Renovating Your House

After several stagnant years, the market for remodeling and renovation projects is showing signs of strength. The Remodeling Market Index, compiled by the National Association of Home Builders, jumped from 45 to 50 between the second and third quarters of 2012, reaching its highest level since 2005. The housing market also is heating up. The National Association of Realtors reports that sales of existing homes rose 14.5% between November 2011 and November 2012, while the median home price gained 10.1% over the same period.

So what do these numbers mean to you? Well, they could help you decide which home remodeling projects will offer the most bang for your buck when it comes time to sell.

Very few homeowners completely recover the costs of their remodeling projects when they sell their homes. In 2012, the average cost-to-resale-value ratio for remodeling projects was 57.7%, according to the Remodeling Cost vs. Value Report 2011 to 2012 , from Remodeling Magazine. So, for each dollar that homeowners invested in a project, they captured 57.7 cents when they sold their homes.

Obviously, this number will fluctuate with the economy and the housing market in your area. For example, in 2005, the magazine stated that the average cost-to-resale-value ratio topped 80%.

Moreover, it becomes more difficult to recoup the costs of projects completed many years before a house is put on the market. The same holds true for projects that are out of sync with the home’s value overall — such as installing a commercial grade kitchen on a starter home.

Even if a project’s cost isn’t completely recouped when it comes time to sell, some renovations or upgrades may cut the length of time your house stays on the market. That’s particularly true if your home otherwise would lack certain features, such as a finished basement or outdoor deck, found on most other houses in your neighborhood.

Often, it’s cost-effective to focus on replacement projects. In part, that’s because these generally have lower price tags than larger undertakings, such as completing an addition. What’s more, many replacement projects can give your home’s curb appeal an immediate boost, which helps get buyers in the door, translating to a higher sale price. For instance, the Remodeling Cost vs. Value Report indicates that the midrange project most likely to hold its value at resale time is replacing a steel entry door, allowing homeowners to recoup an average of 73% of their costs. Among upscale projects, fiber-cement siding replacement leads the cost-to-sale value list, at 78%, according to the report. Other top projects include garage door and window replacements.

Projects that make existing space more usable also tend to do well at resale time. The report indicates that homeowners who convert an attic to a bedroom recover some 72% of the costs, on average. Minor kitchen remodels, such as installing new appliances, countertops, and cabinet fronts and hardware, also tend to be well received by prospective buyers, enabling homeowners to recoup 72.1% of their costs.

Keep in mind that few remodeling projects can compensate for a structure that hasn’t been properly maintained. Although prospective homebuyers may “ooh” and “aah” over marble countertops, many will hesitate to place an offer if the furnace isn’t working properly or the roof leaks.

Of course, the resale value of a specific project will depend on the value of your home, the housing market in your area and the cost of the project itself. You’ll typically recover more of the costs when you complete replacement projects that are appropriate for your house and neighborhood. •

Not every home improvement project has to come with a hefty price tag — simply stripping outdated wallpaper and repainting a room can be a fairly quick way to gain a fresh look without breaking the bank. If the carpets look dirty, but are still in good shape, have them professionally cleaned. Rather than redoing an entire bathroom, spiff it up with new paint and updated hardware and lighting.

Of course, cleaning and decluttering the house is critical if you want to make a home attractive to potential buyers. And these no-cost steps are fairly easy to do.