Thursday, December 24, 2009

Thinking about a Remodel?

You may not realize that I discuss potential renovation projects with a good dozen clients each year--I not only provide referrals for contractors, architects and vendors, but also review needs and wants and provide feedback regarding how the market might view your plans, whenever you go to sell.

Improvements are sometimes complicated to suss out. I like Sarah Susanka's Not So Big Remodeling because she's very thoughtful about the creeping incrementalism that can overtake remodeling projects, and how to avoid it. Bumping out a room involves not just those construction costs, but also the new foundation, and sometimes even the extra garage space. Can we go back at it and carve out an office niche somewhere, rather than expand the footprint of the house?

Remodeling magazine offers some very interesting insights for your deliberations. Each year, they survey Realtors regarding the cost vs. value ratios for various home improvements. See the graphic above for a nice summary of recent trends: As construction costs have held relatively steady, but home prices have declined, the ratios have trended downward at the national level across projects. See also this article for great resources to inform your decisionmaking. (And don't forget that if a new bath downstairs returns 80.6% of its cost (as the analysis suggests), that you're enjoying all the functionality for your years of ownership for only 20 cents on the dollar, throwing NPV out the window for the time being.)

The Bay Area is a unique area for these analyses. Across the board, the returns on home improvement investments here outstrip those nationally by about 20% (except for installation of backup generators...). In fact eight projects return more than their cost on Day One: Vinyl and wood window replacements (and that excludes the lower utility bills you'll see); major and, even better, minor kitchen remodels; entry door replacements (first impressions are everything); deck additions; basement remodels; and attic bedroom additions. Only replacing the front door garners a cost vs. value ratio over 100% at the regional and national levels. Other key takeaways: minor remodels are more cost-efficient than major replacements, and middle-of-the-road remodels generate stronger returns than upscale remodels (what most would consider "over the top").

For a copy of the San Francisco area report for this year (or for past years' reports), email me!

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