Remodeling Blues : Homeowners Seeking Profit in Add-Ons Rarely Find It
Patrick F. Koughan thought a room with a view would add to the value of his Pacific Palisades home.
But he didn’t count on an economic slump that’s severely depressed real estate prices, particularly for high-end homes. Nor did he realize that major remodels rarely pay off.
Now Koughan says he’s come to grips with the fact that he would have made much more if he’d just sold his home and bought a bigger one--as he once considered--instead of remodeling.
“We lost money,” Koughan says stoically of the $60,000 he spent adding a family room onto his home. “We could get as much for the house without the addition as with it. But we do enjoy the room.”
Koughan isn’t alone. Where Americans once traded up when they wanted more room or nicer surroundings, they’re now increasingly adding on, pushing out or fixing up. Roughly $103.7 billion was spent on U.S. remodeling projects in 1992, compared to $97.5 billion in 1991. And the National Assn. of Home Builders’ Remodelors Council estimates that American remodeling expenses will stack up to about $110 billion this year.
Many of these homeowners think remodeling will pay off by substantially boosting their property values. But they’re rarely correct, experts say.
“Remodels are for the purpose of improving your lifestyle while you are there,” says Fred Sands, president of Fred Sands Realtors in Los Angeles. “When you add on a room, you’re lucky if you get back what you put into it.”
Indeed, Remodeling magazine’s new “Cost vs. Value” report, which appears in the trade publication’s October issue, takes a look at 11 projects that are considered the most financially viable.
The best of these are minor kitchen remodels, in which homeowners replace appliances, refinish cabinets, repaint or replace wallpaper, says Kendall J. Holmes, senior editor. On average, these pay off in less than half the cities examined.
Other projects, such as adding on or redoing a bathroom, make sense only about a third of the time. Adding family rooms, sun rooms and decks pay off in just a fraction of cities. And subtle improvements, such as replacing siding, plumbing and electrical work, are almost always economic losers, Holmes says.
(Remodeling magazine compiles information on the cost of 11 projects and then surveys roughly 300 realtors in 60 cities to determine whether the remodel would pay for itself with an increased home value. Both the cost of remodels and the pay-backs vary from city to city.
Still, if you’re careful about what you do and how you do it, you may be able to improve the value of your home and increase your enjoyment of it at the same time, according to experts.
The key is to get the most cosmetic improvement for the least amount of money, says Russ Whitney, a Florida-based businessman and author of “The Hurdles and Pitfalls of Real Estate Investing.”
“You have to ask yourself what you could do to make somebody driving by say, ‘Wow,’ ” he says. “Nobody is going to say ‘Wow’ when you put in new plumbing. Lighting, painting, shutters, a nice-looking front door--those are things that make a good first impression to somebody walking up to the house.”
Kitchens and bathrooms are generally the areas where you can spend the most without losing money, Holmes says. But even here you have to be careful. In many cases, you’re better off refinishing or refacing--rather than replacing. And you should realize that top-of-the-line appliances only make sense when you’re planning to stay in the house long enough to enjoy them. They rarely boost the value of your house by as much as you shell out.
It’s wise to get a rough cost estimate from a contractor before you start, adds Gary Milici, president of Coastline Construction in Los Angeles. That way you’ll know whether you’re likely to go over budget before you spend a fortune.
Also avoid remodels that suit unique tastes, realtors note. If your goal is to increase the salability of your house, you’ve got to use light, neutral colors that tend to appeal to most buyers.
Is the Cost Worth It?
Every year Remodeling magazine surveys more than 500 realtors and builders in 60 major U.S. cities to determine the cost of a variety of popular remodeling projects and whether or not those projects would pay off with higher sales prices for those homes. The results are sobering. In Los Angeles, homeowners only recoup their investment on one remodeling job--adding a bathroom. Homeowners who launch other projects, ranging from redoing the kitchen to replacing siding, get back between 57 cents and 91 cents on the dollar.
Here’s how cost vs. value pans out for 10 projects in Los Angeles:
Project Cost Resale value Payback Bathroom addition $13,047 $13,262 102% Major kitchen remodel $22,665 $20,604 91% Family room addition $32,888 $27,078 82% Minor kitchen remodel $7,250 $5,847 81% Turning an attic into a bedroom $22,949 $18,125 79% Master suite addition $21,147 $16,418 78% Bathroom remodel $7,221 $5,402 75% Sun room addition $24,746 $17,250 70% Deck addition $7,232 $4,994 69% Replace siding $10,513 $6,004 57%
Source: Remodeling magazine. For a full copy of Remodeling’s Cost vs. Value report, send a check for $5.50 to Remodeling Reprints, 655 15th Street N.W., Suite 475, Washington, D.C. 20005, Attention: Kris Rechin.
