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Posted: 6:00 a.m. Wednesday, Feb. 5, 2014

Is home remodeling worth it?

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By Clark Howard

Right now, renovating a home is much, much easier than it had been during the real estate bubble. But is it worth the money?

I recall back during the bubble how often I'd get calls from homeowners complaining they couldn't get a call back from contractors. The frenzy around housing values going up and up and up drummed up plenty of business for contractors at that time.

During the bubble, I even heard of contractors who were so successful that they wouldn't even give price quotes. The price would just be whatever it would be and you'd have to be in a position to pay it when the bill came due.

But that was then and this is now. Today, so many skilled contractors are available because they don't have enough work anymore. While some contractors I've talked to say they're doing fine, most are not overall. They will likely be much more negotiable today and willing to call you back.

So there are some real benefits on the cost side today, with contractors readily available and some of the materials used in home renovation being a lot less expensive than they were.

However, the average payback for a renovation has worsened over time. Historically, renovations never did pay back at a 1:1 ratio. For every dollar you put in a house, it might only yield 80 cents at time of resale. A moderate kitchen or bathroom redo had historically paid back about 85 cents on the dollar.

Yet today things are even worse. The latest numbers I've seen indicate the payback is more like 60 cents on the dollar.

That's why you never do a renovation to increase your home's value; you do it increase your enjoyment of the home while you're living in it.

There are two possible mathematical exceptions when it does make sense from a dollars and cents perspective to do a remodel.

First, I read in Money magazine that those people who locked into ultra low mortgage rates wouldn't want to lose those rates by picking up and leaving and getting into a new house and a new mortgage. So in those cases, the math is more favorable to renovate than it is to move.

Second, energy improvements like attic insulation or changing out the light bulbs can give almost immediate payback. That's like a no-brainer.

Keep in mind these pointers when you're hiring a home improvement contractor:

  • Be specific in writing about what the job you're hiring them for entails.
  • Thoroughly vet their references before hiring them. Ask for the names and numbers of people on the last 10 jobs they did. Find out what they did for those people and pay attention to the start and finish dates.
  • Be cautious with money you pay upfront. If possible, pay the supply houses directly.
  • Renovate only to enjoy your home, not to make money.

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