Will your remodel pay for itself?

Open a window and you may hear the sound of the nationwide remodeling boom in your own neighborhood.

The sound of pounding hammers and electric saws are partly due to a shortage of homes for sale. Without a new home to purchase, owners are remaking their current home to fit their needs.

That trend is reflected in a LendingTree survey which found that 72% of homeowners say they'd rather make improvements than sell.

The costs have risen, though. According to the "2022 Cost vs. Value Report" from real estate research firm Zonda, "material costs have increased across the board, and in some cases sharply." Moreover, labor shortages for skilled craftsmen are pushing costs up in some areas.

Exterior renovations make a big impact on buyers.

Approximate payoff

Given the heftier price tags, many homeowners will be hoping their improvement will increase the price their home will fetch at sale.

The Zonda Cost vs. Value Report surveys real estate professionals around the country, asking them to estimate the added value of what each of 22 different remodeling projects would likely add to a home. Data on local existing home sales, newly constructed home sales, and other stats are also included in the calculations.

Despite the careful methodology, the report stresses that "ROI" or return on investment, determinations are approximate. The size and scope of a project, the specific home, the quality of finishes, and other variables impact ROI.

Moreover, homeowners who are remodeling to enhance their own living - not to reap more on a near-term sale - shouldn't think of their improvement as an "investment," stress financial planners. (More on this later.)

Outside influences

While the Cost vs. Value Report can only provide general guidelines, one clear trend does emerge from the Zonda Report: Improvements on a home's exterior deliver the best payoff.

Of the 22 projects studied, 11 were exterior, and all rank within the top 12 improvements for boosting value.

At the top, for instance, is replacement of the garage door, with 93.3% of the cost likely to be recaptured in a sale. Next is manufactured stone veneer accented siding, with a 91.4% return of the cost. In third place is a minor kitchen remodel, the only non-exterior project in the top 12, with a 71.2% of cost recaptured. Fiber-cement siding replacement, followed by vinyl replacement windows round out the top five.

Twenty years ago, the top five projects were all inside. A midrange bathroom addition, a two-story addition, an upscale bathroom addition, and a major kitchen remodel were 2002's top five projects for adding a higher sales price.

Exterior improvements have gained more punch because buyers shop online first, and "most portals feature an image of the front of the home as the first image," says Kent Rodahaver, NextHome Southe Pointe, St. Petersburg, Florida.

Francine Viola, a Coldwell Banker Evergreen Olympic (Washington state) agent, adds, "buyers are doing more drive-byes, and checking out the property before getting an appointment to see it."

A kitchen home improvement project will likely have an excellent return on investment.

Local opinion

Although exterior projects rank highest in the Zonda Report, interior projects also boost value.

Real estate agents who are experienced in the conditions of comparable homes in your neighborhood often offer their insights to a homeowner.

In fact, some projects may be necessary for a home to sell on a par with the comparable, well-maintained homes in their immediate area.

It's important not to "under-improve or over-improve" compared to the standards in your neighborhood," says Warren Boizot, owner of BLGAppraisalGroup, Denver. He also suggests that homeowners who are concerned their project is appropriate for the neighborhood hire an appraiser (cost might range from $600 to $1,000) before beginning.

Exterior renovations make a big impact on buyers.

Personal pleasure

Practically speaking, no one wants to lavish big sums on a remodel that doesn't positively impact value. But at the same time, owners who are remodeling to live better and enjoy their home more, are reaping a value that's not quantifiable in dollars, points out Florida financial planner Dan Moisand.

As long as you're not spending so much that you compromise your financial stability or long-term goals, like retirement or college savings, "then go for it," agrees Atlanta financial planner Jacqueline Schadeck. However, she notes that if owners do view their home as an investment that they want to profit from, "you probably wouldn't make a bunch of improvements if they're not going to bring you a substantial ROI."

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