High Value Home Additions

When my friend bought her home 15 years ago, instead of choosing the largest of three bedrooms for the master bedroom, she picked the smallest. Despite its diminutive size, it had a corner fireplace, a small bathroom, and was a few steps from their 3-year-old son’s room.

But now that little guy has become a big guy. And though they love to hear his rock group practicing in the evenings, they’re beginning to yearn for a private retreat–a quiet master suite where they can relax, read, or luxuriate in a hot bath away from the household hustle-bustle.

And they’re not alone. Nearly every new house that pops up is built with an elegant master suite. Clearly, the builders know what the buyers want, and a beautiful master suite is usually near the top of the list.

But here’s her dilemma: If she adds-on a new master suite, will she get a return on her investment if she sells the house someday? This is an important question, one worth asking before launching into any remodel, particularly if the work is being done with a higher selling price in mind.

Real estate professionals and trade publishers offer up statistics each year that help in sorting out answers. One of my favorites is a “Cost vs. Value” study published each year by Remodeling magazine, a trade publication targeted primarily toward professional remodeling contractors. This study compiles and analyzes data gathered from real estate agents throughout the country to determine both national and regional average returns on investment for various home improvements.

In hot real estate markets filled with aging houses, returns-on-investment are higher than returns in slower areas-and they generally exceed the costs of improvements. Hot markets include Honolulu, San Francisco, San Diego, Seattle, Minneapolis, Boston, DC, Birmingham, and Garden City.

Certain kinds of additions do much better in particular places. Building a deck in San Diego is a solid bet. Adding a second floor in Washington, DC offer returns around 91 percent. Then again, almost any major improvement in Garden City returns more than 125 percent of the cost.

But which improvements return more than others? Minor kitchen remodels are always a standout, but the national average for cost recouped is only 88 percent. In other words, in higher-end real estate areas, if you revamp cabinets, change-out appliances, and recover your floors, you’re likely to get your money back–and then some. But in slow-moving areas, you won’t. Bath remodels and major kitchen remodels are a close second.

Improvements such as adding a home office or replacing windows or siding are chancier. Your results will depend heavily upon where you live. The average cost recouped in Cleveland for replacing windows is under 30 percent whereas its closer to 110 percent in New Haven.

Of course, certain improvements give a house more curb appeal or help it to sell more quickly. Replacing shoddy siding on a house in DC or Chicago, for example, will not only boost the price by more than 120 percent of the job’s cost, but will make the house look more appealing to more buyers.

Then again, if you intend to live in your home for years, short-term return-on-investment figures don’t really matter. The longer you stay in your home, the longer you enjoy a higher quality of life because of the improvements you make. And you can’t put a price on that.