How to Calculate the Return on a Home Renovation
Thinking of remodeling to raise your home value? Do thorough research before you go ahead with a home addition or improvement, because calculating return on investment for remodels is complex and inexact. Once you establish a firm cost estimate for your home remodeling project, consider the payoff in terms of both personal enjoyment and real estate value to reach a rough estimate of the return on investment. Seek local anecdotes, as well as expert advice and reliable figures. And remember the No. 1 real estate rule: Home value always depends on location, location, location.
Where to Research Before Remodeling a House
The annual Cost vs. Value Report is the most reliable and widely used guide for estimating return on remodeling investments. Hanley Wood and Remodeling Magazine publish the guide based on surveys conducted with members of the National Association of Realtors. The surveys ask about the changes in anticipated resale value based on specific remodeling projects. The results are tallied and listed as national and regional averages. The top national projects, according to the 2018 report, are:
- A $3,470 garage door replacement, which is estimated to recoup $3,411 in boosted resale value.
- A $8,221 manufactured stone veneer installation, which will increase resale value by $7,986.
The poorest return on investment comes from building a backyard patio, which recoups less than 50 percent of the cost.
Pay attention to the cost estimates for each project on the Cost vs. Value report. Not all remodels offer the same home resale value. A new countertop will raise the home value, but a granite countertop may be nearly as valuable to a buyer as a much more expensive Italian marble countertop.
Regional Value Differences in Home Remodeling and Additions
In New England window replacements are worth more than in most other regions. On the Pacific coast, ROI on a master suite addition is approximately 10 percent less than the national average. Within regions and even within cities, there are further variations. Consult experienced remodelers and local real estate agents about the most popular and valuable projects in your area. Their estimates and experiences may differ from the Cost vs. Value report.
For example, Denver builder and remodeler Ben Maxwell disputes the report's estimate of high returns on basement remodels in the Rocky Mountain West. He said the average suburban Denver home has plenty of living space on the main levels, and a fancy basement won't draw much attention. However, he said decks and other outdoor areas can be a major draw in Denver, sometimes offering a return on investment above 100 percent. "Creating an outdoor living space is huge," Maxwell said. The average for the region is likely brought lower by other mountain states such as Montana or Arizona, where a harsher climate reduces the value of a patio or deck.
The Cost vs. Value report provides valuable estimates for the return on investment of a variety of home improvement projects, but be sure to adjust the numbers based on local expertise.
Updated March 14, 2018.
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