11 Nov 2011

How to estimate remodeling payback

blog Comments Off on How to estimate remodeling payback

Mary Umberger

On Real Estate

November 4, 2011
Want to increase the value of your house? Add a third bathroom.

That’s the single attribute, across the spectrum of single-family homes, that has the greatest impact on a home’s value, according to an interesting little gizmo that the National Association of Home Builders recently updated on its website, NAHB.com.

The tool has been on the NAHB site for several years, but Paul Emrath, the organization’s senior vice president for survey and housing policy research, recently updated it to factor in the latest numbers from the U.S. Census Bureau’s American Housing Survey.

Although its immediate purpose is to help the trade group’s builder and developer members calculate which home features are most desirable in their region, the calculator has some insights for consumers too, he said.

“It can give you an idea of how much particular features add to the value of a home, how much you should be looking to pay for something, how much you might be able to save if you give something, and how certain locations are valued,” he said.

Limited geographic detail. Emrath is quick to point out that because the data are derived from the Census Bureau’s broad-stroke categories, the tool can be a little frustrating. For one thing, the data-gatherers divide the country into five very broadly defined regions; homeowners using the tool in, say, a Chicago suburb, will have to work around the given that their values are lumped in with, say, suburban Indianapolis or suburban Duluth, Minn., where home prices are likely to be lower. And, of course, there’s the reality that suburbs within a given metro, even a given ZIP code, will vary widely in the value of their housing stock.

Further limitations. The Home Price Estimator enables the user to date a home’s age only within five categories. A home that was built in 1950 would fall into the same category as one built in 1895.

While we’re at it, let’s point out that technophobes might have a little trouble getting the whole thing off the ground. First, finding it: Within nahb.com, go to the “housing data” button, then, select “housing’s economic impact” from the menu, which will lead to the House Price Estimator.

Further, getting it to work requires that a user’s computer be equipped with Microsoft Excel, and users will have to adjust their security settings to permit macros, or certain programming shortcuts, to run. And Emrath suggested using Internet Explorer; he said the NAHB has encountered compatibility problems with Mozilla Firefox and other Web browsers.

Further, some Internet service providers may apply security or other procedures that prevent the estimator from running properly. If you run into those roadblocks, the only solution might be to head for another computer, he said.

Hypothetical model. Once you get there, though, it’s an intriguing toy: We checked out a hypothetical house built between 1980 and 1994 in a Midwest suburb, with three bedrooms, 21/2 baths and 2,100 square feet.

We stipulated that it had central air conditioning, a garage, family room and basement. The calculator allows “other” rooms to be counted, so we threw in the kitchen and a sunroom.

We also conceded some givens: It’s not in a gated community and there’s no community clubhouse, park or public transportation nearby; it did have stores within a mile. And we said the area was in pretty good shape: no abandoned buildings nearby, no trash/litter problems, roads in good shape, no noxious odors in the area and no nearby buildings with metal bars on the windows. It gave us a value of about $180,000 for our hypothetical house.

Then we added a fireplace, and the estimated value went up to $204,000. We added a fireplace and a third bath, and it went up to $247,000. Again, we acknowledge the generalizations here, but so far, so good — we do get a benchmark result. But add one of those negatives — we went back and admitted that there’s an abandoned house within half a block — a not-unrealistic concern in this age of foreclosures. The price dropped to $176,000. Throw into the mix that roads in the area are in need of repair, and the value changes to about $171,000.

Sobering. But it’s a reminder to would-be home sellers that regardless of whether you’re comfortable with the estimator’s basic parameters, the value of your house probably hangs on more than what’s within its walls.

In any case, if you don’t like the numbers you see, you probably ought not blame NAHB and its estimator — blame your fellow citizens. The numbers are derived from what homeowners told the Census Bureau they thought their homes were worth. You can crunch all the housing numbers you can get your hands on, but real estate still boils down to a game of perceptions.