28 December 2009

Consumers More Circumspect On Home Remodeling Projects

Chicago Tribune

'Twas only a few years ago, when the housing boom was in full roar, that homeowners didn't have to fret too much over whether the money they invested in remodeling would be paid back at resale time.

Indeed, it was practically a no-brainer: Home sale prices were going up so high and so fast that remodeling the kitchen or the master bath would nearly pay for itself. Some remodeling companies had so much backlogged work that clients passed the time on waiting lists.

"These days, it's a new ballgame," said Sal Alfano, a former contractor who now is the editorial director for Remodeling magazine, a trade journal. "Now, the jobs are smaller, the scope of work has been cut back, and consumers are doing things in phases."

And, he said, consumers are squinting harder at contractors' estimates, not only to push down costs but also to decide whether the price of that redone kitchen or master bath is going to pay them back anything when it comes time to sell in a market that has become notoriously fickle and with home prices sliding.

Such born-again cost-consciousness makes complete sense in the current economy, Alfano said, but he's concerned that the infatuation with the contractor who offers the lowest bid will come back to haunt consumers.

Each year, Alfano's magazine partners with the National Association of Realtors to produce the Cost vs. Value Report, a massive numbers-crunch that tries to ballpark the return on investment for dozens of home-improvement projects, nationally and regionally, in addition to numerous metro areas, including Chicago.

It's an ongoing slide, he said. Nationwide, the payback at sale on remodeling, in general, peaked in 2005 (the height of the housing boom) at 86.7 percent, according to the magazine survey of the remodeling industry and NAR members.

"That is," he said, "it was costing you 13 cents on the dollar to build just about anything (if you were selling the house in a relatively short period).

"That's pretty cheap," he said. "Then it sank like a rock, ending up at 76 percent, or 10 points lower than the year before."

In the 2009 survey, the average payback, nationally, was about 64 percent, according to magazine data.

That's almost exactly the average for 33 remodeling projects analyzed in the Chicago area in the 2009 survey, including kitchen remodeling, bathroom remodeling, decks and sunrooms. Heading the costs-recouped list here were not the glamour kitchen/bath projects, but smaller-scale and more utilitarian jobs.

The best returns here, according to the report, were on midrange entry-door replacements (115 percent return at sale) and upscale fiber-cement siding replacements (85.8 percent).

The magazine extensively defines the parameters of each project, citing specific materials and overall price ranges, all gleaned from cost-estimating software used in the remodeling industry. In addition, this year 4,000 members of the Realtors' group weighed in on how the improvements might pay back at resale in their local markets. The full report is at remodeling.hw.net.

A midrange major kitchen remodel in Chicago (average cost: $67,332) recouped about 67 percent at sale time. An upscale bathroom remodel here ($63,402) recouped about 50 percent, according to the study.

Despite the data, not all consumers are reining in and battening down, some remodelers say.

"For the people who have the ability and want to do a kitchen remodel, I'm not seeing them skimping," said Bryan Nooner, chairman of Distinctive Remodelers in Orland Park.

"Pretty typically, we're seeing kitchen remodels in the $40,000 to $70,000 range. They're spending what they want to. They still want the granite (counters), they want upgraded wood-cabinet species such as maple or cherry, and we're doing few standard wood stains -- most everybody wants a hand-rubbed finish."

One of his recent clients, Frank Toland, said resale value wasn't a consideration when he recently remodeled the kitchen of his Mokena home. He said the job cost about $70,000, in addition to upgrades elsewhere in the house that were done at the same time.

"Resale really didn't factor in at all," Toland said. "We're not planning on moving. We're planning on staying there, and that's why we decided to do it the way we wanted.

"We hope that the money we put in, eventually we'll get it out. But we said, let's do it the way we want it done rather than cut costs because of resale value."

Matt Draus, who owns Descon Construction in Oak Park, also said he's hearing from customers who are thinking long term.

"We see people who have a little bit of money and decide they're not going to move for five years because of the real estate market," Draus said. "But we're not seeing the big blowout room additions."

Instead, he said, he's seeing smaller projects and more emphasis on maintaining and updating existing features -- jobs that require handyman services.

But more so than in recent years, he said, money talks.

"Cost is definitely getting much more scrutiny now," he said. "It's all about cost, that's a No. 1 priority."

But Draus said that bottom-lining often seems to be coming at the expense of quality. Driven by the slumping economy, the home remodeling-industry ranks are swollen with newcomers and some tradespeople who are eager to have any income at all, he said.

"I'm [offering estimates] against people who aren't honest and upfront and are low-balling it in order to get the work," he said. "There are a lot of good builders out there, but there are a lot of others who are making times harder for the rest of us."

Alfano agreed, and urged homeowners to be cautious when considering bids that are significantly below competitors'.

"What we couldn't account for [in estimating costs for the magazine study] was the number of  home remodeling jobs where the contractor cut his overhead or his profit just to keep busy, hoping that things would turn around," Alfano said.

"Others are former new-construction builders who don't yet know that they can't really do a job for a large percentage less" than competing bidders, he said.

Draus said he's seeing some companies agree to jobs that unquestionably are money-losers for them, just to keep some cash flowing, sometimes with disastrous results for all.

"[A homeowner] might get a bid of $1,000 from a guy who's about to go bankrupt or a $3,000 bid from a guy who is competent and stable," he said.

"I've been called in to finish jobs for people who took the $1,000 bid," he said.


    The national average percentage of remodeling costs recouped upon selling a home. That means it costs 36 cents on the dollar to build just about anything for your home.

    In the Chicago area, the best returns were not the glamour kitchen/bath projects, but smaller-scale and more utilitarian jobs.


    Return on sale for replacing an entry door with a midrange substitute


    Return on upscale fiber-cement siding replacement


    The average payback on a midrange major kitchen remodeling project


    What you'd recoup on the average upscale bathroom remodeling project

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