Which Home Remodeling Projects are Worth the Money

CHRISTINA STEVENSON

Homeowners who wonder which improvements will net them the most return on investment (ROI) as they prepare to sell their homes often rely on various home improvement studies to answer their questions. Arguably, the most well-known of these studies is Remodeling Magazine’s annual Cost VS Value remodeling report.  Co-authored by the National Association of the Remodeling Industry (NARI) and the National Association of REALTORS (NAR) the yearly report “aims to answer a specific question: What value does a particular remodeling project add to the sale price of a home?”

In past studies, NARI provided the estimated costs of given projects, while participating Realtors answered survey questions that determined the importance of certain improvements to homebuyers in given markets.  In the past two years, the methodology has expanded to more sophisticated variables, including local gross domestic product, existing home sales, existing home values, changes in existing home sales, existing home values, and new home housing starts, among others, all of which influence the sales price of existing homes in specific markets. Realtors still provide their opinions, but based more on why homeowners remodel their homes, the outcome of the projects they took on, and the “happiness factor” or Joy Score once the project is completed.

Based on U.S. Census data, the costs and cost recovery of each remodeling project is based on a typical 2,495 square foot home built after 1981 with no outstanding problems except for the need to update with good-to-better quality materials. Some projects were do-it-yourself, while others utilized professional assistance, particularly for jobs requiring licenses such as electrical and plumbing. 

In 2022, the Cost VS Value report shows that housing preferences have changed over the last couple of years. Homeowners and homebuyers moved on their desires to live in homes with certain features that they previously didn’t have or that they felt would make their lives and those of their family members happier and more comfortable. The ongoing pandemic remains a huge influence in changing attitudes toward work-life balance as households coped with school closings, businesses furloughing workers, and many former commuters working at home. These factors influenced where and how people wanted to live as well as the size and scope of remodeling projects they took on.

Based on U.S. Census data, the costs and cost recovery of each remodeling project is based on a typical 2,495 square foot home built after 1981 with no outstanding problems except for the need to update with good-to-better quality materials. Some projects were do-it-yourself, while others utilized professional assistance, particularly for jobs requiring licenses such as electrical and plumbing. 

More than four out of five homeowners said that they would have remodeled their homes regardless of the pandemic, to upgrade worn-out surfaces, finishes, and materials (30 percent); to add features and improve livability (20 percent), and because it was time for a change (16 percent). Most consumers are pleased with the overall result and reported a greater desire to stay in their homes after remodeling. It’s not all about money – it’s also about the Joy Score. 

Numerous interior projects received a perfect Joy Score of 10: paint entire interior of home, paint one room of home, add a new home office, hardwood flooring refinish, new wood flooring, NAR provided an estimate of the value each project would add to the house at resale, NARI calculated a Recovered Project Cost percentage. For interior projects, NARI reported the highest percentage cost recovered was from refinishing hardwood floors at 147 percent, new wood flooring at 118 percent, and insulation upgrade at 100 percent. For exterior projects, the highest percentage cost recovered was from new roofing and new garage door both at 100 percent. Fiber cement siding recovered 86 percent of the cost spent and vinyl siding recovered 82 percent.

What’s further interesting about the report is that the two most expensive renovations – the kitchen and bathroom don’t return as much ROI, despite high Joy Scores. A complete kitchen renovation, costing approximately $80,000 is only estimated to add only $60,000 ROI yet it nets a high Joy Score of 9.8.  A complete bathroom renovation at approximately $35,000 adds only $25,000 in ROI with a Joy Score of 9.6.  A partial kitchen upgrade at approximately $45,000 nets only $30,000 in ROI, yet earns a Joy Score of 9.8. Adding a new bathroom may cost $80,000, but returns only $50,000 in ROI and a lower Joy Score of 8.2.

As a homeowner, you may be focused more on costs than an improvement in your lifestyle or in your home’s resale value. So, what does it actually cost to remodel a home? According to Time.com and NextAdvisor.com, a small remodel with painting, small repairs and new landscaping costs $25,000 to $45,000; moderate remodel with kitchen and bath overhauls costs $46,000 to $75,000 and a major remodel with foundation, roof and sewer repairs is $76,000 and up. Costs can be higher or lower than average depending on where you live, the size and age of your home and the scope of the project. Labor costs, codes and other regulations, and the cost of materials can also vary widely.

To pay for remodeling, homeowners have a number of options besides savings, credit cards, and borrowing from family:

HELOC. A home equity line of credit tends to have more favorable terms than other loans and you can take out as much as 85% of your home’s value in loans, minus what you may still owe on your mortgage. The advantage for homeowners is that they can pay as they go, borrowing on their equity only when needed.

Home Equity Loan. A home equity loan also draws on your home’s equity but is distributed as a lump sum with paybacks in monthly payments at a fixed rate.

Renovation Loan. These loans are based on your home’s value after completion, so while you might be able to borrow more, be careful not to take on too much debt.

Government Loan. If you, your home, and your renovation plans qualify, you can get a government-guaranteed remodeling loan such as the Fannie Mae HomeStyle Renovation Mortgage or FHA 203(K) Rehab Mortgage.

Cash-Out Refinance. This loan replaces your current mortgage with a new, higher loan. Expect the same fees and loan origination costs as any mortgage. As with any monthly payments, make sure you can afford this new debt.

Personal Loan. This is an installment loan available from lenders based on your creditworthiness.

Talk with your lender, your Berkshire Hathaway HomeServices network professional, and your contractor to help you determine which remodeling projects are best for your home for beauty, livability, enjoyment and return on investment.

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