According to the BuildFax remodelling index, residential remodels authorized with building permits during the month of July across the US totalled 3,514,000. This represented a two percent increase over the number of permits issued in June and a 16 percent increase above the same time last year.
“The national upward trend in remodelling is unmistakable,” says Joe Emison, chief technology officer at BuildFax. And this trend does not appear to be slowing down: remodelling costs are expected to reach $151 billion dollars, according to the Joint Centre for Housing Studies at Harvard University.
Many believe the reason for the increase is to add value to existing properties. Yet while some of these improvements will make living in the home more enjoyable, not all improvements will add to the home’s value.
Take swimming pools, for example. While many enjoy the thought of having a backyard pool, it isn’t something that appeals to all buyers. A family with small children may have safety concerns, and some buyers will not be able or willing to maintain a pool.
“A pool could make your home a tougher sell and it’s unlikely you will recover your expenses,” says Richard Borges, president of the Appraisal Institute, a professional association of real estate appraisers.
Improvements that do add value
When it comes to increasing a home’s value, projects can be broken down into two categories: additions and improvements.
According to Remodelling, the following additions offer the highest percentage of costs recouped based on national averages:
— Bathroom … Cost: $37,501; Resale value: $20,569; Cost recouped: 54.8 percent
— Composite deck … Cost: $15,084; Resale value: $10,184; Cost recouped: 67.5 percent
— Wood deck … Cost: $9,327; Resale value: $7,213; Cost recouped: 77.3 percent
— Garage … Cost: $48,806; Resale value: $31,091; Cost recouped: 63.7 percent
— Family Room … Cost $79,006; Resale value: $50, 031; Cost recouped: 63.3 percent
For improvements, the national averages for costs recouped for common remodelling projects are:
— Basement … Cost $61,303; Resale value: $43,095; Cost recouped: 70.3 percent
— Bathroom … Cost $15,782; Resale value: $10,295; Cost recouped: 65.2 percent
— Major Kitchen … Cost $53,931; Resale value: $37,139; Cost recouped: 68.9 percent
— Minor Kitchen … Cost $18,527; Resale value: $13,977; Cost recouped: 75.4 percent
— Home Office … Cost $27,292; Resale value: $11,911; Cost recouped: 43.6 percent
While these improvements will help increase the value of your home, for a project to get the most return for the money spent, it could take more than one renovation.
“A big mistake a lot of home sellers make is they upgrade the kitchen thinking they will make so much more money on the house. But the rest of the house still needs upgrading or repairs,” says Michael Corbett, Trulia’s real estate expert. “Home sellers need to look at repairs as a whole rather than a sum of parts.”
Home renovation projects can have a downside as well. In addition to paying for projects that don’t have mass appeal, over-improving can also put a damper on a home’s resale value.
Appraisers say this can be a problem when a home’s appliances and finishes are well beyond what a buyer might find in a similar home. Most would opt for a lower price rather than lavish extras that may not be necessary.
Increasing a home’s footprint can also have hidden costs that not all buyers will be willing to live with. Expanded square footage will raise heating and cooling costs, but it might also mean the home has certain outmoded appliances, such as the air conditioning unit.
Mistakes like these can be avoided by consulting a real estate agent or property appraiser who knows the area. Such professionals would be in a better position to explain which improvements will provide the best cost-to-value ratio for a particular house and neighbourhood.