Which Home Improvements Will Pay off in 2017?

by Steve CookFebruary 7, 2017

With spring right around the corner, it’s not too soon to make your home improvement plans for 2017. Equity levels are increasing for most homeowners and more and more owners are using their equity to make long-delayed upgrades. The average American home is getting older as families stay in the homes longer (the median age of owner-occupied homes was 37 years old in 2003, compared to only 27 years old in 1993). You’re not alone if you’re thinking that this is the year to finish that basement or upgrade your kitchen. In fact, forecasters expect a robust year for home remodelers in the months to come, so making plans and budgets early this year is probably wise.

One question you may want answered is: “Which home improvements will pay off the most when it comes time to sell my house?”
An excellent source is Remodeling magazine’s “Cost vs. Value Survey”, an annual study that tracks costs for popular remodeling projects and surveys Realtors on how much each will increase home values at time of sale. The study is broken out regionally and by mid and high-end projects. Other good sources are the National Association of Realtors’ Remodeling Impact Report, last released in 2015, and NAR’s Outdoor Remodeling Impact Report.

Many homeowners are surprised to learn how few projects pay for themselves or produce a profit. The 27 projects in the 2016 Remodeling magazine report resulted in an average of 64.4% of a project’s investment dollars getting recouped if the home is sold within a year. But that’s up from 62% in the 2015 report and the second-highest return in the past eight years. Higher home prices in most markets are boosting the dollar-for-dollar return for improvements.
bigstock-House-New-Construction-Insulat-391592As a rule of thumb, lower cost projects are more likely to pay off. This year, putting loose-fill insulation in an attic is the only project that returned a higher value than its cost It came in at 107.7%. Better insulation also saved owners in lower heating and cooling costs). Next up was the steel door replacement, a perennial high finisher, at 90.7%, followed by manufactured stone veneer at 89.4%. Those projects that packed the biggest payback also are three of the five cheapest to complete, which helped their cost-recouped scores.

“Curb appeal” projects­—changes to doors, windows, and siding—by and large generated higher returns on investment than work done inside the home. Meanwhile, projects that called for replacing something, like a door or window, scored higher among real estate pros than did remodels.

More popular projects, like basic kitchen and bathroom upgrades are doing better regarding the value versus cost ratio, but still don’t pay for themselves. A basement remodel costing $71,115 returned $49,768 for a 70.0% cost vs. value ratio, which was above the national average though lower than last year. A modest bathroom remodel costing $18,546 returned $12,024, a 64.5 percent ratio. On the other hand, a minor kitchen remodel costing $20,830 came close to breaking even at a $16,699 return, for an 80.2 % ratio.

Several of the most expensive projects in the Remodeling Magazine report—the upscale bathroom remodel, upscale master suite, two-story addition, grand entrance, and family room—saw the biggest year-over-year percentage increases in value, rising between 5.6% and 7.4%. All those increases outpaced the rise in cost to accomplish the project.

Anticipating how much a remodeling project will return if the house isn’t sold for years to come can be difficult. Sometimes, values of a remodeling project in ways homeowners can’t always predict. For example, backup power generators had a payback in the 40 percent range before 2014 report, but that year it spiked to 67.5% because real estate pros were surveyed for that report in late 2013, just after superstorm Sandy struck. The further we get from that event, the less of a payback the generators become; their cost recouped slipped to 54% this year from 59.4% in last year’s report.

Remember, even though the cost of more projects won’t completely pay for themselves when it comes time to sell, they will increase the value of your home and make it easier to sell. Your family will get to enjoy an updated home and the time comes to sell, buyers won’t be turned away by old Formica countertops and bathrooms that show their age.

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About The Author
Steve Cook
Steve Cook is editor and co-publisher of Real Estate Economy Watch. He is a member of the board of the National Association of Real Estate Editors and writes for several leading Web sites, including Inman News. From 1999 to 2007 he was vice president for public affairs at the National Association of Realtors.

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