with an over-renovated house that’s undervalued by the market.
However, you should not expect to fully recover the amount of the remodeling investment right away. Typically you can expect 80 to 90 percent back on your home improvement investment dollar, sometimes more, sometimes less, within the first year or two. With the proper remodel, you can increase and even make money on the improvement the longer you stay in the home. As with many investments, it is the quiet power of compounding that creates good returns. By being in the home a longer period of time, you give the real estate market time to increase and you leverage the remodeling investment as property values grow.
There are three things you should consider when deciding if a home improvement project is a good investment or not: How your project impacts your home’s appraised value, how long you plan to be in the home, and the strength of the resale market in your area.
The Appraisal Institute, the nation’s largest professional association of real estate appraisers, advises homeowners to choose upgrades instead of major remodeling projects to see the greatest potential return on investment.
“In general, simpler, less expensive projects have the best cost-to-value ratio,” said Appraisal Institute President M. Lance Coyle, MAI, SRA. “With the spring home buying season around the corner, homeowners should invest in projects that are most likely to preserve the value of their homes.”
Another important fact: Routine home repairs are essential to maintaining a home’s value. A well-maintained house likely will have a higher value than a similar house that is in disrepair.
Some green and energy-efficient renovations — such as adding Energy Star appliances and extra insulation — are likely to pay the homeowner back in lowered utility bills relatively quickly. Lower utility costs also are a draw for potential homebuyers. When valuing a home, the appraiser evaluates local supply and demand for green and energy-efficient properties and features.
The kitchen — Whether it’s a major overhaul or a simple makeover, putting a fresh face on your kitchen is a great investment.
The bathroom — An outdated bathroom can spoil a sale. Trends have homeowners installing large showers instead of garden tubs.
Decks — A new deck can cost a few thousand to tens of thousands of dollars, depending on size and materials used. Before you build, look at other homes in your area and build accordingly. If the deck is in good shape, your return could be more than 80 percent.
Siding — If your home’s facade is siding and it’s not in good shape, replacing or repairing the siding can bring instant freshness.
Window replacement — The energy efficiency of new windows is a clear benefit to switching out older windows, but in some cases, it’s a safety feature, too.