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Thursday, December 6, 2007

Remodeling's paybacks

I get the question a lot, from potential home sellers, about which things they might want to remodel or invest in to increase the value of their homes for the market. Generally I tell them that the time to make major investments in the home is not at the point in time when you are selling. It's almost impossible to recoup the cost and homeowners have the tendency to try to add 100% of their costs to the recommended houses price, thus overpricing the house. At the time that you decide to sell, you should focus upon doing all the little maintenance items that have built up, de-cluttering and cleaning the place to make it look it's best. Perhaps some paint would help, too. (See my post of June 28 on the 3-C's of real estate).

It is good, however, to know which projects that you might have in mind for your home now will potentially pay back the best, should you later sell. Remodeling Magazine does an annual survey of what the real estate industry says are the paybacks from various remodeling projects that one could do around the house. They look at which projects return what percentage of their costs in terms of increasing the home's value by some amount to offset the cost.

In the past most of the projects that had fair returns were inside the house. This year the focus shifted to the outside. The best paybacks listed in the 2007 report from Remodeling Magazine were for things like replacing your current siding with the new, upscale fiber cement siding, which paid back at a level of 88.1% of the cost, with a mid-range vinyl siding coming in at 83.2% - still a decent payback. replacement windows (wood at 81% and vinyl at 81.2%) also pay back nicely. Adding a wood deck actually ranked second in the survey at 85.4%.

Those numbers were a national average, with each region of the country having slightly different priorities and paybacks. Our region had the lowest paybacks of any, mainly due to the depressed housing market in the "East North Central" region that includes Illinois, Indiana, Ohio, Wisconsin and Michigan. replacing siding with fiber cement still led the payback list at 82% in our area, with vinyl siding second at 79%. The least payback in our area was reported as adding a backup generator at only 46.9% followed by adding a sun room at 52.3%. So I guess you should just plan on sitting in the cold and dark until the power comes back on.

On the inside there is still reasonable payback from a few minor projects that one might tackle while getting your house ready for market. While I don't recommend a major kitchen update at that time, a minor kitchen update, which might include new fixtures, cabinet pulls, lighting and maybe even replacement cabinet doors still returns a decent 83% nationally (73.2% in our region). The least return inside is realized from a home office remodeling at 49.5%.

All-in-all, the report gives further credence to what I've been advising clients to do for some time now, when it's time to sell - Focus on the little things. I also advise homeowners that they should never stop investing in their homes and that they should look at budgeting for one of the major remodeling projects - kitchen, baths, basement or exterior additions/updates - every 3-5 years while they own the place. A part of what you should consider to be the "payback" from those investments is your own family's enjoyment of the updates and upgrades. You don't want to come to the end of 15-20 years of ownership and then realize then that you should have been updating stuff. It's too late then to get any payback. I was reminded of the 50's habit of encasing new furniture in plastic as soon as you got it, "so it would stay new." The problem was that you never got to enjoy the feel of the new sofa or chair, because you were always sliding off or stuck to the plastic covers.

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