November 2008 - National Association of Realtors

We would like to thank Julie Keshner, CIPS of Cabo San Lucas,  for providing this data from NAR.  This United States based  information was gathered  prior to the economic  downturn in the U.S, and is cited solely  for discussion / comparative reasons following the theme of this issues topic.

2007 "Cost vs. Value Report"
by Remodeling Magazine

National Association of Realtors

Remodeling magazine, with assistance from the National Association of Realtor’s, recommends that any prospective sellers should focus on exterior upgrades.  The survey, given to REALTORS in 65 markets, were given costs and construction specifications on 29 upscale and mid-range projects and asked to estimate the return of the investment at the sale of the property.  Only one project, a minor kitchen remodel, with 83% of the cost recovered, was an interior job.  All other projects that returned over 80% of the cost in 2007 were exterior, such as upscale siding replacement using fiber cement materials (88.1%), wood deck addition (85.4%), mid-range vinyl siding replacement (83.2%) and upscale vinyl and mid-range wood window replacements (81% and 81.2%).

On most projects, the cost recouped was less than 2006.  No project brought more than an 88% return.    Possible reasons for the drop including increased remodeling costs and the slow housing market in many areas.

Projects at the bottom of the cost vs. value report were home office remodels (57%), back-up generator (58%) and adding a mid-range sunroom (59.1%).  Home office models have been at the low end of the national average since 2005 when that project was included in the survey.  Usually people design a home office to fill a specific need, whereas a prospective buyer may not share the same need, regardless of the cost.



Minor kitchen remodels were added to the report in 2004 and they have consistently ranked among the highest return projects.

Other items to consider are the fact that averaging has a leveling effect on data, and small differences in the size and scope of the project, or the quality of finishing, can dramatically affect the final cost.  Another consideration is whether the remodeled space reduces the perceived number of rooms or available square footage.   Adding a half-bath in an unused storage space is a gain in usuable space, but taking an extra bedroom to convert to a larger master bath or master closet, may be less attractive to a prospective buyer that needs the extra bedroom.

Other factors include the condition of the subject house, the neighborhood and values of similar homes nearby and the rate of appreciation in the area.  A home’s setting, urban or rural can also affect value, as does the amount of inventory available in new and existing homes.

Consulting with a local contractor about construction costs should be the first step in considering a remodel with a desired high cost vs. value return.  Also, consult local REALTORS about comparable properties and market conditions.


There were some changes to the survey that affected results, mainly project descriptions and costs estimates that started in 2006 and finished in 2007.  These resulted in cost increases higher than would have resulted from rising labor and material costs, especially major kitchen remodels, bath projects and siding replacements.  The construction costs are more accurate than in previous years, but are affected by lower home appreciation to create a lower percentage in value.  Another change began in 2002 with high-priced upscale projects.    Even though the range of costs made the report more useful, it did impact year-to-year comparisons.

The National Association of Realtors will continue to survey all 29 projects, and data should become more reliable.  

Home Tech Information Systems, a remodeling estimating software company in Bethesda, Maryland, provided construction cost estimates for the 2007 Cost vs. Value Report.   They collect current cost information nationwide from remodeling contractors and suppliers and apply a factor to account for regional pricing variations.  The construction costs include labor, materials, sub-contractors, overhead and profit.

In a statement issued by Home Tech Information Systems, over the last two years, project specifications and estimating templates have been updated to clarify dimensions, modify material specs and insure that special requirements were accounted for.  This process resulted in some prices that are higher than would be expected from price inflation alone.  “Although such pricing adjustments affect year-over-year price comparisions, all of the values in the 2007 Cost vs. Value Report are based on the refreshed prices, which we consider to be more accurate than before.”

In the NAR estimates, email surveys were sent to more than 100,000 appraisers, sales associates and brokers, and contained project descriptions, construction costs, and median home price data for each city.  The respondents were asked to estimate the value the project would add to the house at resale during current market conditions.  The survey took place in July and August of 2007 and was administered by Specpan, an Indianapolis based market research company.   The confidence level is 95%, with a +/- 2 percent change, based on 2,770 respondents.  


 

Julie Kershner
(520) 204-5450US Cell
julie@juliekershner.com
http://www.LosCabosLuxuryHomes.com

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