Life Times Newsletter

November/December 2003
Vol. 5, No.6


Move or improve?

Are you thinking about remodeling your home? You’re not alone.

Home improvement is a big business. In the State of the Nation’s Housing: 2002, the Joint Center for Housing Studies at Harvard University reports that spending on home additions and alterations soared to $99 billion in 2001, up 10 percent since its previous peak in 1996 and up 62 percent since 1991. This trend is growing rapidly as the U.S. housing stock ages. The National Association of Home Builders expects that during the next 10 years, the remodeling market may exceed the market for new homes.

A home is the single largest investment for most people, so it’s important to consider the resale value of any home improvements. Looking at new homes, reading about what people are looking for in a home and identifying housing prices and trends in your neighborhood can help you make remodeling choices that are good for you and for resale.

If the homes in your neighborhood are selling quickly and rising in price, you may get more than the average return on your housing improvements. However, if prices in your neighborhood are stable or in decline, it isn’t likely that you’ll recover your remodeling costs when you sell the house. Compare the cost of updating or adding on to your home to the cost of buying what you want in another home. Remodeling is custom work and expensive. It may be more cost-effective to move to get what you want.

Determine the market value of your home before you do any alterations. If you bought your home 10 years ago for $100,000 and sold it at today’s market value of $150,000, you would have $50,000 profit. If you remodeled your kitchen and bath for a cost of $20,000 and sold your home for $170,000, your profit would remain the same—$50,000.

It is rare to be able to recover all the costs of remodeling your kitchen. In fact, Remodeling Magazine’s “Cost vs. Value Report,” published by Hanley-Wood LLC in 2002, estimates that kitchen remodeling recoups about 65 percent of its cost in the St. Louis area. This means that if you then sell your home for its market value of $163,000, you reduced your profits by $7,000 when you remodeled. However, if you live in the home for several years, you will probably think the convenience of a new kitchen and bath is worth the cost.

The “Cost vs. Value Report” outlines the costs of specific remodeling and home improvement projects and the estimated percentage return in various markets should the house be sold a year later. The chart below shows the estimated percentage return on common home improvements in the St. Louis market. (For the complete report, visit http://www.realtor.org/rmomag.NSF/pages/costvaluedec02.)

Home Improvement Payback Estimates for the St. Louis Area

If you’re thinking about improving your home, here are some things to consider:

Sharon C. Laux, PhD
Housing & Environmental Design Specialist
LauxS@missouri.edu


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University of Missouri Extension Editor: Roxanne T. Miller
MillerRT@missouri.edu