WITH HOMES LINGERING on the market for months and those that sell going for well below the asking price sellers need all the help they can get. One way to help improve the odds of unloading a home: renovations.
But before homeowners start knocking down walls and shopping for Viking ranges, they should consider the actual payoff of these projects. Growing demand for construction materials from abroad, particularly in India and China, and skyrocketing fuel prices are pushing remodeling costs ever skyward, says Sal Alfano, editorial director at Remodeling Magazine. The Bureau of Labor Statistics' Producer Price Index, which tracks material and supply costs for maintenance and repair construction, jumped 12.4% from June 2007 to June 2008.
Meanwhile, the amount homeowners actually recoup from these projects is shrinking. In 2005, 68% of remodeling projects recouped more than 85 cents on the dollar, according to Remodeling Magazine. Last year, just 7% of projects recouped such amounts and that figure is expected to drop even further this year, says Alfano.
"The market is probably as low as it's been in recent memory," says Alfano. "The buyer is unwilling to pay as much as [they] would have a year ago for that property...[with the] deck or the remodeled bathroom." Given that the buyer has the upper hand, homeowners must carefully weigh the cost of each project against the realistic amount they can expect to recoup once they sell their home.
Indeed, some improvements practically pay for themselves or, at the very least, gain more attention from prospective buyers than others will. Putting an in-ground pool in the backyard or building a two-story deck with a gazebo, for example, aren't going to appeal to a broad scope of buyers, says R. Randy Lee, board chairman of the Building Industry of Association of New York City, which represents residential and commercial builders. Cleaning up the exterior of the home (a.k.a. "curb appeal") or adding more storage space, on the other hand, will prove much more appealing.
While the amount you recoup may not be as high as it once was, projects like these will help sellers unload their homes faster and for better prices than those that aren't renovated, says Deanna Kory, senior vice president at the Corcoran Group, a real estate company.
According to real estate broker Kory, home builder Lee and Remodeling Magazine, here are the home improvement projects that offer the biggest payoff. (View our chart below for a breakdown of the numbers.)
Replace Roofing and/or Siding
How appealing is a home with new, stainless steel kitchen appliances if it has a leaky roof or dilapidated siding? Roofing and siding replacements aren't cheap; they'll set you back an average of $18,042 and $9,910, respectively, but you'll likely recoup 67.4% and 83.2% of those costs come selling time, according to Remodeling Magazine.
You'll also save yourself time and headaches later on by addressing these problems before they're discovered in the home inspection.
Add an Extra Bedroom
"Increasing bedroom count always increases value," says Kory.
Rather than knocking down walls or adding onto your home, try working with what you have. Converting a spacious attic into a bedroom, for example, costs an average of $46,691, according to Remodeling Magazine. That may seem steep, but by doing so, you can increase a home's selling price by $25,000 to $100,000, says Kory.
Add Closet Space
Extra closet space is also a big hit with prospective buyers. Use a portion of a large bedroom to expand an existing closet or create storage space in your attic or cellar. With $500 to $1,000, you can buy the materials at
Renovate the Bathroom
Updating the bathroom is essential if a seller wants a buyer's attention. A full bathroom renovation, however, including installing a new toilet, vanity counter and tub costs an average of $15,789 according to Remodeling Magazine, and typically recoups an average 78% of its cost.
To alleviate some of the expense, consider a partial renovation instead. "Partial renovations are sometimes much more cost-effective than a full renovation and the return is much greater," says Kory.
If the downstairs bathroom is shabby and outdated, for example, put new tiles on the wall. When shoppers come around, they'll feel as if they won't have to fix the entire bathroom if they buy the place, says Kory.
Upgrade the Kitchen
Does the kitchen still sport an avocado-green refrigerator? Then you're almost guaranteed to get a low-ball offer from a buyer.
Rather than ripping the kitchen apart in a full renovation a cost of as much as $100,000 in some homes, says Lee focus on smaller, more visible upgrades, such as installing new granite countertops and stainless steel appliances. "Keep your costs down and use a few high-end materials to make [your kitchen] look rich," says Kory. "Then you can get away with [not replacing the] sink and other [expensive-to-fix] areas."
On average, a minor kitchen remodel costs $21,185 and recoups 83% of its costs, according to Remodeling Magazine.
If you need to unload your home in a hurry, investing in energy-efficient upgrades, such as solar panels and a high-efficiency furnace, won't make sense.
Homeowners pay a premium for green upgrades and they won't see much, if any, of that investment returned during a sale, says Lee. To recoup the cost (mainly in the form of lower energy bills) of, say, installing solar panels requires a homeowner to stay in their home for years.
Nevertheless, it's hard to ignore the fact that such energy-efficient features "are of some importance to home buyers," says Gary Smith, co-author of "Houseonomics" and professor of economics at Pomona College in Claremont, Calif. And not all green upgrades cost tens of thousands of dollars, either. If your windows need replacing, install energy-efficient windows, which cost an average $250 to $400 each. You can boost your bottom line by at least 50% at the time of a home's sale, according to Lee.
Curb appeal is a powerful selling tool. But that doesn't mean you need to recreate the gardens of Versailles. Minor landscaping touches, like planting some flowers and mowing the lawn, are enough to make a yard attractive to buyers. Some other steps to consider: Replace or repaint the front door and mailbox. Spend no more than $1,000 on these projects and you can expect to recoup the full cost, says Lee.
"You only have one chance to make a good impression," says Lee. "When someone drives up to the house there has to be some eye appeal there."
Home Renovation Costs & How Much You'll Recoup
Average Amount You'll Recoup
Replacing the roof
Replacing the siding
Turning the attic into a bedroom
Extra closet space
Remodeling the bathroom*
Minor kitchen upgrades
Installing an energy-efficient window
up to $1,000
Source: Remodeling Magazine's Cost vs. Value Report 2007 & R. Randy Lee
* For a complete bathroom remodel. A partial bathroom remodel, as mentioned in the story, will cost less.
Corrected in this story:
We incorrectly used the words "return" and "return on investment" to describe the amount of money homeowners will recoup from home improvement projects.>