As a real estate professional, I get asked regularly the following question…”what is a rough estimate to upgrade/replace/fix <fill in the blank> in my house?”. I love talking real estate. I am passionate using data and analyzing information to discuss options with people. I enjoy brainstorming home projects with people, and am good at providing insight to my clients on potential ways to modernize, change floor plans, and remodeling options on houses they own or are considering making an offer on. But, it is incredibly difficult to answer very specific question around cost estimates or ROI, primarily due to a huge range in quality of finishes, labor cost, unexpected costs, differences in people’s houses, individual ability to negotiate, geography, space layout, and myriads of other factors. I thought I would write a bit about this dynamic after I just read an article on Yahoo News on “what is the rough estimate of a Return on Investment of a specific home project”. The reason is all these various articles estimating ROI in the United States is not as relevant in the heart of SF Bay and in particular in mid-Peninsula cities where average condo/house sale prices is almost $800,000 and a small 3bd/2ba starter house that requires work in San Carlos, Burlingame, San Mateo, Foster City, Redwood Shores, Millbrae, Menlo Park, and Belmont surpasses $1+ million.
You can see in the article that states the home improvement projects yield below 100% return on investment (ROI) from a re-sale perspective. In the San Francisco Bay Area where homes are selling from between $600-900 per square feet and demand outstrips supply (see previous post, https://taosiliconvalley.com/2013/08/26/microeconomics-101-for-real-estate-2/) projects such as a kitchen or bathroom remodel generally will yield well above 100% return on re-sale. I don’t like providing blanket statements like that, because the homeowner can certainly “over improve” a space relative to the neighborhood/house, or design to a very specific taste whereby the ROI may be under 100%. When the $/sq.ft. and the average price of a home is so high, the threat of not seeing a good ROI is significantly mitigated relative to other parts of the US where $/sq. ft is much lower than what we see in Silicon Valley.
I indicate kitchen and bathrooms since those projects require more of an upfront investment to do the project but also since these are key rooms that buyers pay attention to and homeowners have pride over. There are other projects that should easily see an above 100% ROI in our location – new paint (interior/exterior) and flooring readily comes to mind.
In terms of cost estimates, I get asked the most about bathroom and kitchens….surprise, surprise. Let’s start with bathrooms, this has a big range for a complete “gut job” remodel project. For a Master Bathroom (for a smaller “regular bathroom” cost estimates are lower), let’s go with anything from $3000 to $50,000. For $3-5k, you are likely doing most of the work yourself, it’s off the shelf big box store vanity/mirror/lighting with no moving plumbing or electrical around and no special tiling work, and is only a small, basic bathroom. I was recently at a high end bathroom showroom store looking at what I thought was a “higher end” vanity. It was around $6k for a 60″ vanity/countertop. It was beautiful. Then, I looked around the showroom and was a kid in a candy store. Everything was so shiny and awesome. First, that vanity the salesman told me was the “least expensive” in the showroom. They had small 30″ half bath vanities for $10-15k, bathroom faucets for $3k, standalone tub for $2,500, a steam shower set up for $4k. You could easily spend $50,000 (or even much more) for a sweet set-up that you probably see on the old TV show “Cribs”. But more realistically for us regular people, a part of your cost component will be whether you are moving plumbing, do you need to upgrade electrical, new lighting, are you doing custom tile work, type/brand of fixtures, jacuzzi tub or just soaking tub or a tub/shower combination. Clearly, each variation adds $$.
No question, a kitchen is higher cost and has even higher variability. Just a quick example on simple appliance choices, you can buy a nice refrigerator for $2k, dishwasher for $750, stove/oven for $2k, and range hood for $300. There are more basic and cheaper options available at maybe half that pricing. However, if you wanted to get a “higher end” kitchen appliance set, the starting prices could be as follows…6 burner 36″ Viking/Thermador range for $7k, Chimney hood for $1,500, dishwasher for $2k, wine fridge for $1k, Miele built-in expresso machine for $3,500, and a sub-zero refrigerator for $15k. For just the appliances alone, the cost of a good set can be had for $5k or go up a tier or two and add in a couple other appliances (wine, expresso) and you are now in for $25k. You haven’t started construction yet, picked out cabinets, countertop, lighting fixtures, changed the floor plan, upgraded electrical, or paid for any contractor labor. Thus, when I get pressed on providing a “cost range” for an “average” kitchen remodel that is still not an easy question to answer.
And as anyone can guess, the skill and efficiency and cost of a general contractor and sub-contractor run a wide range range. Often, labor is a big component of the overall budget. Lots of dynamics impact labor cost. Highly experienced and professional full service general contractor with a full team will be more expensive than a one person unlicensed person. Your timeline and how quickly you need it completed will impact cost. Type and complexity of project impacts many decisions. How well do you negotiate? How much risk in the project if something goes wrong? How are you structuring the arrangement with the contractor – fixed cost or cost+ markup. Who is paying for materials. Geographic location. Thus, when a friend from Denver asks about estimating costs vs. a client from Palo Alto, I can safely assume the labor cost for a contractor in Palo Alto will be higher than someone from Denver for the same work.
So a key question to ask yourself in evaluating whether to start a home remodeling job is how important is the “financial ROI” aspect of whatever you do vs. doing a remodel purely because this is the house you will be living in for the next 20 years and you don’t care about the specific style, taste, budget of your remodel and how others will perceive and value your work. That dynamic may help determine and drive what you decide to do, how you design your plans and what finishes/colors you end up choosing.
Again, for those who know me, know that I am not someone who likes to just throw out random numbers and prefer to provide lots of details and assumptions when I do use numbers whether to help provide comparable sales information, to analyze sports statistics or to provide direction on a project. When you do read articles online about home remodeling ROI, keep in mind, the statistics are for national averages/estimates and does not necessarily reflect the SF Bay Area’s valuations. But as always, feel free to contact me if you wanted to brainstorm anything regarding real estate or get my expert opinion about the upcoming March Madness college basketball tournament bracket!