With remodeling projects, paybacks vary across U.S. Redone kitchens boffo in New Haven

Nation's Housing

November 22, 1998|By Kenneth R. Harney

IF YOU SPEND $30,000 to remodel your kitchen or add a bathroom, will you get that investment back, dollar-for-dollar, in added market resale value for your house?

What about adding on a family room? Converting the attic into a bedroom? How much of your remodeling expenditure will you get back immediately?

These are hotly debated questions, especially in a year of record-breaking homeowner outlays for renovations. But reliable answers can be hard to get. Published information, purportedly based on rigorous market-by-market research, is highly suspect and fraught with potential conflicts of interest.

Take the latest installment of Remodeling magazine's annual "Cost vs. Value Report," this year published in cooperation with the National Association of Realtors. The study, with investment-return projections for 60 major real estate markets, appears in the November issue of Realtor magazine.

The study is intended to provide Realtors and remodelers with "a new resource for answering consumers' questions about home renovations," and should "enhance your [the sales agent's] ability to market and sell properties."

For each of the 60 markets, the survey asks real estate professionals -- primarily real estate agents -- to estimate the effects on resale value of 12 types of remodeling projects. The projects range from major kitchen rehabs to replacement of exterior siding.

Participants weren't asked to document their estimates with actual sales transactions or appraisal data.

One of the survey participants, Anne Hagen of Anne Hagen's Village Properties, Garden City, N.Y., said she was simply requested by the survey organizers to "come up with some estimates and fax them back as quickly as possible."

Perhaps not surprisingly, the results obtained from this methodology were highly variable.

Asked to estimate return-on-investment during the first year after completing identical $10,000-plus "minor" kitchen remodelings, participants from two large markets in Connecticut -- Hartford and New Haven -- projected returns from 45 percent (Hartford) to a stunning 125 percent (New Haven). The estimate from Garden City, N.Y., just across Long Island Sound, was even more eye-opening: 141 percent in the first year alone.

The estimator for New Haven, Peter Andrew of H. Pearce Co. Realtors, said his prime business is selling houses "and putting together packages of contractors" for buyers who want to do remodelings. Hagen confirmed that she also specializes in selling to buyers who plan to remodel.

Similar variations occur in the Realtor-Remodeling magazine study in virtually every state and region.

Replacing your windows in Cleveland, for instance, will net you 134 percent immediately, according to the study. The same price-and-quality job in Indianapolis nets you just 22 percent. And in Albuquerque, N.M., the identical project yields you a 4 percent increase in market value -- a $250 jump in resale price for a $6,000 window upgrade.

Are these numbers -- which consumers may find Realtors and remodeling contractors quoting to them in the coming months -- accurate guides for you, in your local market?

The Houston-based president of the country's largest real estate appraisal organization, Joseph R. Stanfield Jr. of the Appraisal Institute, calls regional average-return estimates of 108 percent on kitchen remodelings in the West and 99 percent in the South "pretty darn high, by my experience." Other appraisers emphasized that what you get from a rehab expenditure depends on several critical factors:

* The immediate neighborhood: What is the neighborhood norm for kitchens, bathrooms, family rooms, etc.? If you own a home with an outdated, 40-year-old kitchen in an upscale neighborhood where most kitchens have been redone in recent years, "then, yes, you're going to get a good return on your dollar if you bring your kitchen up to the prevailing standard," says Sarah Schwartzentraub, head of Inter-State Appraisal Services in San Diego. But if you overdo it -- say by installing a $75,000 gourmet kitchen in a neighborhood of $150,000 houses -- "then you're not going to get as much back immediately."

* The type of improvement: Appraisers say the most cost-effective improvements can often be the least expensive. Stanfield calls exterior paint and landscaping expenditures "two of the best" things you can do to increase curb appeal and salability. Kitchens and bathrooms tend to return well, whereas basement "rec" rooms and swimming pools tend to be on the low end.

* Demand for homes within your neighborhood: The hotter your market, the more money people will pay for your remodeling expenditures, provided they aren't over-improvements.

If you really are set on maximizing returns on remodeling dollars, talk not only to contractors and Realtors, but to your neighbors. And consider hiring a local appraiser on a consulting basis.

Appraisers often have access to proprietary data on the interiors and improvements of many houses in your area, plus data on all closed sales. They can tell you, with fair precision, what a new kitchen or bathroom adds, and whether it's really a sound investment.

Kenneth R. Harney is a syndicated columnist. Send letters in care of the Washington Post Writers Group, 1150 15th St. N.W., Washington, D.C. 20071.

Pub Date: 11/22/98

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