Is It a Smart Investment?

Washingtonians have seen their house values double or triple since the late 1990s. But the boom is slowing.

Gregory Leisch, CEO of the real-estate research firm Delta Associates, says two indicators—annual appreciation rates and amount of time houses are on the market—are returning to normal levels.

Homeowners who are considering putting more money into their houses—by adding on or renovating—may be concerned about the bubble “bursting.” Leisch says that “the term ‘bubble’ suggests there’s a disconnect between value and price, which isn’t the case in Washington.”

Remodeling magazine’s “Cost vs. Value” report, an annual study comparing construction cost against resale value, suggests that renovating still pays in Washington.

Renovation projects in Washington recoup more money than the national average in all 22 categories the report measures. In 20 of the categories, the value of the project at resale is more than 100 percent of its original cost.

“You can hardly go wrong in the Washington area investing in your house,” says Sal Alfano, author of the report and editorial director of Remodeling Magazine . “Washington is one of the hottest markets in the country.”

In other parts of the country, you’d recoup about 90 percent of the cost of a new deck when you sold, according to the report. In Washington, you would get back 116 percent. These figures, provided by real-estate agents and appraisers, estimate resale value within a year. Most people stay in remodeled homes longer, which in a market like Washington’s means greater appreciation.

Alfano says to remember that the figures are averages. One example is adding a bathroom. Although the report says a $22,700 bathroom would add $27,000 to a home’s value, or about 120 percent, he says it depends on the neighborhood. If most of the houses in your area have two bathrooms and yours has one, adding a bath is a smart investment. If you already have two bathrooms and add a third, the return on investment might not be as high.

Area real-estate agents agree that home­owners almost always get value out of remodeling, but there are exceptions. “You have to know the difference between what buyers want and what you want just for fun,” says Donna Evers, of Evers & Company Real Estate.

Evers recalls one family that transformed its dining room into a billiards room. “It was an elegant center-hall Colonial in a traditional neighborhood that should have sold quickly. But potential buyers just could not get over the fact that there was a pool table right when they walked in.”

Swimming pools, which many buyers view as costly to maintain and dangerous for young children, also aren’t a plus for resale.

In the accompanying chart are Remodeling magazine’s findings—the value various projects, from minor to major, can add to Washington houses.

Reprinted with permission from the November 2005 issue of Remodeling magazine. Hanley Wood. All rights reserved.