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2005
COST vs. VALUE REPORT
Remodeling's Payoff
The annual report compares construction costs with resale values in
58 markets.
The “Cost vs. Value Report,” published each year in conjunction with
Remodeling magazine, gives you a city-by-city guide on what various
home projects will pay back at resale. This year’s report features data
for five more markets than last year* and a new project—a mid-range
home office remodel.
On a somber yet optimistic note, we included New Orleans’ results, compiled
before Hurricane Katrina, with the firm belief that in time the Big
Easy’s real estate market will once again be thriving.
Where we get the data
Cost data for the report come from HomeTech Information Systems, a remodeling
estimating software company in Bethesda, Md. HomeTech collects current
cost information quarterly from a nationwide network of remodeling contractors
and employs an adjustment factor to account for regional pricing variations.
Construction cost figures include labor, material, sub-trades, and contractor
overhead and profit.
Resale values (“cost recouped” in the tables) are aggregated from estimates
provided by National Association of REALTORS® members. E-mail surveys
containing construction costs and median home price data for each city
were sent to more than 20,000 appraisers, brokers, and salespeople,
yielding data from more than 1,600 respondents (an 8 percent response
rate).
Specpan, an Indianapolis-based market research company, hosted the Web-based
survey and collected and compiled the data. Farnsworth Group, a sister
company to Specpan, analyzed survey data and provided pre- and post-survey
consulting.
What
do the numbers mean?
If some
remodeling job cost figures appear too high or too low, one cause is
the leveling effect of averaging. The demand for—and cost of—remodeling
services can vary greatly within a given metro area.
Averaging also affects the value side of the equation. The amount recouped
for an actual remodeling project depends on the condition of the rest
of the house, as well as the value of similar homes nearby, the availability
of new homes, and the rate at which property values are changing. Location
in an urban, suburban, or rural setting will also affect a home’s
value.
In some cases, the value of the remodeling project at resale is more
than 100 percent of its original cost. This usually happens in markets
where property values are rising very rapidly, but it can also occur
when buyers regard certain types of remodeling projects as “standard.”
For example, in a neighborhood where most homes have an updated kitchen,
remodeling a kitchen may well increase the resale value of the home
beyond the cost of construction. In some cases, in fact, not redoing
the kitchen could cause the home to sit on the market for much longer
than normal and to eventually sell for less than similar homes in the
area.
Keeping up with the Joneses can be a savvy investment move. But ultimately,
the best reason for a remodel is to enjoy it.—Sal Alfano, editorial
director of Remodeling magazine, and Christina Hoffmann Spira, managing
editor of REALTOR® Magazine
Confidence is high
National figures have a confidence level of 99 percent (+/– 4 percent),
according to Farnsworth Group. Dividing the results into regions effectively
reduces the number of responses and likewise the confidence level. Data
for cities are the least reliable because of the smaller number of responses.
Survey confidence levels:
National: 99% (+/– 4%)
East 95% (+/– 7%)
Midwest 95% (+/– 7%)
South 95% (+/– 4%)
West 95% (+/– 5%)
Note: The confidence level is a measure of statistical accuracy. The
national level of 99 percent (+/– 4 percent) means that 99 percent
of the time, national results for this survey will fall within 4 percent
to either side of the national numbers published here.
Since 2002 four projects, reported each year since 2002, have shown
the greatest return at resale on a national basis. Two of the projects,
siding and windows, reflect the importance consumers place on curb appeal
and insulation; the others, a kitchen and a bath project, are consistently
high performers in most markets.
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