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Does Remodeling Make Economic Sense?

Anyone visiting a weekend open house knows that most for-sale properties today have been “staged” to show them at their best and most appealing. Some would-be home sellers have wondered whether it might be better to go one step beyond staging and do a remodel of their home to increase its value. After all, who’s not impressed by a brand new, state-of-the-art kitchen and bathroom?

The remodeling industry chalked up sales of more than $340 billion in 2017—a 7.5% increase from the previous year.

Are these homeowners onto some financial secret? Can remodeling increase the value of a home?

The simple answer is yes. But it is unlikely that spending money on a major remodel will translate into a high enough sales price to justify the expense. According to a recent survey completed by Harvard University’s Joint Center for Housing Studies, the average recovery of remodeling costs is 56%. It means that spending $20,000 to update an older kitchen to a shiny new one will increase the value of the home by only about $11,200.

Some improvements may offer better numbers. Replacing and modernizing essential items, such as garage doors and windows, can give a return of 75% of their cost. Interior projects tend to have less favorable returns. For example, adding a master suite may increase the value by 56.6% of its price. This represents a 14.7% drop from the previous year. Significant kitchen upgrades return about 56%, down 10.9% from last year.

Reining in the cost and extent of remodels can provide better returns. A minor kitchen update can return up to 81% of its value. Bathroom tune-ups are much the same. Buyers respond favorably to appliances and fixtures that are functional and new.

Many homeowners, aware of rising interest rates and prices, are turning to remodeling to avoid a move. Choosing to spend money to make their homes more livable and attractive over a more extended period, not so much for resale value.

If you are contemplating a remodel, you should decide whether:

  • you are hoping to increase the value of your home for resale in the immediate future,
  • or whether you merely want to make your property more livable over a more extended period.

If you are planning to sell, you should think twice about spending the money, since you will only get a portion of it back in the form of a higher sales price.

Source: TBWS

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PHONE: (303) 649-1245

FAX: (888) 752-8254

ADDRESS: 10700 E Geddes Ave, Suite 155 Englewood, CO 80112

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Terms and Conditions Apply. HOUZ MORTGAGE RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet Houz Mortgage’s and/or investor underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Rates and Terms are subject to change at any time without notice and are subject to state restrictions. Licensed by the Colorado Division of Real Estate. Houz Mortgage loans are originated by Colorado Homesmartz, LLC DBA Houz Mortgage, NMLS # 1578407. (www.nmlsconsumeraccess.org)

Lowest rates are reserved for most creditworthy applicants; not all who apply will qualify for the top tiers. Rates and APRs are subject to change and may not be available at the time of lock or loan commitment. Interest rates are subject to potential increases over the life of the loan, once the initial fixed-rate period expires. APR for adjustable rate mortgages are subject to increase after fixed rate period and does not include 3rd party costs or prepaid interest. Please contact one of our Licensed Mortgage Loan Originators at (303) 649-1245 for a customized rate and payment quote.


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COVID-19 Update

March 12: Today, we closed Houz's Englewood office and asked everyone based there to work from home as a precaution due to COVID-19. Houz was prepared for this and is fully functioning during this time. Please do not bring any paperwork to the office and make alternative arrangements by calling (303) 649-1245 or by contacting your personal loan team until further notice.