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.
tinagleisner says
Pam, I truly understand why people are so upset these days with housing prices and many have been hurt including members of my family and myself (sold condo in FL for 15% less than we paid in ’88 but in FL, three-quarters of the state is underwater … and my father-in-law is turning 97 and doesn’t want to go back).
On the other hand, let me offer this comparison. Put $20,000 into the minor kitchen remodel, enjoy the new room for 5+ years and it will cost you $5,000. Instead of remodeling your kitchen, buy a new car for same $20,000 and 5 years later you’ve lost more than $10,000.
If you eliminate the housing bubble and look at trend lines from 10 years ago, they’re mostly still positive but only the 3 to 5% growth that’s been true for many (pre-bubble) years.
PS Fun seeing you hear after our fun at BlogHer.
pam kueber says
Over the past 100 years, home prices have, on average, risen only 1% more than inflation. And, I don’t think that calculation takes into account the cost of maintaining of home and paying taxes on it. Another story to come on this topic. The point of this particular story: Don’t think of remodels as a way to make money, they are a way to lose money. Note, I was not at BlogHer….
Ana says
I’m smack in the middle of a renovation of a 1950 bungalow (bought 2.5 years ago) and I’m getting that money pit panic feeling. The home inspector either missed or didn’t mention some major problems that would’ve made me back out of the contract. I saved for 2 years to fix what I was told were “minor” cosmetic issues and restore the 1950s charm that was stripped away in a 1970s remuddle.
It turns out the whole foundation needed fixing and there are more things than anticipated on a very long list. It all has to be done. I’m doing a lot of weather proofing and I already added insulation, solar screens and a new electrical panel.
The good thing is I picked an excellent neighborhood and an otherwise great little house. I know I won’t get all of the money back and that most of the big-ticket items are things people will never see, but I’m making the house livable for me for as long I’m there. I don’t plan to sell any time soon, and if I had to sell, I wouldn’t be able to without having all these things fixed anyway.
So one way or another, the money will be spent. I choose to spend it to make the house what I want it to be.
pam kueber says
You are doing good by this house..
Alex Anderson says
People in this country have short memories and, once conditions have changed, they soon forget that they were ever any other way. Historically, people have bought homes in order to have a place of their own to live in, not to flip them and make money. Under ordinary (non-bubble) conditions, you have to add value to something in order to increase the price – and, even then, there are no guarantees. Flipping houses is no basis for an economy. It’s an aberration that soon runs its course, as we’ve just seen, and leaves destruction in its wake. We have to change our thinking and stop viewing our houses as investments that will sooner or later make us rich. House prices will, in general, never return to what they were when janitors were buying million dollar houses and trying to resell them at a profit. Those house prices were inflated vastly beyond the actual value of the homes or of anyone’s ability to pay for them. If you think those prices will ever return, ask yourself this: what would it take for that to happen? The answer is that it would take a huge drop in unemployment and everyone to get enormous raises. Just how likely do you think that is?
Mary says
Obviously, I come to this discussion late, but wanted to say that I think Gavin in right on putting your house in a trust. It will pass directly to your kids and not have to go through probate and all that pain in the rump entails.
Alex, it was the tax assessor who inflated the price of my house. I pay taxes on a 200,000 house that, judging by all the same kind of 70s ranches on the market here, won’t sell for 160,000 on a good day. People are leaving here because thousands of jobs went overseas and not many people want to live in a rural area when times are better in the towns and cities. So the tax people hit those of us who didn’t sell early in the job export cycle by raising the millage AND the valuation to pay the county’s bills.
I’ll be lucky if I ever get my little retirement bungalow in a town. I found a 1940s beauty with kitchen cabinets from floor to ceiling (and lots of them), all wood floors, solid construction well maintained. No way I can sell this place to buy it, so I’m figuring it’s not meant to be and in time I’ll either move or die here. Meantime, I’ve just ordered modern insulated double hung windows to replace the deteriorating aluminum picture window.
If I’m still here after that’s paid for, I’ll be searching for new appropriate kitchen cabinets and counters. Oh, wait, first, it needs a new roof ….talk about a money pit.
It makes me go bonkers to see HGTV young people whine about “dated” cabinets, ordinary bathrooms instead of BRs the size of a hotel lobby, and workhorse appliances that won’t fail in the first couple of years after moving in. Give me the old and well made and still functioning any day, instead of the latest fad. My furnace was 40 years old when I replaced it!!! Still worked, but made too much noise and spewed oil on the floor. Sigh. But am glad we added a nice deck and double garage……….Too bad the assessor saw them…….
ClaudiaD says
I’m not worried. We bought our house in 8 years ago and it’s still worth more than we paid for it.
In addition, we’re not going anywhere. This is the house that our kids are growing up in and someday, when my husband and I kick the bucket, we’ll just leave it to them. That’s our plan, anyways.
I’ve never had the “resale value” mindset. My idea is to maintain the 1958-ness of the house and keep it in good condition. We’ve installed a new roof, insulated the house, switched from an oil furnace to a gas furnace – and some day we’ll replace the windows.
I’m curious – does anyone else not care about “resale value” when making decisions about their houses?
Just another Pam says
Well, Claudia, when my ex walked in on my reno once he said…..”Well, you’re certainly not worried about resale.” So, no I didn’t worry about it, but I also know that given a month I can make the place generic market ready just like all the other houses I’ve had or leave it alone outside of fresh neutral paint and accept a slightly smaller buyer pool.
Like you, I plan on leaving it to my son….if it’s long enough then it will most likely be sold to someone who’ll level it anyway…..there are two wee places a couple of streets over that are being sold as building lots for 26,000 less than this house cost. Transitional in town neighborhood by the river so I suspect all the older houses are on borrowed time. Sad.
gavin hastings says
NOPE!
I have owned 2 homes…one for 23 years and this one; the last stop, for 8.
My ex-realtor called my style….”Dollhouse”, and it seems to appeal to many.
If your State offers it: I hope everyone has an Act of Homestead and a that your property is in a Trust.
christa says
Thanks for the welcome. No offense intended to awnings and mirrors in general, just mine in particular. Imagine purple scalloped awnings on an Eichler A-frame type of window, and you may understand why I thought it wasn’t quite right. And wall-o-mirrors glued over mahogany paneling — not a great remodeling choice for the home. If I could learn to love those appliances, it certainly would save me some time and money.
christa says
Hello! I just stumbled across this blog while doing some reno research. Great blog for resources!
My husband and I recently bought an architect designed 1958 mid century. The home had only one owner so the original mahogany cabinets and vintage yellow bath fixtures were all still here. Unfortunately, they had done some remodeling – they put granite in the kitchen, and some unattractive tile on the fireplace surround. They also installed wall to wall carpet, a giant wall of mirrors in the dining and kitchen, and put awnings (!) on the wall of glass windows. No wonder we got a bargain! So far we spent money to restore the hardwood floors and resurface the concrete on the lower floor. I felt it was worth it to do those things while the house was empty. We also did some needed plumbing and electrical updates, roof repair, installed a new furnace, new w/d, new tankless hot water heater, and sump pump. Those were things that were upkeep/repair of old, worn and dangerous items that came up during the inspection. In decor, we managed to remove the ugly fireplace tile – underneath was a gorgeous original concrete treatment. The awnings and mirrors came down, and I’ve carefully patched and repaired the tile, the wood walls, touched up paint, replaced hardware, replaced hollow core doors (hate those). It’s really fun for me to do. So far, I would expect to break even on all these things since the sale price was below market (due to the house needing all that stuff, plus the ugly mirrors and awnings ;-).
We really wanted to update the kitchen and bathrooms. We would do a careful job, keep what we could and stay true to the house, same footprint and character, it’s just the appliances are over 20 years old, and the leaking (just a tiny bit) fixtures in the bathrooms need replacing. Once you start looking at plumbing, it has been my experience that you end up having to open up the walls and floor — there’s always a leak hiding somewhere.
With a 56% rate of return like cited here, we decided to do what repairs we can and wait for the economy to improve. The only problem with that is the deals to be had these days on fixtures and appliances, plus good plumbers, carpenters and electricians are available and eager for work right now.
I think if your house has character, it’s important to keep and restore that. Thanks for having this blog with so much information on where to find the materials to do so.
pam kueber says
Welcome, Christa, it sounds like you have a gem of a house and that it has gem owners! Hey, be careful with the *u*-word, though, because there are lots of us that luv our awnings and walls o’ mirrors. It all just depends on your house and taste! Re renovating the kitchen and bath — I would always tend to advise live in your house at least a year before you go gutting anything — you can’t undo it — lots of regrets. Unless there are enviro or safety issues, of course! And, start hanging out here, dear, we’ll have you loving those old appliances in no time! 🙂
Lisa says
Hi Lauryn!!! I think you must be the one I know who made that same move to Iowa.
I love this blog but have never posted because our new historic house is a 1909, so many of the style tips here don’t really apply. But the advice to stay true to your house is right on! We have lots of infrastructure work to do, so our budget is going to roof, electrical, etc. But after that if any money is left we are turning to the tarted up kitchen asap. Luckily they didn’t put in anything really pricey that I will feel guilty ripping out, but the faux French is really unlovely and way too frilly for the clean Arts and Crafts lines of this place. I will probably leave in the fake Victorian window trim and molding because thankfully it is confined to the kitchen and only about 2 decades off period for this place.
Most of this house has been left alone except for what must have been some wild paint colors over the years. Red! Green! Chartreuse! The baths are newer but renovated obviously for love not resale, and I like them as they are.
pam kueber says
Welcome to commenter-club, Lisa! I would LOVE to tour around Iowa some day!
Lauryn says
Okay, I knew a fair number of Lisa’s in Seattle (which is where I’m assuming you’re from!). Hints, please???
And welcome to a great — and my personal favorite — way to see your day slip away! Love, love, love RetroRenovation!!
Lisa says
I’m the parent of Julian — that might be enough hints. Love RetroRenovation! I usually take it in small chunks throughout the day because I peek in at work.
And so odd, because “Iowa” (your particular quadrant, even) and the name Lauren/Lauryn have come up multiple times for me today in different venues. Must be in the stars for us to connect like this.
Lauryn says
Thought it might be you!! Shoot me an email at our website (still the same one). And give Julian a hug for me.
And Pam … do come to Iowa! Lots of great mid-century homes here, not just old farm houses (which are wonderful too).
Jay says
Ugh! I cringe when those realty shows have prospective house buyers whining because the kitchens have formica instead of granite and stainless. All for show! I’ll let the next owner of my home worry about the house being current and trendy. I intend to stay put until I fall off my perch. All my money has gone into basics – roof, furnace, etc. The houses in my neighborhood that have gone up for sale have been priced too high, I believe that the owners are trying to recoup reno dollars – the emphasis is placed on New, New and New finishes.
Lauryn says
Great post, Pam. Another point to consider is the life time cost of the loan. We bought our house (in Iowa) in 2006 with a considerably higher interest rate (6.75%). When we decided to do some work on it, we were able to refinance with a modest cash out (to do the kitchen) at a much lower rate (4.8%) and a shorter (20 vs. 30 year) term. By doing that, we are actually paying $32K less over the course of the loan and will have a new/old kitchen to boot.
And just as an aside, every one thought we were crazy when we left Seattle to go to Iowa, citing, among other things, the fact that housing didn’t much appreciate here. But we were buying a home, not something to flip, something we could never have done on the west coast. And you what? In one of the worst economies we’ve seen the value of homes in our town has significantly increased … by nearly a third in many cases. So sometimes when you buy a home for all the right reasons (a place to live!) rather than to make money, you’ll do okay. And we do so love the house we’re in.
JKaye says
Oh — so we took the house off the market, and our Realtor was great about it. She thought we gave it a good try. Now, we have a bunch of stuff in a storage unit that we cleared out of here to make the place look better, and we don’t want to bring it back in because we love how open and clean the house feels now. So, I think we will do like Gavin shared in a different post, and dispose of things and feel less burdened. It certainly makes this house much easier to live in.
Ian says
Interesting this topic came up yesterday. I bought my 1946 house 8 years ago,I was in my 20’s and making a lot less money than I do now. I had my heart set on a descent 40-50’s house in a nice neighborhood that was mostly original.
This was back before the bubble really grew,but even houses then were selling within a few hours of going on the market.I had my heart set on a couple neighborhoods in particular. I wanted a keeper house. I put an offer on a few houses,one a time capsle that even though I bid over asking price,someone came with a cash offer. (Turns out a flipper who renovated it and made it a rental..then selling it. aaargh! At least I got the Youngstown cabinets off the curb )
I ended up “settling” for my house. It’s not in the greatest location,and had had renovations over the years. Oh well,it had potential and I figured it was a “starter” and I could fix it up and profit to trade up to a house I want in the neighborhoods I wanted.
While the boom was in full,I felt like a fat cat,and was VERY happy I bought when I did because I’d be renting.
Fast forward to now,I look online at houses for sale in the neighborhoods I wanted,now they are dirt cheap and have been on the market for months. Interest rates are also down. Houses I could only wish to have are well within my reach-If only I didnt have to sell my current house! Good luck doing that now and have enough to pay realtor fees and closing etc.
Frustrating,but at least I’m not upside down or lost tons of money like some of you guys have. I don’t feel quite as bummed now. 😉
pam kueber says
If you are not upside-down, then why don’t you try to sell and move?
Ian says
Good question. It’s something in just the past few days I’ve started to really consider. I need to stop speculating and being discouraged ,and look into it to see if I can pull it off.
There’s a semi- time capsule 1940 house in the neighborhood I originally wanted to be in that’s calling my name. My sister and her fiance really like my house,I’ve been putting the bug in their ear to buy it the past couple days. 😉
pam kueber says
If you can sell directly to your sister, you would avoid real estate agent commissions….that’s a 6% saving (as I recall) that you could “split” with your sister as an incentive right off the bat!