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Home Improvement

2001-10-01 17:30:00

When does it not pay?

Question: We live in a fairly exclusive neighborhood around an old golf course with mature trees. Recently a house was auctioned off down the street. Everything about the house was old and sorely in need of remodeling. It also had a cedar shake shingle roof that needed to be replaced. It looked to us like it would cost at least half as much or more as the house sold for at auction ($165,000) to bring it up to date. Does it ever make sense to spend this kind of money in remodeling? How do you know how much to spend? Is there a formula? Will you ever get back what you spend in remodeling were you to re-sell the home?

Answer:  In answer to your first question, you first have to determine whether you are remodeling with resale value totally in mind or remodeling with resale value as absolutely irrelevant.  People undertake most remodeling projects because those projects meet their lifestyle needs.  They become concerned about getting a reasonable payback if they're planning to sell soon.In regards to the return on a remodeling investment, you have to take into consideration the value of the home, its value in relation to the neighborhood, and the neighborhood itself.  Over-improvement happens when homeowners end up spending far more on a remodeling project than they could ever hope to get back in resale.  Example:  the $75,000 kitchen remodel which is an excellent investment bet in a neighborhood of half-million-dollar homes, yet a clunker in one where homes are valued at, say $100,000.  On the other hand, big-ticket home improvements are not strictly for the well-to-do.  Remodeling smaller or less expensive houses not only adds or improves square footage but it can boost resale price.  As a rule of thumb, the better the house and neighborhood, the more value a remodeling project returns.  It's hard to "over-improve" good houses in good neighborhoods at excellent locations.To give you an example of cost vs. value, depending on the region of the country you live in, the national average of the cost recouped on a minor kitchen remodeling is 88%.  A minor kitchen remodel can include replacing floors, countertops and cabinet facings, as well as installing a new energy-efficient oven and cook top, and adding a coat of paint.Another good example is a bath remodel, one of the first rooms potential buyers check out first.  The average nationwide cost to update an existing 5-by-9-foot bathroom installing a new standard-sized tub, toilet and solid-surface vanity counter with integral double sink, new lighting, faucets, mirrored medicine cabinet, ceramic tile floor and ceramic tile walls in the tub/shower area (vinyl wallpaper elsewhere) is $9,748, with a cost recoup of 81%.As far as getting back what you spend on remodeling were you to re-sell your home, you have to again consider the trend among today's buyers.  It’s called the "no hassle factor."  One of the things that make quality remodeling so valuable is that buyers in today's resale market want a home in ‘move-in’ condition.  People are busy.  They don't have time to fix or repair things.  Many would rather be doing something else.  Recently an real estate agent showing a client through a house listing for $395,000 that needed new paint, new carpeting , a new kitchen and new bathrooms.  She told her client that the house was a great buy for someone willing to do the work.  The busy client replied that if it had been five years ago, he'd have jumped on it.  Today he was too busy.  He bought a similar sized house that was beautifully fixed up, and cost more than $500,000.  Improvements count for more now than they do in a sluggish market.  Buyers are ready, willing and able to spend more on the extras that differentiate one house from another.  Most homes in an area are similar, and it's the ones that have been renovated that will sell before the ones that have not.