Smart Kitchen Makeovers

Dura Supreme

If you plan to pump money into a kitchen remodeling project in hopes of getting a higher sale price on your home, it’s likely that the percentage of return on your investment is going to be significantly lower than it was just a few years ago. In these tough economic times, sinking a bunch of money into a kitchen remodeling project makes sense only if you plan to stay in your house for a long time, experts say.

Even in good economic times, investment in remodeling a kitchen almost always represents a loss for homeowners even if you recoup a major portion of the cost when you eventually sell the home. But in this recession, you could lose as much as four times the money compared with 5 years ago if you plan to sell the home within the next few years.

For example, a report from National Association of the Remodeling Industry says that in 2005 consumers had the potential to recoup 91 percent of the costs for a major kitchen remodeling job. So, if you spent $43,862 on a project, you might realize $39,920 in added home value.

But today a kitchen remodeling project that costs $57,215 will translate into a resale value of only $41,260, according to an annual report by building trade publisher Hanley Wood. That’s a mere 72 percent return on investment.

Until the housing market rebounds—and nobody can say for sure when that will happen—shelling out money to remodel a kitchen requires more careful consideration and smart investments, experts say. Steven Donahue, who is a certified residential real estate appraiser in Virginia, tells Consumers Digest that although overspending on remodeling a kitchen in today’s market is definitely not a good investment, some investment is necessary if you want to have a good chance at making a sale.

If the goal is to sell, experts agree, the key is to remodel based on the standards of comparably priced homes that are in the immediate neighborhood—not below or even above those standards. For example, if nearly all of the other homes that are in your neighborhood that are of similar value have laminate countertops, spending $5,000 for new granite countertops probably isn’t worth the expense. But if most of the other homes that are in your neighborhood have granite, laminate countertops are going to put you at a major disadvantage when compared with those other homes.

All other things being equal, Donahue says, a house that has a kitchen that meets neighborhood standards will sell more quickly and in many cases at a slightly higher price tag than a house that has a kitchen that is below neighborhood standards. How much more it sells for when compared with other homes is dictated by the market, price ranges and that particular neighborhood, he adds.

Data from National Kitchen & Bath Association show that kitchen-remodeling spending in 2009 was $85 billion, which is a decrease of 30 percent from $122 billion that was spent in 2008. Kermit Baker, who is director of Remodeling Future Studies at the Joint Center for Housing Studies at Harvard University, says there are three main reasons for this: Financing for remodeling projects is more difficult to secure than in previous years; homeowners have less equity to tap than in previous years; and homeowners who seek to upgrade their kitchen before selling don’t want to price their homes out of the market.