resale value: remodeling cost vs return

New England breakdown by renovation and addition types

“For the first time in six years, the overall average cost-value ratio has improved, reaching 60.6%.
Cost-recouped percentages were up for all 35 projects in the survey, a complete turnaround from the 2011–12 report, when percentages dropped in all but three projects, some precipitously.

For the third year running, lower construction costs had a strong influence on the improved market picture, although stabilizing resale values also played an important role. Construction costs had risen rapidly between 2005 and 2007, then at a diminishing rate through the early part of the recent recession, while resale value remained fairly stable… When costs finally dropped in 2010–11, it was by a whopping 10.4%, but resale values slid even more (15.8%)… [and in 2013] another big drop (6.0%) in construction costs…

Historically, exterior replacement projects have always achieved a higher overall cost-value ratio than discretionary projects… And seven of the top 10 projects in this year’s report are siding-, window-, and entry door- or garage door-replacement projects that collectively generate an above-average cost-value ratio of 74.6%. Some of these projects displayed extremely high value… replacement projects are clustered at the top, with many achieving a cost-value ratio of 90% or higher … One reason for this is their relatively low cost: most replacement projects are priced at less than $20,000; four at less than $5,000. …the dramatic improvement to curb appeal that most replacement projects produce is a strong factor in raising the perceived value of a home in the eyes of prospective buyers.

Minor Kitchen Remodel (75.4%) is also once again in the top 10, although given its scope of work (replacing cabinets fronts, countertops, cabinet hardware, and appliances with no structural or system modifications) and relatively low cost — it averages $18,527 nationally — it could easily be classified as a replacement project. Not so, however, for the other two projects in the top 10, Attic Bedroom and Basement Remodel, both of which carry higher-than-average cost-value ratios (72.9% and 70.3%, respectively). The higher average costs for these projects — $47,919 for the Attic Bedroom, and $61,303 for the Basement Remodel — are still the least expensive way for home­owners to add living space.

…buyer expectations for a particular neighborhood play an important role. For example, in a neighborhood where most houses have two-and-a-half baths, adding a bathroom to a house with one-and-a-half baths brings that house up to “standard.” This makes it more likely to meet buyer expectations, and can result in a higher sales price or a shorter time on the market.
—Sal Alfano, editorial director, REMODELING.