Cost vs. Value Report: Basics of This Industry Classic

Blindly improving your house is rarely a good thing. Home improvements that seem like a great idea up front often do not justify their worth in terms of your home's overall value. Home value is vital when it comes time to put the house on the market, and a great deal of that value is predicated on improvements that you make over time. But even homes that are not up for sale do need to maintain or increase their value. One of the best methods of judging the value of home improvements against cost is the annual Cost vs. Value Report.

What Is Cost vs. Value?

Cost vs. value is a general concept that seeks to strike the right balance between the cost of an action or item and its overall benefit. For example, if an item costs a certain amount yet has little overall value, that cost is not justified. For home improvements, some projects may cost a great deal and might even appear to be of high value. Yet when all factors are considered, these projects are actually of low value.

Garage conversions are a prime example of projects that typically have a very low cost to value rating. Costs are high because many sub-projects are involved, including electrical, flooring, insulation, lighting, and more. Yet from a resale standpoint, garage conversions have a very low value and may even have a negative value if the buyer wants to turn the space back into a garage.

The Cost vs. Value Report

The Cost vs. Value Report is an annual set of home remodeling estimates that has become an industry classic. Since 2002, Remodeling Magazine and its counterpart Remodeling Online, published by Hanley Wood, has created estimates of home remodeling projects against the background of their value. Every December, these publications come out with the Cost vs. Value Report for the preceding year, measuring the estimated average cost of remodeling projects across the United States.

Cost vs. Value Report pulls in an extensive amount of data from U.S. markets. The report is remarkable because project costs are difficult to estimate, particularly in relation to value. Regional differences add to the complication. Remodeling Magazine's Cost vs. Value Report uses figures gathered from survey responses from thousands of Realtors (members of the National Association of Realtors) and a publisher of remodeling cost estimating tools, RemodelMAX. This effort is coordinated by The Farnsworth Group.

Two takeaways for any homeowner intent on remodeling: All remodeling projects depreciate in value, and almost no projects return 100% on their investment. Remodeling projects decline in value over time for a number of reasons: trends change, technology improves, items break, and items wear down. Projects do not return their cost, and in most cases return far lower than their actual cost. Some of the projects we hold most dear to our hearts are the ones with the lowest percentage of cost recouped: namely, family room additions, bathroom additions, and primary suite additions.

Pros and Cons of Cost vs. Value Report

The Cost vs. Value Report is easy to use. Remodeling Magazine undertakes great efforts to make the report simple to comprehend. Parsing data from the report is fast. From year to year, the Cost vs. Value Report's graphics become even better at relaying information.

While many users may be only interested in the current year's figures, for researchers or data hounds, the Cost vs. Value Report has archive data that go back more than two decades.

It is impossible to quantify everything; some things are subjective. To that end, the Cost vs. Value Report also takes subjective factors into account when assessing home project values.

The Cost vs. Value Report notes that it can be deceptive to apply national or regional trends to the street- or address-level. But if your business deals with larger scale data, you can rely on the report's information and that it will be applicable to you.

It is important to keep in mind that this is an industry report, largely intended for those in the housing industry. Gathering data from a contractor estimating tool and balanced against perceptions by real estate agents, the report ignores do-it-yourself home remodeling. All remodel estimates take into account paid outside labor, no sweat equity allowed. Many utilitarian and lower-end projects that homeowners commonly contract out to spruce up their homes are not included, such as cabinet refacing, tub and shower refinishing, laminate and vinyl floor installation, and painting.

Finally, it can be dangerous for homeowners, contractors, or anyone to use Cost vs. Value Report numbers as a directive for which home improvements to do. For example, manufactured veneer stone is considered to have a very high cost vs. value rating. Yet stone veneer may not be appropriate for all homes. So it can be deceptive to start a project simply because it appears that it will help your home gain value.