HOME IMPROVEMENT PLAN OF ATTACK

Prioritize home improvements for maximum payback

By James T. Berger

Because maintaining and improving a home today is such a major financial challenge, most homeowners are sitting on a long wish list.

One way to prioritize projects is to use a business model and treat projects as businesses treat investments by determining economic payoff or return on investment. This can be measured two ways: from savings that can be realized immediately from the improvement and by increased value to the home that will result when the house is put on the market.

"One way to prioritize these improvements would be to determine how long you intend to remain in the house," said Richard J. Roll, chief executive of the Stamford, Conn.-based American Homeowners Association. "If you anticipate selling the home within a few years, you might be wiser to make improvements that will make your home more marketable and pay off in terms of a higher selling price."

Make Choices

Roll gives an example of choosing between a new bathtub and kitchen cabinets. "Both are good investments," he said. "I suspect that most people would choose the kitchen cabinets even though they would get a better return on investment from the bathtub."

Jeffrey Johnson, director of Philadelphia-based AAA Home Services Network, a national effort of the AAA motor club, said he believes in "practical" home improvement alternatives.

"I tell people to think in terms of what makes the most practical sense," he said.

At the top of Johnson's list are energy-related improvements such as insulation and storm windows. "These improvements give an immediate payback in terms of comfort and energy savings and add nicely to the long-term value of the house," he said.

Johnson likes popular kitchen and bathroom improvements, even though they don't provide the immediate payback of energy-related projects. "These improvements add to the aesthetic value of the home, and such improvements have a high perception of value by an eventual buyer," he said.

Cost vs. Value

For those seeking a quantitative analysis of home improvement return on investment, Remodeling magazine's annual "Cost vs. Value Report" provides the last word. This in-depth survey evaluates a dozen types of improvements and provides regional and market-by- market analyses of the paybacks for each. Major variations exist. In the national average, for example, a bathroom addition provides a 72 percent payback, according to Remodeling magazine. In Baltimore, such an improvement provides a payback of only 46 percent, while in Seattle a bathroom addition produces a payback of 122 percent. The magazine obtained its data from surveys of real estate agents and appraisers in 60 markets nationwide.

They rank 12 categories in terms of payoff. Minor kitchen remodeling ranks No. 1 with an 81 percent "cost recouped." Bathroom additions rank second with 72 percent payback, followed by minor bathroom remodeling and the addition of a family room at 71 percent, and major kitchen remodeling at 70 percent.

The bottom-feeders in this national analysis were window replacement at 62 percent, deck additions at 54 percent and home offices, 50 percent.

Earning Greatest Payoff

In Chicago, a bathroom addition earns the greatest payoff. While bathroom additions produce a 72 percent return nationally, such an investment locally earns a 93 percent payoff. Nationally, the average cost of a bathroom addition is $13,918; in the Chicago area the cost is $15,588. In all 12 categories, home improvement work in Chicago is 12 percent higher than the national average.

Minor kitchen remodeling produces a 92 percent payback in the Chicago area compared with 81 percent nationally. The average cost for kitchen remodeling is $8,655 nationally vs. $9,694 locally.

Siding replacement, which nationally provides a 60 percent return, yields an 82 percent return in the Chicago area. The cost for siding replacement is $5,838 nationally vs. $6,539 in Chicago.

The most expensive home improvement, the second-story addition, averages $73,553 nationally and provides a 62 percent payback. In Chicago, the cost is $82,379 and produces a 58 percent payback. This kind of project is generally done by families who choose to remain in an existing home rather than move to a larger one.

Bedroom Improvements

The second most expensive improvement, the addition of a master bedroom suite, provides a better payoff in the Chicago area than nationally. The national price tag of this improvement is $42,826, and it produces a 68 percent payback. This work in the Chicago area will average $47,985 and produce a 77 percent payback.

Family room additions, another big-ticket item, gives a 77 percent payback in Chicago vs. 71 percent nationally. This type of project costs $30,960 nationally while in the Chicago area the cost is $34,675.

Another big-ticket project in which Chicago is below the national average in terms of payoff is major kitchen remodeling. Nationally, such projects average $31,090 and provide a 70 percent payback; in Chicago the cost averages $34,821 but only provides a 63 percent payoff.

In his preference for more practical improvements, Johnson likes porches and sun-rooms, especially ones that can be used year-round. He also like patios and decks. "A very good improvement is the patio or deck that is particularly close to the kitchen area where there is an indoor/outdoor daily living aspect," he said.

Roll suggests talking to a real estate agent before undertaking home improvements. "The Realtor who sold you the property is showing properties in your area all the time and has a good idea of what buyers are looking for," he said. "This is especially important if you are looking to sell your home in the near or immediate future."

10/29/2000
Chicago Sun-Times
SUNDAY HOMELIFE
Copyright The Chicago Sun-Times, Inc.

James T. Berger is a Chicago-area free-lance writer.

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