Cost vs. Value Report

What's the payback for remodeling?
Remodeling Magazine compares cost with resale in 60 markets. Every year since 1988, REMODELING Magazine's Cost vs. Value Report has compared construction costs for many common remodeling projects with the value they add at resale in 60 U.S. housing markets. This year's Report has all 15 legacy projects (formerly, 10 were surveyed each year in rotation), plus the "upscale" versions of 5 projects introduced two years ago.

Where They Get the Data
Cost data for this most recent report came from HomeTech Information Systems, a remodeling estimating software company in Bethesda, Md. They collected the most current cost information that was available on a quarterly basis from a national network of remodeling contractors, and applied certain adjustment factors based on regional pricing variations. Constructions cost figures include labor, material, sub-trades, and contractor overhead and profit.

Resale values ("cost recouped") are aggregated from estimates provided by members of the National Association of Realtors. E-mail surveys containing construction costs and median home price data for each city were sent to more than 20,000 appraisers, sales agents, and brokers, yielding data from more than 1,600 respondents (an 8% response rate).

What Do the Numbers Mean?
If some cost figures appear too high or too low, one cause is the leveling effect of averaging. High demand for remodeling services in parts of a given metro area may have driven prices higher, but is often countered by lower demand and lower prices in another part of the same city. Also, seemingly small differences in size, scope, or quality of finishes can dramatically affect final project cost.

Averaging also tends to affect the "value" side of the equation. In actual real estate transactions, the amount recouped for a given remodeling project is definitely influenced by the condition of the rest of the house, as well as the neighborhood or comparable priced of similar homes nearby. The rate at which property values are changing in the surrounding area can also have a dramatic effect on resale values. Location in an urban, suburban, or rural setting also affects a home's value, as will the availability and pricing of new and existing homes in the immediate vicinity.

In some cases, the value of the remodeling project at resale was more than 100% of its original cost. This happens in markets where property values are rising rapidly, but can also happen when buyers regard certain types of remodeling projects as "standard."

For details concerning the cost and scope of each project, visit Remodeling Magazine's web site at www.remodeling.hw.net.

Copyright 2006,
Little Big Mouse, LLC.