The Cost, Benefit and Return of Remodeling
Remodeling has and should be about improving the functionality and pleasure that a home delivers. If you’re going to remodel your kitchen, do it because it will make your home a better, more enjoyable place to live. Don’t remodel your kitchen simply to increase the value of your home.
Of course, there is a financial reality. Remodeling a kitchen will likely be one of the largest investments a homeowner will make. As such, it is important to understand the economics of remodeling.
Even in the best of times, when real estate prices were ever-increasing, the average remodeling project could be expected to immediately recoup between 80% and 85% of its cost. But, we all know that the past eight years have been anything but normal.
In fact until last year the Cost vs. Value (% of total cost immediately recoverable) of the average home remodeling project dipped below 60% nationally. Thankfully, with real estate prices stable and more often increasing, the Cost vs. Value ratio is on the mend.
According to Remodeling magazine’s 2014 Cost vs. Value Report, the Cost-to-Value of the average remodeling project rebounded to 66% nationwide. The survey offers more granular data for kitchen projects nationally and for the Lancaster and Harrisburg, PA areas as well as Mid-Atlantic and National statistics.
One word of caution – while the national data has a large enough sample size to offer confidence, the Lancaster and Harrisburg data likely is based on a very small sample, with a margin of error that could be as high as 10% to 15%. That being said, the message should be that homeowners need to be very smart when making choices for their kitchen renovation project if they want to recoup maximum value.
Maximizing the Return on Your Remodeling Investment
When thinking about kitchen remodeling strictly as an investment, start by evaluating the current value of your home. As a rule of thumb, you’ll maximize the return on a remodeling project if the cost stays around 10% of the home. For a $350,000 home, this suggests that you should spend about $35,000, if your primary goal is to immediately recover as much money as possible.
However, as the data from Remodeling magazine suggests, a $35,000 renovation budget will buy something substantially less than a full kitchen remodel.
So, what happens to the extra dollars that you spend? Well, obviously you get a return on the additional dollars, it just won’t be quite as much. Based on the NKBA data, the following returns can be expected.
Our advice is that if your dreams and budget can support a $70,000 kitchen renovation, and your goal is to improve functionality and enjoyment of the home for several years to come, then invest the extra money. This is especially true if you invest wisely in certain areas of the kitchen.
Valuing the Components of Your Kitchen Remodel
With budget in hand, you should focus on two variables to improve the return on your investment. These are the cost of the individual components and how others will value these items when it comes time to sell.
For example, you might fall in love with and purchase a $20,000 Le Cornue range, but don’t expect the majority of homeowners in Hershey or Carlisle to pay up when it comes time to sell. In our little part of the world, there’s a place for beautiful equipment like Le Cornue, but it’s usually in someone else’s home. My clients believe in luxury, but the word value definitely enters into the equation.
Does that mean you have to buy the cheapest range Rozman’s or Brubaker’s offers? Absolutely not! However, you’re going to get a better return on a $3,000 GE Cafe series range than you will on an $8,000 Wolf Range. What it comes down to is how much you value the Wolf features and brand. Over five years, the $5,000 additional cost for a Wolf comes out to $2.74 a day. It’s your choice.
Balance Personal Taste with Timeless Style
There’s a reason that every new construction model home you’ve ever visited is staged with neutral colors and a décor that is less cutting edge and more comforting. Remodeling a kitchen for ROI means that you’re trying to appeal to the widest possible audience.
With that as the goal, you’ll need to give up the lime green Caeserstone countertop for something more timeless like Carrara marble or even Uba Tuba granite.
Cabinetry Holds Its Value in the Long Term
Unlike appliances, investing in cabinetry provides one of the highest returns on your investment, especially if you measure it over a five or ten year span. As most HGTV home-flipping shows suggest, the first thing replaced in a kitchen is worn, out-of-style cabinets. Home buyers focus on the kitchen and they value updated, sturdy cabinetry.
Unfortunately, the cheap boxes that home flippers put on the walls won’t last more than a few years, requiring them to be replaced again. If you’re going to stay in your home for five years or more, the investment in solid-wood cabinetry pays off. Not only will quality cabinetry perform well, it will also hold much of its value.
The Real Return on your Kitchen Remodeling Investment.
Unless your remodeling project is intended to flip your home, you should strike a balance between functionality, enjoyment and the recovery of the cost of remodeling. In Central PA, it’s reasonable to assume that you’ll immediately recover between 60% and 75% of your remodeling costs. That return will improve over time if home prices continue to rise and you made smart choices when it came time to allocate your budget.