Homeowners remodel to work out the kinks that become apparent after living in a home for a few years—an awkward kitchen layout, an outdated bathroom or wasted attic space. Many others remodel with their eyes on the prize - the often increased value of their house.

Remodeling is more than replacing wallpaper or doorknobs. As the editors of Consumer Reports put it, "Redecorating is inconvenient. Remodeling is disruptive." Accordingly, the return on extensive remodeling can be substantial.

"If your home is one of the more modest offerings in your neighborhood, you can expect a strong return on your remodeling investment if you're bringing it up to the standard set by the homes around you," noted Duane Johns with Advanced Renovations. A house that lacks features commonly found in comparable homes is likely to linger on the market and may sell below its listing price.

However, if your house is already on the higher end, you may be remodeling more for your own comfort than for recouping your investment. Beware of "over improvement"—investing more than you'll ever get out and becoming the most expensive home in the area.

Crunching the Numbers

For almost twenty years, Remodeling magazine has been tracking the costs and added value of remodeling projects undertaken by U.S. homeowners in 60 housing markets. Here is what the latest report, issued in November 2005, revealed.

To start, projects are holding higher rates of return than they did in 2002. Consider, for example, these four midrange projects: bathroom remodel (102.2%, up from 87.5% in 2002), siding replacement (95.5%, up from 79.1%), major kitchen remodel (91.0%, up from 66.6%), and window replacement (89.6%, up from 73.8%). Overall, in 2005 renovation projects had an 86.6 percent rate of return, up from 79.1 percent in 2002.

According to the 2005 survey, new siding (upscale) had the highest overall return on investment, at 103.6 percent, with an average cost of $10,393. Second on the list was a minor bathroom remodel (midrange), which saw an average of $10,727 returned on an investment of $10,499. This was followed by a minor kitchen remodel (midrange), a project that returned just under $0.99 on the dollar.

To better understand the difference between midrange and upscale projects, note that the survey defines a midrange bathroom remodel as follows: "Update an existing 5-by-7-foot bathroom that is at least 25 years old. Replace all fixtures to include 30-by-60-inch porcelain-on-steel tub with 4-by-4 ceramic tile surround; new single-lever temperature and pressure-balanced shower control; standard white toilet; solid-surface vanity counter with integral double sink; recessed medicine cabinet with light; ceramic tile floor; vinyl wallpaper."

By contrast, an upscale bathroom remodel—which averages just over $26,000 and has a 84.8 percent return on investment—would entail expanding the bathroom to measure 9 by 9 feet and adding elements such as a custom dual shower with high-end fittings, a custom vanity with twin designer sinks, and a bidet.

Wise Investments

Spending more on a project or choosing a larger project over a less extensive one does not guarantee a greater return. The most expensive project on the survey—an upscale master suite renovation, with an average cost of $137,891—retains 80.1 percent. However, the least expensive renovation—a midrange siding replacement, with an average cost of $7,239—has a 95.5 percent return.

At the bottom of the 22 projects ranked were a sunroom (midrange, 74.5% return on average cost of $31,000) and a home office (midrange, 72.8% on $13,000). Adding a deck, another popular renovation, cost an average of $11,294 in 2005; homeowners recouped about 90 percent of that cost.

It's wise to research your local market, but take note of these national trends as well. Decks—the top-ranked project in the 2003 and 2004 cost return surveys—fell to ninth in 2005. The most recent survey also indicated that four projects formerly in the top 10 have dropped in the rankings of percentage of cost recovered: these are midrange window replacements (now in eleventh place), upscale window replacements (now twelfth), midrange bathroom additions (now thirteenth), and upscale bathroom additions (now fifteenth). Locally, custom-designed closets are gaining in popularity, and are now almost a necessity in most mid to upscale homes.

Where to Start

"Part of the fun in a renovation project is getting to choose new cabinets, flooring, or appliances," added Larry McAllister of The McAllister Group. "Try to balance your dream items with the overall scale of the project and the value of the house."

Know, too, that you need not spend a lot to make great changes. "If your kitchen needs new counters but you can't afford to replace them all with granite, opt for a granite-topped island until finances allow all surface areas to be re-done," noted Elaine Creasser of The Tile Collection.

The Big Push Toward Outdoor Spaces "If you wish to create more living space without adding on to your home, consider introducing a patio or deck to create an outdoor dining space," said Barb Markham of Markham Landscape Supplies.

"Redesigning outdoor space has the effect of adding square footage to a home's living area," said Mark Tarnowski of Charlotte Patio & Wall. Even a small yard, a welcoming space can be carved out with a small patio, hedges, a bamboo screen, or a trellis. Consumers looking to really extend their living spaces outdoors are finding a myriad of creature comforts.

"Patios and decks can now be decorated with year-round furniture, outdoor rugs, lighting and even outdoor appliances," said Kevin James of Kevin James Landscape. "But make sure the appliances are UL rated," advises Bill Pleasants of Plaza Appliance Mart. "The good news is, many homeowners are finding there are few limitations and nearly every appliance in the home has an outdoor counterpart."

Professional landscaping has a similar positive impact on a home. There are few home improvements that will actually increase in value over time, but professionally designed landscaping will.

Small Improvements. Big Impact.

Following the adage that you should not carry all of your eggs in one basket, consider several smaller projects instead of one large one. A spa-themed bathroom in the master suite is not likely to outweigh old flooring throughout the rest of the house or an ancient kitchen. Most homebuyers will look at the whole package and not just the standout features of your home.

Looking to make a few small improvements before you sell your home? Consider updating plumbing fixtures, improve indoor lighting, and add curb appeal by making changes to the entryway or landscaping. "Though these projects are too small to be considered renovations, they make a big impression," added Wanda Jackson of The Majestic Bath.

It's Your Home Sweet Home

Some renovations you've always wanted to undertake may not give the best return on investment, but don't pass up the features you've always wanted if you'll be living in this house for the foreseeable future.

"Unless you expect to be selling your home as soon as the renovations are complete, you are right to choose projects that suit you and your family, not a hypothetical buyer," said Rick Norvell of Absolute Remodeling. "The pleasure of a completed renovation is a reward in itself," Norvell added.

If carving a mudroom out of your garage will bring you sanity for several years to come, don't worry too much about its low percentage of return. When you choose a project that is very specific to your tastes or needs—like a wet bar with a mosaic depicting the Notre Dame Fighting Irish or a built-in workstation for scrap booking—be aware that you're unlikely to find a buyer who will find as much value in these as you do.

The savvy homeowner will find a balance between renovations that are urgent, those that are desirable, and those that are necessary for improving the value of the home.

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Article provided by and reprinted with permission from Urban Home Magazine (Issue: April/May/June 2006).

For an archive of this and other magazine articles, visit www.urbanhomemagazine.com