Thursday, May 15, 2008

Renovating your home? Don't expect to recoup the costs

You probably won't recoup the costs of doing a home improvement project when you sell your home, despite what you see on the home improvement shows on TV. (I admit I love watching those shows.) This should be common knowledge. You'll get even less of a return on the project now, compared to the housing boom days (free WSJ Digg link).

During the housing boom, such ambitious projects would recoup as much as 90 cents on the dollar. Not today. The resale value of improvements in general is sliding, according to experts. In a departure from recent trends, homeowners are getting the best payback from relatively mundane improvements, such as sprucing up the exterior of their house or putting in new windows.

After spending $400,000 remodeling the suburban East Greenwich, R.I., home he bought for $820,000 in 2002, Jonathan Salinger learned he probably couldn't sell it for more than $1.1 million in today's market. That's after posh additions that included landscaping, a pool, an outdoor kitchen, first-floor laundry and mud rooms, and custom cabinetry. As a result, the 45-year-old district manager for a mortgage lender recently decided not to list his house for sale and scratched plans to move the family closer to his children's private school in Providence.


Nationally, returns for all major home-improvement projects are fetching 70 cents on the dollar, according to a Remodeling magazine survey of real-estate professionals conducted late last year. That's down from 80 cents in 2004. Back then, a minor kitchen remodel cost an average $15,300 and recovered an estimated 93% if the home was resold within a year. Today, a similar remodel costs $21,100 and would recoup only about 83%.
The story also points out some improvements, such as backup power generators, that have a regional appeal (the generators being more popular in the West and Southwest. The story says the generators are popular because the extreme weather in those regions can cause blackouts, but I'm thinking blackouts of the more man made variety.)