The 2008-2009 Remodeling Magazine Cost vs. Value Report, the latest in an annual series researched and compiled in cooperation with Realtor Magazine is the most detailed and authoritative study available on the payback of various home-improvement projects. This year’s report contains good news and bad news. The good news: You’re likely to get back approximately 65 to 85 cents of every dollar you spend on remodeling - depending on the nature of the project and where the house is located - when you sell the home. The bad news: As home prices continue to decline nationwide, the payback on most remodeling projects is lower than the year before.

 

And the report contains another sobering observation: The value of any home improvement starts depreciating the moment the project is completed and continues to do so over time. Does this mean that remodeling now is a bad investment?

 

The data-rich Remodeling Cost vs. Value Report studied 16 typical remodeling projects, including room additions, kitchens and baths, finished basements, windows, siding and roofing replacements. It posited job costs for mid-range and upscale versions of each project in nine regions of the U.S. and survey real estate agents nationwide on the resale value of each.

 

Parsing the data, we come up with some interesting observations:

 

Projects that improve a home’s curb appeal tend to offer the highest payback:

 

Siding replacement . . . . . . . 80% to 87%

Window replacement . . . . . 77% to 80%

Roofing replacement  . . . . . 63% to 66%

 

Among remodeling projects of existing spaces, the following offer the best payback rates:

 

Kitchen remodeling . . . . . . . 76% to 80%

Bathroom remodeling . . . . . 75%

Basement remodeling. . . . . .73%

Attic finishing . . . . . . . . . . . . 74%

 

And among home additions, these projects offer the best payback:

 

Deck  . . . . . . . . . . . . . . . . . . . 73% to 81%

Second story . . . . . . . . . . . . . 71%

Master suite . . . . . . . . . . . . . 66%

Family room . . . . . . . . . . . . . 66%

Garage  . . . . . . . . . . . . . . . . . 60%

 

 

Where ranges are given in the payback statistics above, the results are for midrange and upscale versions of each project in terms of cost. In general, lower-cost and midrange projects offer higher payback rates than upscale approaches. For example:

 

Minor kitchen remodeling pays back costs at a higher percentage upscale makeovers

Midrange kitchen and bath remodels pay back a higher percentage than upscale

Vinyl replacement windows pay back a higher percentage of the cost than wood windows

 

But there are some notable exceptions:

 

Fiber cement siding replacement offer a significant payback advantage over vinyl

Wood decks offer a significant payback advantage over composite decks

 

You can play with the numbers infinitely to develop different concepts of the impact of remodeling on the value of a home. For example, a midrange bath remodel costing $15,900 pays back at rate 2 percent better than an upscale project costing $54,500. Which offers the better value? The midrange project offers a better payback, but the upscale project increases the value of the home much more. The upscale project also costs much more, especially if you’re financing it at 5 or 6 percent interest over a long period time.

 

The bottom line is that remodeling costs money, much of which you’re unlikely to recover as a direct result of the investment itself. But that doesn’t mean that remodeling isn’t a good investment.

 

Remember that you may be able to reduce the cost of remodeling by taking an active role in the project. Act as your own general contractor and save 10 to 20 percent of the total cost. Be a buy-it-yourselfer and save contractor markups on building products, fixtures and fittings. Or if you can deliver professional-quality work, do some of the construction yourself to save on hourly wages and GC profit and overhead.  Investing some sweat equity can dramatically improve the payback.

 

Despite all we can learn or infer from the Remodeling Cost vs. Value Report, home values are based on local and personal factors. Most a home’s value derives from its neighborhood, the quality of the local schools, the health of the local job market, and proximity to convenient transportation. Some of the value is based on the home’s size, especially the number of bedrooms and bathrooms. Here are some axioms that should guide your remodeling investment decisions:

 

To fetch top value in any market, a home must be maintained in good, serviceable condition. Damage and wear-and-tear should be corrected, but things need not be perfect.

 

Don’t build a $1 million home in a $500,000 neighborhood.

 

For the best value, ensure that all remodeling work complies with codes and is professional quality.

 

Houses tend to increase in value over the long term, which tends to neutralize the costs of remodeling projects aimed at preserving value and making a home more livable.

 

Borrow and spend only as much as you can afford to remodel a home to fit your needs, lifestyle and tastes.