Remodeling: Cost vs. Value Report

March 03, 2009

The chart in the link below is from Remodeling Magazine's website, www.remodeling.hw.net. This chart (and the website as a whole) is a wonderful resource, although it is primarily targeted towards contractors.

2009 Cost vs. Value Report

Here's how I read this: It is no surprise that the "cost recouped" figures are down from previous years. Not to beat the dead horse out there, but when you have a series of years where "property values" are escalating at blatantly unsustainable levels there has to be a correction period where things return to a reasonable level. What's interesting is that, compared to years past, the individual remodeling percentages and costs are not down by more than maybe a handful of percentage points. In other words, even though you may be watching the overall equity in your house drop from years past, the value (and cost) of remodeling your home is fairly constant.

Right now the 800 pound gorilla in the room is this: Now Rob, why would I remodel when I couldn't even recoup 100% of my investment? In the immediate term, typically you can't so you shouldn't if you plan on selling soon. This is one of the most important financial pieces of the remodeling puzzle out there, one of the primary reasons that I love this chart and something that many contractors won't tell you. My rule of thumb has always been this: if you aren't planning on living in your home for at least three years, then you will probably not recoup or profit from your investment. Exceptions to this rule are necessary things such as painting, maintenance and repairs (which need to be taken care of diligently regardless).

With all of this said, I will also offer the following two considerations.

One: Remodeling your home is not a completely financial decision — it should be largely about improving your lifestyle while living in your home. This is equally applicable to "want" based remodels as well as "need" based remodels.

Two: A remodeled home will appreciate quicker in the long term. Okay, "appreciate" is an unfair term these days, but it will fair better than its outdated, energy deficient and/or neglected counterpart.

In all the years I've looked at this chart, I have only seen the "cost recouped" percentage above 100% once or twice (and even then, it was around 101%). My final thought is this: if you are considering remodeling your home, try not to bury yourself in this chart or pick a project based on what project genre has the highest "return." Find a project that will improve your lifestyle, sit down with a sophisticated renovation/remodeling company and have a candid discussion regarding your investment. While no one can predict the future or guarantee a return on investment, you should be able to create a solid mid to long term investment while improving your lifestyle to fit what you want it to be.