Note: An old story — but this research is updated annually!
How much money will you make on that lovely new kitchen or bathroom when you go to sell your house? Oopsy — likely not one penny. In fact, according to the 2011–12 Remodeling Cost vs. Value Report (www.costvsvalue.com), released last week, you will lose 30-35% — or more — on most home remodeling projects, even “mid-range” ones. This gap is the worst in nine years, since the survey began in 2003. For example, a “minor” $19,588 kitchen remodel? Expect not to recoup — that is, expect to lose — more than $5,000 on that “investment” when you go to re-sell. Debbie Downer reports…
This much-cited Remodeling Cost vs. Value research report is completed annually by Remodeling Magazine, and includes data gathered in collaboration with HomeTechPublishing, the National Association of Realtors and Realtor Magazine. It looks at 35 popular home remodeling projects, year after year, to assess the returns (read: losses) of each project upon resale. The magazine does a really nice job reporting the data and explaining the survey on their website — see it here for info on costs vs value for each project.. and there are regional reports, too. Ugh, I think that I am also reading that the gap between remodeling costs and value recovered on resale (loss) is the worst since the research was started in 2003.
One of the biggest pet peeves in my life, I’m serious,
is the way these findings are soft-pedaled every year
For example, Reuters covered this 2011 Cost. vs Value report, and here is one of their sentences:
Remodeling projects earn back 57 percent, on average.
True enough. So I cannot argue. But, this is definitely a “glass half full” way to state the findings.
Hey, let’s pretend they were talking about the U.S. stock market — say, the Dow Jones Industrial index — instead. Would we see this headline:
The Dow Jones Industrial Average earned back 57% last year.
Or this one:
The Dow Jones Industrial Average plummeted 43% last year (sending the world into another global Great Depression.)
I repeat, hitting thee over the head: ‘Earning back 57%’…means you just lost 43%. Every project, every situation is going to be different, but taking these numbers at face value, chances are, you are not improving your home’s value with remodeling projects if you count the money you put into the update. You are going to come out with le$$, not more $$.
In other parts of the Reuters article, the message was ‘more in your face’ about the gap. But to me, the story did not seem ‘alarmist.’ It was kind of… peppy. Ack! These numbers are dismal, shocking. Even in “bubble days,” the return was only 76%, that is: The loss was 24%. Am I missing something?
One of reasons this blog’s tagline is “Love the house you’re in” is that I *think* I have long understood that unnecessarily “updating” your home to reflect what is trendy today is not a particularly sound financial investment. In fact, what’s trendy today… will likely be ‘hideous’ in about 10 years. In the same vein, I also read somewhere that even getting the 50%-80% return/20%-50% loss indicated by these figures assumes near-immediate resale… that is, today’s updates begin to depreciate, immediately. So, contrary to a lot of what’s in the mainstream: We talk here about keeping your “outdated” vintage bathrooms and kitchens, if they are in good shape. And if renovations are required, I am an advocate in choosing styles that are harmonious with the original architecture of your home — in this way, your interiors will be “dated” to match the date of your house.
Spend money on your house? Of course! Americans love their homes, and are likely to continue to want to improve and update them. Moreover, a home can be one of the greatest life-investments you will ever make — in creating memories for yourself, family and friends… for providing a creative outlet… for building and being part of a community. So, you will want to make it “yours.” But, get back all the money you put into the modern new kitchen and then some? No no no! Read the report, and be thoughtful and realistic about the goals of your remodeling projects … unless money is just not an issue.
Data cited © 2011 Hanley Wood, LLC. Complete data from the Remodeling 2011–12 Cost vs. Value Report can be downloaded free at www.costvsvalue.com.
Glenn Soucy says
In addition to everything else posted above, it seems as if 90% of the DIY or HGTV shows focus on “fix to sell”, or “I bought a hellhole” type houses.
In 2006, I bought a horrible house in a great neighborhood. It needed everything. I was mostly a ” give myslef something to do while my new bride was deployed to Afghanistan” type thing. I was able to get the seller to set aside a goodly sum for repairs, and I di most of the work myself. Fortunately, the house is in a high military area, so we’ve been able to keep long term renters in the house with zero gaps. If I sold today, I MIGHT recover the purchase price, but certainly none of my investment.
A big problem is that folks don’t seem to stay anywhere for long anymore, so the remodelling/updating timetable gets compressed. Our current house, which I am trying to drag back to it’s 1965 roots, is one we’ll be in for a minimum of 15 more years, so the investment gets spread out over time.
pam kueber says
Thanks for your comments, Glenn. Obviously, if you can do the work yourself, you will save a lot. Your comment about folks moving so much — I think this contributes a lot to the issue. If “new” buyers continuously want to make updates to replace “outdated” kitchens and bathrooms — then previous updates never get fully amortized!
Mid Mod Job says
Ok, now here is a good point. Rental property is always judged on updates. Your ability to get top dollar and keep it occupied is directly correlated to the perception of value, i.e. pretty and new. Single family homes, It can’t apply. Buyers that walk through (just watch the shows) always pick out what they hate or would change first before even considering what they like about a property. No body looks at a rental and says “its a fixer upper”. You wouldn’t put money into a house someone else owns.
pam kueber says
I am guessing that most buyers dramatically underestimate how much money they are going to have to put into their fixit and renovation projects. In contrast, a renter wants to see that stuff in their rental property isn’t about to break, because they will be dependent on the landlord to fix it.
tenantproof says
Hi Mid Mod Job,
I wanted to add that as a renter I don’t always look for the latest and the greatest, instead I look for functionality, ease of maintenance and neutrality. It is for this reason that I choose apartments with hardwood floors and tile. I am not a fan of open plan living so I look for apartments in two and three family homes that still have the original floor plans with doors in public rooms still in place. Cosmetic things like patches and paint I take care of. I have asked for some renovations that would make the apartment easier to maintain and more attractive to future renters as well as be in keeping with the time period. I have asked for these changes as things were falling apart and provided extensive documentation with pictures for what I was requesting. So a tumbled pink marble floor in the bathroom that was falling apart and difficult to clean was replaced with black and white hexagonal tiles after a few years. A faucet was replaced and a new medicine cabinet was added, the walls painted and new towel bars provided by me installed. In the kitchen the plastic linoleum slide in sheets in metal trim that had been painted over and required constant scrubbing which was removing the paint was torn done only to find original bead board behind the walls. It was bead board that was installed stick by stick, beautiful and would have been period appropriate to an 1880’s building but it would be difficult to clean and fire hazard around the stove area so we continued with the plan to add white subway tile around the kitchen. I don’t think as renters we necessarily want the latest or greatest we want functionality, neutrality and ease of cleaning. I have rented apartments in the 1990s with kitchens that were built by landlord’s fathers in the 1920’s and because the met the criteria of functionality, ease of cleaning and neutrality they worked fine.
Mary Tatum says
I am a realtor in the Colorado Springs area. My main advice to clients is 1) stay in your house. Don’t buy thinking that you’ll sell for a profit in 3-5 years. Those days are OVER. Your house is a place to live that is yours and currently still a terrific tax break. 2) Do improvements that you want for YOU. Don’t do them with an expectation that it’s a money maker. 3) Focus on things that “button up” the house and make it efficient. Insulation, windows, doors, etc. 4) Paint can do wonders and it’s CHEAP! The upside to owning is that you can paint any color you want. Keep permanent surfaces as neutral as possible, and paint away (and here, I refer back to #2. If you want the boomerang formica – go for it – because YOU like it. Not for the next guy.)
I’m lucky to have lived in my house 10 years, and actually have seen a significant jump in value. But that’s offset by the fact that we’ve made about 60K in improvements over those 10 years. And the deck is falling off the back of the house and still on the list. But you know what? I LOVE the house I’m in!! 🙂
pam kueber says
You sound like a very wise advisor indeed, Mary!
Mary Tatum says
I learned from my parents – they spent 30+ years fixing up a house! And left the pink tile/lavender-grey accent bathroom intact the entire time!
Birgitte says
This is exactly what I was going to say. Love the house you’re in. Don’t move if you can help it, you usually lose money that way.
My husband and I fixed up an 800 sq ft apartment that we bought for cheap and sold it for twice what we paid, including the price of the updates. BUT! This was in Norway, in an area where people have a lot of money, we did all the work ourselves (removing 8 layers of wallpaper and skim coating the walls, laying tiles, tearing down walls, etc). And most of all, it was before the crash. This is not going to happen again!
We now live in a rather run-down place with a lot of land but no mortgage at all, and we apply the same philosophy to our cars as to our house. We keep them and fix them because buying a new one will make you lose a lot of money. Don’t buy into the philosophy that you have to move or buy a new car every few years.
Enjoy what you have.
pam kueber says
Yup!
Mid Mod Job says
AMEN Brig….
gavin hastings says
One more thing:
We all have to live somewhere. And it costs money.
Think of it in terms of renting…..
While renting- all you get- maybe- is a tax write off. Otherwise, thats $1,200 a month . Gone every 30 days.
We paid 189k in cash seven years ago. I figure every month I am saving money and building a (wait for it…) LONG TERM INVESTMENT.
Also….folks under 25, what ever happened to the “starter” home?
pam kueber says
I think this is a very very complicated topic, gavin. Will post soon.
RetroRanchRevamp says
When I was “under 25” 23 to be exact, I bought a starter home. It was 800 sq ft, a complete dump, and in a borderline safe area of the city that had a lot of artists, musicians and creative types in it. Being a new to the working world graphic designer, I didn’t have/make much money for a big house (nor did I need one). I spent 4 years learning how to do projects around that house by myself or with the help of my parents, very few times did I hire a contractor. I also was the block watch “captain” so I was trying to improve the safety of my block as I improved my house. I refinished floors, put in all new plumbing, heating, a/c, totally gut remodeled the tiny kitchen and bath, new front porch, new windows, etc. I worked HARD.
Then I met my husband, we got married and with two incomes and the thought we might start a family someday have now moved to a safer neighborhood and are living in my dream house (a 1962 ranch that is 1,900 sq feet-plenty of space for a family) We didn’t pay too much for it (plus I sold my old house in a WEEK in 2010-likely because I updated the right things and it was in a really good location), it is in mostly original, decent condition and we are working to do things little by little to make it our home and more comfortable for us to have a family in. So yes, there are young people who do things right (buy only what they can afford, work hard to fix it up, move up when the time is right and not just because they want a giant house, etc.) We may be a minority, but we still exist. 🙂
pam kueber says
Way to go, RetroRanchRevamp!
gavin hastings says
Times are tough….but I think alot of folks were led into false luxury lifestlyles
I think we DO live a better standard than our parents….It is just easy to forget that our mothers (and fathers) seldom had more than $10 bucks in their pockets.
Very little discretionary cash
I never understood putting 50k into a room used soley for a microwave and coffemaker. How much cooking is being done in these Spas?
A family of 4 at Red Robin -eating burgers- is spending 75% of my weekly food budget on one meal. This makes no sense.
Peter says
Wow, Gavin. Absolutely correct. Here in San Diego and its surrounds it’s nothing to shell-out 100k and then tire of actually using the kitchen after a few heady months of inviting over guests and entertaining them with takeout gourmet from Whole Foods.
After a while, it’s coffeemaker/fridge/microwave…coffeemaker….
Wash, Rinse, Repeat.
Smart investments remain room additions or conversions of tasteful in-law flats or efficiency studios with separate and discrete entrances (with off-street parking).
neca says
We recently had to sell our home due to a work relocation. Luckily, we’d been there for 12 years, so we could price to sell. Nevertheless, we put around $10K into cosmetic “improvements”. We knew we wouldn’t get a dime back – what that money got us was a sale.
pam kueber says
This strategy I understand. But underscores the point that “dated” starts happening the day after you install whatever is current “today.”
neca says
Absoultely. Some were things that needed to be done (replacing carpet that really was worn out), but some was “make the beige bathroom shower etc. white”. It was frustrating, but that just seems to be this current yuck market.
Luckily we purchased a very nice 1973 home in Ft Lauderdale that has been “re-done” in contractor blah. We are making it a mid-century glory since south Florida homes are really a blank slate in terms of “period.”
mary says
Can you say laminated floors? I can’t even stand the sound of them. Maybe there are high end versions (Pergo) but most quick renovations for resale use the cheapest….like floor paneling.
pam kueber says
Agreed. Save your money. Put in real wood. Or VCT tile!
Genevieve says
We built a new, entry level home in 2004 on almost 7 acres. In 2008, we decided we needed to move to the next county, which has really good services for my son, who has severe mental impairments. My husband was able to negotiate with a buyer a price that was just below what it cost to build the house. Then the buyer’s bank refused the loan and told us the house wasn’t worth that much, that we had to lower the price. If we hadn’t had an enormous down payment and 50% equity in the house from the day we moved in, we would still be there. We are now in a vintage 1962 home in a great neighborhood with great schools and don’t regret the move. My son’s teachers and school are totally awesome and completely competent and work miracles every day, they put so much love in their work, so it well worth a loss. A major rehab, if done primarily to impress the neighbors or for resale value, isn’t!
Peggy Miniard says
Pam, you are so correct in what you are saying! A house that just recently sold in my own neighborhood is a prime example. (and I am in a great area…location, location , location applies here!)….
One of my not so savy neighbors bought a small cottage in 2007, and put in “high end ” updates (posted on zillow for the world to see..), she bought for 141,000, “invested” 65,000 and sold this past spring, for 162,000. Thats a lot of money!
I’ll say it again, I am so thankful for retrorenovation-com-staging.enwf9w61-liquidwebsites.com. Your sie has me looking at my house with new eyes. I no longer listen to those that dont appreciate the “dated” look of my house.
Some things are inevitable…like you said, we have to take care of our homes…roof,s leaky widows, plumbing…are musts and have to’s. but I will be keeping both my pink and acqua bathrooms, my retro broken tile floor, AND my vintage cabs and faux butcher block countertop. Its a lot cheaper to do a little “backdating”, but even with that the only return I will expect for my efforts will be “the enjoyment of my home”.
Trouble says
I prob won’t make ANYthing when I sell, since I’m restoring the house. Who wants a pink and gray mosaic til on the bathroom floor with coral built-in shelves? Who wants steel cabinets and subway tile backsplashes in the kitchen?
Esp since my house was just devalued 17000!!!
Trent says
Im in the same boat, I love my little 1918 bungalow and bought it for a song. But by the time its finished / restored nobody around here
(small town middle america) Will want it because its not cookie cutter design,
Its hard to know most of what you are putting your Blood Sweat and Tears into wont last a week with the next owners
even though i will love it for as long as i can
mary says
I haven’t done much renovation to my little house but I’ve heard many young people walking by who said they would buy my house in a minute…they didn’t realize I was there of course. I’m thinking younger home buyers are smarter about the size and maintenence of a huge McMansion…not to mention the cost. I was hopeing that maybe just maybe the market would start building more affordable well built smaller homes…most of us don’t need a family room, den and a master suite. As Geo Baily said “is it too much to ask that they do that living and dieing in a few small rooms and a bath?”
pam kueber says
Agreed. Less house = Less need to make money, and lots less grief.
Trina says
I agree with the above comment, as I said before we remodeled our entire house for five years. We put the best of everything because we thought this was going to be it, then my husband got transferred. It took us 2 years to sell, we lost about 50k and sold it for 5k more than we paid for it. Now this is the great part, the people who bought the house had a Rural Development loan, therefore they didn’t have to put down a single penny plus they asked us to pay 5000 for closing, so these two actually walked away with money at the sale of our home! We paid to sell our house, to two people who couldn’ t even save up to pay closing costs on a home. Talk about feeling like the grown ups in a situation.
AmyEbbertHill says
I bought the little house in 2007, a year before the crash. I have put money into the house, making it a more efficient, comfortable place to live. If I listed it today, I would be lucky to get what I owe the bank & closing costs out of it. Foreclosures have driven housing prices down. I used the 28% rule when I bought my house, not buying more house than I could afford. Lots of other people around here took advantage of lax housing credit available and ended up with more house than they could afford, hence all the foreclosures. I feel like the responsible adult who ends up being stuck paying for others foolish choices.