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Friday, April 23, 2010

Home Remodels for Today's Market

The Wall Street Journal

With housing values in the tank and any substantial price appreciation in the distant future, sinking money into a remodeling project is a tough sell for many homeowners now.

In general, you won't recoup as much of a project's cost as you might have several years ago, according to Remodeling Magazine's widely followed "Cost vs. Value Report," which weighs the costs of various improvements against their resale value

And while labor costs might be more negotiable in today's market, materials aren't getting any cheaper, says Sal Alfano, editorial director of the magazine.

"Homeowners right now are a little shell-shocked. Houses, up to three years ago, were like a bank account...people were spending money freely and they were always getting it back," says David Lupberger, home-improvement expert for ServiceMagic.com, a Web site that connects homeowners with home-service professionals.

Those who are remodeling are generally choosing fewer frills and less-expensive finishes, Mr. Alfano says. Instead of building large additions, they're trying to better utilize space they already have. They're seeking energy-efficiency upgrades and low-cost cosmetic improvements that make a home more comfortable and appealing.
The Little Things

Even if resale isn't your top consideration, a check of the "Cost vs. Value Report" gives an idea of projects that pack a punch. Home improvements that tend to excel on this list are those that have universal appeal -- and a reasonable price tag.

In terms of cost recouped at resale, seven of the top 10 projects in the 2009-2010 report were exterior-replacement projects, including windows, doors and siding.

A steel exterior-door replacement was the highest-ranked project on the list. It was also the least expensive. For an estimated cost of $1,172, real-estate agents who were surveyed for the report estimated that 128.9% would be recovered at resale.

"If you have a door that really needs help, you're not spending that much money and you're vastly improving the first impression" of a home, Mr. Alfano says.

For budget-conscious homeowners, changing door handles and putting a new finish on interior doors can also make a huge difference, says David Mackowski of Quality Design and Construction in Raleigh real estate, N.C.

Remember, too, that improvements that make a home more efficient can cut down on utility bills, saving money over the long term. Some energy-efficient products are eligible for federal tax credits through the end of 2010, and certain appliances qualify for state rebate programs as well.
Kitchens and Baths

Kitchen and bathroom remodeling projects are expensive, but updates to these rooms can make a home more comfortable for homeowners who plan to stay put for a number of years -- and make the home easier to sell down the road. Today's consumers are reducing the scope of kitchen and bath projects, according to industry estimates.

The average kitchen remodeling cost dropped to $12,500 in 2009 from $16,600 in 2008, according to data from the National Kitchen and Bath Association. The average bathroom-remodel cost was $7,037 in 2009, down somewhat from $7,148 in 2008. According to the group, the most cost-efficient design options that deliver the most long-term value to consumers are energy-efficient appliances and LED lighting, as well as less-expensive countertops such as quartz, natural stone or laminate.

The minor kitchen remodel -- including the replacement of cabinet fronts, oven, cooktop, installing new laminate counters, flooring, a sink and faucet -- returned an average of 78.3% at resale, according to the "Cost vs. Value Report." A major kitchen remodel, which more than doubled the project's cost, returned 72.1% at resale.
Check the Attic

Another project high on the "Cost vs. Value" list: Finishing an attic bedroom. The cost of the project was estimated to be about $49,346, but 83.1% could be recouped at resale.

"Given the state of the economy, there are more reasons to increase the number of bedrooms. If you can do that within the existing footprint, then you're doing it economically because adding space adds lots of value to the house," Mr. Alfano says.

You probably won't make that home remodeling investment unless you need the extra space for your own family, but many households might be in that situation as kids live at home longer and multigenerational households become more commonplace.

Mr. Mackowski says a number of his clients are deciding to update the home they have instead of moving, and remodeling to use each inch of space to its fullest.

To that end, outdoor decks are improvements that extend a property's usable space. At resale, 80.6% of the estimated $10,634 cost of a deck addition would typically be recouped, according to the report.

But not all space is created equally. "Appraisers don't look at adding basement square footage in the same way they look at adding additional square footage above ground," Mr. Lupberger says. Above-ground decks and sunrooms offer better light and livability, and typically add more value than finished basements.