The Truth about Adding Value through Remodeling!
By Jerry Spumberg - The DIY Coach
Published: August 16, 2010
The numbers don’t lie!
Telling the truth with directness is not something that is often done in advertizing. Many articles written for periodicals, special topic magazines, and books often have a position that editorializes and manipulates the content so that it appears in a favorable light and defends the author's point of view. Television programs and websites do the same and I am no different. My perspective always comes from the point of view of the investor/builder constructing a project for myself when addressing you. Not only do I want the project to satisfy our needs, I want it to make financial sense.
You can find DIY shows that show you that anyone can almost do anything and others that show you the poor results of projects so bad that they had to demolish the work and start from scratch. In the first case, you have a personable professional guiding and working with a homeowner in what seems like fun. In the second case, you have a rough around the edges, frustrated, and angry hands-on builder telling the viewer how terrible and shameful the person who did the original work should be of the resulting project, whether a professional or DIYer. He then goes about redoing the project right. This all makes for great television and video by using extreme situations, but does not always represent most realities. There is a lot more that takes place than you see within the ½ to 1 hour of a TV show.
If you have visited www.thediycoachusa.com, you have learned that our point of view is this: a knowledgeable professional working with you can save you a ton of heartache and even add more value to your home than you spend, similar to what is sometimes seen on TV. In addition, our method not only helps you learn and decide what is best for you, but also puts you in control from the conception of the project to its finish. Remember that builders and skilled tradesman spend years to learn their craft, spend a ton of money to own the best tools, and are learning new techniques for new materials all the time. What parts of the project you will do should require an open mind, careful consideration and a discussion with a professional before you make final decisions. A seasoned professional will fill the gaps in your knowledge and avoid the frustration that many DIYers encounter from mistakes.
If you Google search the internet for the Cost vs. Value Reports that is published in Remodeling (a trade publication by Hanley Wood), you will find what the industry knows about Cost vs. Value as it relates to remodeling projects done by contractors. This publisher is one of the most trusted sources of information for us in the construction industry. What you will find is that these studies have been done each year, are broken down by regions, and into midrange and upscale price ranges for most of the remodeling projects you could consider. You will also find a link on our website next to "Nine Facts that Can Save You a Bundle" to the studies. The "Reports" will show you that for most projects when you hire a contractor, the return is about 60-80 cents for every dollar you spend.
One professional publication states: "that over the last few years of tough economic times that the growth of the owner directly participating in the contracting of trades and often in the work itself has reached 67% of all home repair, maintenance and remodeling project". Over the last two decades, DIYers have become a growing sector of home improvement for several reasons. These include the growth of the big box home improvement stores such as Lowes and Home Depot, the willingness of wholesale distributors to sell to them, instructional television networks and shows dedicated to home improvement and residential real estate. A massive amount of publications, videos, and websites supply additional How To and product information.
More recently, a new category of help is available: people like me who will work side by side with you, your family, and your friends to take away the risk that DIYers might stumble into because of the lack of knowledge, skills, and the right tools. This has been fully covered in a five part series about Remodeling Coaching that can be found within archives of this blog or in a down loadable form at www.remodelingreports.com. What this article is about is can you really increase the value of your home by an amount greater than you spend the same as a builder or remodeling contractor? We will let the numbers speak for themselves.
The industry standard for marking up a project is between 50-67% over costs. Again, go back to the links at our website next to the "9 Facts" mentioned before and click on the title of the articles to confirm the numbers. These markups are necessary and not unreasonable if a remodeler wants to stay in business and make a profit. Office and staff overhead, insurance, equipment costs, advertising, selling commissions, plus the return on invested capital are all part of a company's markup. For most companies, the project's supervisor is charged as a project cost and is not included in the markup. However, some companies include the supervisor as part of management overhead. Every successful company develops their own formula to calculate a selling price, but the averages are good enough for this exercise. Remember, the costs just mentioned are company operational costs that are added to your price when you hire a general contractor over and above the costs that take place at the site.
The point of this article is for those that are willing to participate, the Do It Yourselfer, there is a better and more financially sound way to go. They can manage their own project with a little help and eliminate most of the costs mentioned above.
According to the Cost vs. Value study of 2008-2009, a midrange major kitchen remodeling project that sold for $56,611 would add $43,030 or 76% of the dollars spent. Simply put, you would have added $13,581 less value than you would have spent. So the next time a builder runs an add on television that points to your home and home remodeling as a good investment by adding value to what may be one of your largest investments, think about the bank paying you back 76% of what you deposit. Not a good deal is it? However, there is a way of keeping your cake and eating it. You will just need some help in a collaborative effort to chart your course and sail your ship. Using the numbers above, I will show you why.
If a builder doing this project for himself removed a 50% markup that was added to the kitchen project above, that would result in his hard on site cost being $37,929.37. If the markup removed was 67%, his hard on site cost would be $33,900 or $22,711 of less spent dollars. The range of dollars added in value in this extracted example is from $5,101 to $9,130. If you really want to understand the change, add the $13,581 to the range above to understand the turn-a-round from lost value to more value added. How about a Wow!
This is just the tip of the iceberg to increase residential real estate value. There are many other factors that come into play and I could probably write several books and not cover them all. Some of those factors have to do with designing for your local market, the location and characteristics of the property, and your desire to maximize the value added. Most projects are a balancing act between what you want, what you need, and what you can afford. Oh by the way, talk to your accountant about the tax advantage when it's your primary residence when you someday sell. It's another Wow! Whether you hit a home run and add double the value to what you spent (I have had projects with that unusual result), have the results shown in the mathematical example above, or have less value added to your home than you spent is dependent on all the factors that go into a project and your choices. It's all up to you!
In addition, as you participate in the administration you may be willing to be involved in some of the actual work and you will add even more value to your home. I'm always finding another project around my own house and if not, my wife will find it for me. You can gain most of the advantage that I and others in the trades have because you can do it for yourself, but you don't have to do it by yourself. The reason a professional builder has an advantage over the DIYer is because of his or her recognition by venders and trades people, expertise, and experience that attract other professionals. All who contribute to a project prefer a project that is well run by a knowledgeable person and they price accordingly. If you have someone in your family or a friend who is qualified and has been successful in the construction industry, ask them for support through the entire project. If not, find a Coach. This will give you the same advantages of a builder. If you are within the areas I serve in New Jersey, call us, but first spend time on our website and blog.
The numbers don't lie! In these uncertain times, it makes absolute sense to take charge of your next home improvement project!
One last point: if cost and the return on investment is not a concern to you but you time is, then hire the best builder you can find, not the cheapest. You want the one who will put in the expert supervision, coordination, and oversight that is needed for a quality project and deliver it at a reasonable price.
May the Coach be with you,
Coach Jerry
