Our sister magazine Remodeling announced today the release of its 31st annual Cost vs. Value Report comparing costs for 20 of the most popular professional mid-range and upscale remodeling projects in 100 U.S. markets to how much real estate professionals believe the investment will improve a home’s resale value.
The average payback nationwide for the 20 projects in the 2018 Cost vs. Value report ranges from as high as 98.3 percent to as low as 47.6 percent, depending on the type of project—98.3 percent for garage door replacement down to 47.6 percent for installation of a backyard patio. The average payback on remodeling projects is 56.0 percent while the average payback on replacement projects is 76.1 percent.
“The 2018 Cost vs. Value Report shows some potentially notable changes, as upscale and big projects have declined in value compared to previous years,” said Craig Webb, editor-in-chief of Remodeling magazine and manager of the report. “It’s not clear if this is a sign of nervousness among real estate pros in the face of a booming housing market or if nationwide affordability concerns are leading pros to question the value of renovations that would make a house even more expensive at resale—particularly with the new tax law regarding the deductibility of mortgage interest and state, local, and property taxes.” Real estate pros were surveyed while the tax changes were being discussed but before the final versions became law.
This year’s report finds a slight decline in the average payback for all 20 projects as the cost of the projects went up for all of them, while values rose for only about two-thirds. Remodeling expects those cost gains to continue into 2018, as the cost part of Cost vs. Value was compiled before fall hurricanes and fires began fueling what one building products distributor calls “a freight train of extraordinary demand” that’s certain to keep elevating the prices for many building materials. In addition, you can expect existing shortages of skilled labor in disaster-struck markets to worsen as people struggle to fix up their own homes and employers feel pressure to raise pay.
Top Trend Highlights:
Geography Matters—Both for Cost and for Value: The report continues to reveal tremendous regional variations in recouped value, with the highest returns on the Pacific Coast where the average payback is close to 64 cents on the dollar. Markets in the Middle Atlantic region averaged a return of just over 51 cents. The cost differences are even greater when you compare individual markets. There was a 73.1 percent difference between the highest- and lowest-cost market for the Universal Design Bathroom project, a wider gap than any other job. The smallest difference was 28.5 percent, for a vinyl window replacement. Depending on the project, the most expensive of the 149 markets to get remodeling work done for particular projects are the New York City region, San Francisco, Los Angeles, and—perhaps surprisingly—Trenton, N.J.
Curb Appeal Projects Continue to Provide the Highest Returns: In 2018, the three projects with the highest year-over-year increase in value are “curb appeal” projects—work that can be seen from the street. These are for garage door replacement (up 18.6 percent), wood deck additions (up 17.7 percent) and manufactured stone veneer installation (up 15.7 percent). In keeping with this trend, the projects showing the highest YoY decline in value were interior projects: master suite additions (down 14.7 percent) and major kitchen remodels (down 10.9 percent).
For Kitchen and Baths—Renovations Beat Additions: For 2018, the highest-ranking kitchen project was a minor kitchen remodel (81.1 percent) while a major kitchen remodel only returned 59.0 percent. Remodeling found a similar pattern with bathroom projects, with the highest returning project being a Universal Design bathroom renovation at 70.6 percent while a bathroom addition project only returned 59.0 percent.
It Pays More to Replace Than Remodel: There has always been a gap between remodeling and replacement projects, but this year the payback is a 20-point difference: 76.1 percent for replacement jobs vs. 56.0 percent for remodeling work. “We think this is for several reasons,” Webb said. “First, the seven replacement jobs on the list—basically, all the exterior projects except the deck and patio jobs—all are cheaper than the remodeling jobs. And it makes sense that most prospective buyers won’t sign a contract without first demanding that broken stuff get fixed.”
The Resale Value of Big Dollar Projects is Declining: This year, the highest cost projects—Major Kitchen Remodel and Master Suite Addition—found themselves in the bottom half of projects with the highest year over year declines in value. This shows not just the uncertainty among pros noted earlier but how taste affects value: “You might want a kitchen that looks like a 1980s replica from Stranger Things,” Webb said, “but the person you’re selling to might hate an avocado and burnt orange color scheme. So regardless of what you spent, to the prospect that kitchen needs to go.”
To see the geographic cost vs. value averages and get more information on the survey results, visit www.costvsvalue.com.