Home Upgrades: More Cost Than Value
By: Jeff Brown

Homeowners worried about trading up in an uncertain market can always consider remodeling or expanding to make a home more livable. Unfortunately, the latest data shows the money-losing nature of most home improvements is getting worse because of the poor housing market, not better.

In 2005, the average project boosted the home’s resale price by 86.7% of the job’s cost, according to an annual survey by Remodeling magazine. After years of unbroken decline, that figure fell to 63.6% in the 2009-2010 survey, with the average project costing $50,908 and adding only $32,497 at the sale.

“Falling home prices pushed the value of remodeling down for the fourth consecutive year, buts small-scale projects and replacements may be leading the way to recovery,” the magazine reported.

Most surprising, the study reports, was the finding that project costs have increased. It said anecdotal evidence has suggested that contractors have been cutting prices.

The most valuable projects, in terms of percentage of cost recouped at sale, are exterior work that enhances curb appeal, the magazine says. Many of these, such as door and window replacements, are also among the cheapest projects.

Another surprise, said the magazine, is the benefits of adding an attic bedroom. Though this is an expensive project, costing nearly $50,000, it is one of the cheapest ways to add living space.

The magazine blames the usual suspects for the falling value-to-cost ratio: the effect of foreclosures, which drove down appraisals, tight credit making it hard for buyers to bid up prices and underwater mortgages undermining home values.

Among the 21 “mid-range” projects of relatively modest cost, the only one to turn a profit was entry door replacement, a $1,172 job that returned 128% of its cost. The attic bedroom returned 83.1% of its cost, the wood deck, 80.6%, vinyl siding, 79.9%, minor kitchen remodeling, 78.3%, and wood window replacements 77.3%.

The biggest money losers were home office remodeling, which recouped just 48.1% of its cost, sunroom additions, which garnered 50.7%, backup power generators, which retrieved 58.9%, bathroom additions, which recouped 59.5% and garage additions, 62.2%.

The survey also found that none of the dozen “upscale” projects observed produced a profit. Still, the improvement faring the best was the fiber-cement siding replacement, which recouped 83.6% of its cost. The worst, meanwhile, was the master-suite addition, which recovered just 55.7% of its cost. That was also the most expensive project, averaging $225,995.

Money, of course, isn’t everything. If an improvement makes a home a nicer place to live, that may be reason enough to do it. And even a money-losing improvement can be cheaper than selling a house at a loss and shelling out thousands in closing costs for a new home that may not appreciate very fast, either.

Also, the magazine’s survey only covers work done by contractors. Do-it-yourselfers may turn a profit if they don’t count the cost of their own labor. Additionally, painting and minor landscaping may pay for themselves as they make a home more appealing to buyers.

—For more ways to save, spend, invest and borrow, visit MainStreet.com.

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