Maybe instead of selling your home in the current market, you are creatively approaching the need for more space than your home currently offers. As a first step to conducting a true cost benefit analysis of purchasing a new (or new to you) home or improving your current home, it is helpful to have a sense of typical project costs before embarking on a the tedious competitive bid process from contractors.* 

The following represent the six most common living space additions.  The projects listed here are to a moderate-scale level of finish.  Four projects involve adding to the existing home foot print and two involve converting formerly unfinished space to functional living space.

Finishing Existing Space

Attic Conversion to Bedroom and Bathroom – $44,000

Converting an unfinished attic to a 15’ by 15’ bedroom, including walk-in closet and four new windows, and 5’ by 7’ foot shower will add 260 square feet of living space, for an average construction cost of $170 per square foot.  On average, converting an attic to a space like this will translate into $35,000 added value to your home.

Basement Conversion to a Family Room with Wet Bar and New Bathroom – $57,000

Finishing out basement to a 20’ by 30’ common area entertaining space that includes a wet bar and a new bathroom will cost about $95 per square foot and add 600 square feet of living space to your home.  Costs assume laminate hardwood floors, under the counter refrigerator, sink and 10’ of wood cabinets.  Converted basements typically add about $45,000 in value to a home upon resale.

Adding New Space over New Foundation or Crawl Space

Bathroom Addition – $29,000  

Adding a new 5’ by 8’ bathroom with finishes of tile, porcelain, and nickel will cost an estimated $725 per square foot.  Upon resale, you can expect your home to sell for about $22,000 more than without this addition.

Family Room Addition – $75,000

A new family room measuring 16’ x 25’ with hardwood floors and two skylights will add 400 square feet of new space to your home at a cost of about $87 per square foot.  Upon resale, you should realize about $53,500 increased home value.

Master Suite Addition including Bathroom – $94,000

An addition of 385 square feet in the form of a new master suite that includes a walk-in closet, lounging area, and new bathroom with separate shower and tub will cost about $137 per square foot to construct.  This addition will increase home resale value by about $68,500.

Two-Story Addition – $105,000

Adding a two-story footprint of 16’ by 24’ will add about 768 square feet of new living space to your home.  This addition assumes that the main floor as a family room and the second floor as a new bedroom and bathroom combination.  The family room is carpeted, has a gas fireplace and a new exterior door.  The new “wing” of your home should translate into about $87,500 improved resale value.

 *Hanleywood – a real estate research firm that specializes in residential construction research and data collection – provides average cost data for the most common home improvements as well as the percentage of cost recouped in the form of increased home value. 

Using this information saves, at least for the first step of option weighing, the time-consuming process of ferreting out reliable, quality contractors and receiving bids on a wide variety of projects.

There is nothing scientific about the selection process, this list is comprised of homes that would likely catch the eye of a prospective primary home buyer that is seeking a good value in a neighborhood with a good perception.

Grant Park Single-Family Home

520 Cameron Street, SE — $143,900

• 4 bedroom, 2 bathroom single-family home located in Grant Park
• Last sale was in November 2001 for $230,000
• Current (2009) tax assessor value is $335,000, although this would likely be adjusted down to $260,000 – $280,000
• Nearby home sales sold recently for $250,000+

Edgewood/ Candler Park Single-Family Home

1258 Arkwright Place, SE – $189,900

• 3 bedroom, 2 bathroom single-family home located on the edge of Candler Park and Edgewood neighborhoods
• The current (2009) tax assessor value has been adjusted to reflect the foreclosure pricing (advantageous for property taxes, value will not have to be appealed and readjusted)
• Last sale in August 2005 was for $270,000
• Nearby properties have recently sold for $225,000+

Glenwood Park Earthcraft Condominium

933 Garrett Street, Unit 202 – $100,000

• 1 bedroom, 1 bathroom (865 square foot) condominium located in Glenwood Park
• Built in 2005 to Earthcraft standards, which is the green-built standard for the Southeast
• Condo building consists of 14 total units and ground-level has coffee shop, 3 restaurants, and a wine bar – among other shops and services
• Last sale in July 2005 for $170,000
• Current (2009) tax assessor value is $240,000
• Other current listings in same condo building start at $160,000

City of Decatur Single-Family Home

155 Griffin Circle – $169,900

• 3 bedroom, 1 bathroom single-family home located in family-friendly Decatur with excellent schools
• Current (2009) tax assessor value is $251,000
• Last sale in December 2007 was for $320,000
• Nearby properties have recently sold for $230,000+

North Decatur Single-Family Home

874 Heritage Place – $199,900

• 3 bedroom, 2.5 bathroom (2,366 square foot) home located in North Decatur neighborhood with close proximity to Emory University and CDC
• Current (2009) tax assessor value is $318,000
• Last sale in 1989 for $170,000; applying an average annual appreciation of 2% would render a current value of $255,000
• Nearby properties have sold for $270,000+
  • A foreclosure with half of the square footage sold for $160,000 recently

The first decade in the new millennium brought to Mechanicsville a breath of fresh air in the form of new residential development and rehabilitated homes.  Old, dilapidated housing projects have been replaced by denser mixed-income, mixed use projects and new single-family homes.  Attainably priced home options have attracted a broader diversity of residents – including young professionals seeking proximity to employment and amenities in Downtown Atlanta and moderate income families that have been priced out of other Atlanta markets.

The following images are courtesy of Gregory and Kate Krumm – members of the Mechanicsville Civic Association.  They are excited about the renewal and positive momentum in the neighborhood and wanted broadcast it to a larger audience.

These homes are just a sample the tremendous values that await the opportunistic buyer willing to see what Mechanicsville has to offer.

The median home price in Atlanta is expected to decline an additional 4% over the next year on top of the 18% drop that has occurred to date since peak pricing in early 2007.

The chart below indicates how the Atlanta median home price decline forecast for the next year compares to other major Southeast markets.

As illustrated, while the price decline in Atlanta over the next year is expected to be higher than markets like Charlotte, Raleigh-Durham, and Birmingham, the variance of a few percentage points at most is fairly modest. Only one major market in the Southeast is expected to post a price increase – Charleston, South Carolina. 

Comparison of the Atlanta median home price forecast relative to major Florida markets should provide a silver lining for Atlanta homeowners.  A drop of 4% over the next year in Atlanta pales significantly to the severe price double digit median home price decline that is forecast for Naples, Tampa, and South Florida markets like Miami, West Palm, and Fort Lauderdale.  

In total, the Atlanta median home price is expected to have declined 21.5% from peak when the trough is reached, predicted to occur in mid-2011.  While that is a loss of more than one-fifth of the median home price in 2007, this drop is just a dip in comparison to the cliff-drop that many Florida markets are expected to endure.  For instance, Miami is expected to drop an additional 30.5% from now through year-end 2011 in addition to the 51.5% dropped that has occurred to date.  Not quite as severe as Miami, but still much more dramatic of a roller-coaster than Atlanta, Naples median home price is expected to tumble an additional 18.5% on top of the 60% decline already posted to-date.

 SOURCE:  money.conn.com; Moody’s economy.com

 [See another blog post “…light at the end of the tunnel” for an explanation of why the continued decline in Atlanta home prices is good news.]

Krog Street Tunnel in Atlanta, GA (SOURCE: www.favthingsatl.com/2009_03_01_archive.html)

The median home price in Atlanta is expected to decline an additional 4% over the next year on top of the 18% drop that has occurred to date since peak pricing in early 2007.

According to forecasts from Moody’s economy.com, Atlanta home prices will not trough until mid-2011.  When the dust settles, the Atlanta metro area median home price is expected to land at roughly $175,000 which represents a 21.5% total median home price adjustment since the peak median home price of $222,500 (1Q2007).

While daunting to hear that the pricing needle is expected to continue dropping, this is good news actually. 

The Atlanta home market is now extremely affordable and will only get more affordable over the course of the year. 

Atlanta area home affordability is currently well below the typical 3 to 4 income multiplier used to qualify home owners for mortgages.  With a median income (2009) of $69,000, Atlanta median home price (2009) of $182,000 is 2.6 times income.  If pricing falls to $175,000, affordability will improve more to 2.5 multiplier.  Even though lending conditions may continue to make it difficult to secure a mortgage, the cost of home ownership will be attainable to more than 50% of Atlanta households.

Continued home price declines over the next twelve months means that foreclosure inventory – the homes that are keeping prices depressed – will continue to be cleared out.

Banks are not in the business of asset management. Bank-reclaimed residences are priced to sell quickly so that properties are removed from bank books, converted to cash, and solvency/ cash coverage requirements are met. The vast volume of foreclosure inventory has brought other home values down.  Homeowners that need to sell their properties must reduce prices to remain competitive with discount-priced foreclosures.  Only after foreclosure inventory is reduced will home prices and values begin to appreciate.  The continued, but slowed price decline is indicative of a market making a final push to clear out the toxic inventory and reclaim normalcy.

There is a light at the end of the tunnel.

Although maybe not soon enough to spell relief for Atlanta area home owners, there is finally a light at the end of the tunnel.  Many reports have indicated that home price drops are registering less severe.  The most current forecast of  4% decline over the next year agrees with recent reports (home prices have declined at a 6% straight-line average pace since 2007).  The softer price decline slope begins to define the curve of the (hopefully) final trough in the Atlanta market, predicted to occur second quarter 2011.  Home prices are not expected to rapidly increase, but are expected to trend upward after that point.

SOURCE:  money.cnn.com; Moody’s economy.com

Mechanicsville is small Atlanta neighborhood located within the southwest corner of Interstate 75/85 (the Downtown Connector) and Interstate 20.

Bound by (technically) three interstates, and within a few minutes walk of the Central Business District of Downtown Atlanta, Mechanicsville offers superior accessibility to the greater metro area and a major employment core within the metro.

Mechanicsville is named for the influence that its southern and western boundary, the Norfolk Southern Rail Yard, had on its populace and commerce.   After the rail influence began to subside, Mechanicsville was infused with a high concentration of Jewish residents; in fact, the first Atlanta Jewish Synagogue established at the northern end of the neighborhood.  After World War Two and more widespread car usage, the more affluent residents of Mechanicsville started migrating north and public housing became more common place. 

However, the turn of the millennium found new development infusing Mechanicsville resulting in a greater diversification of the neighborhood’s populace.  Public housing has been largely replaced by higher quality mixed-income, mixed-use projects.  Many dilapidated structures have been cleared and replaced by new homes.  Historic homes are being restored by new owners.  The neighborhood facelift brought by new development and revitalization in the neighborhood has successfully drawn more young professionals and moderate income households seeking attainably priced homes, superior value for the home price, and proximity to jobs in the Atlanta Central Business District.

Mechanicsville, especially today, offers a superior value.  As with most intown Atlanta neighborhoods that were transitioning before the real estate bubble burst, home prices have over-corrected.  In Mid-2005, the average home value in Mechanicsville was $203,000.  Average home value peaked in Mid-2007 at $212,000.  Today, home values are down 44% from peak at $147,000.  In comparison, the average home value for the City of Atlanta has dropped only 31%. (www.zillow.com)

Mechanicsville currently offers many opportunistic purchase options, particularly foreclosure properties.  Since January 2010, several newer construction single-family homes have been purchased for less than $100,000 – a significant discount to the last purchase price and the current tax assessor’s value.  For example:

• 3 bedroom, 2.5 bathroom home built in 2002 sold in January 2010 for $27,000.
  • The January 2010 sale price is 65% below the 2009 tax assessor value ($77,200) and 93% below the last sale price ($385,000, March 2007).
• 3 bedroom, 3 bathroom home built in 2005 sold in January 2010 for $50,000. 
  • The January 2010 sale price is 80% below the last prior sale ($240,000, October 2007) and 67% below the 2009 tax assessor value ($149,400).
• 5 bedroom, 3 bathroom home built in 2005 sold for $66,000 in January 2010. 
  • The January 2010 sale price is 60% below the 2009 tax assessor value ($165,800).
• 3 bedroom 2, bathroom home built in 2006 sold in February 2010 for $50,000. 
  • The February 2010 sales price is 62% below the 2009 tax assessor value and 81% below the last prior sale ($269,000, January 2007)

The Atlanta market today is flooded with discount-priced foreclosure properties.  Banks are not in the business of asset repair or management, so many of the best deals –– properties priced to sell fast – are older homes (built 1940s – 1970s) that need TLC to be fully functional or appealing to typical home shopper.   The prior property owner was in some form of financial distress, so repairs and maintenance were likely deferred.  Disgruntled property owners may have sold off appliances and smashed toilets and sinks prior to their departure. An investor may have been in the middle of renovations in hopes a handsome return on investment, but had to stop and walk away when the market fell apart.

Because repairs are necessary and the properties are priced to move, these older foreclosure homes can represent the best investment proposition to a prospective buyer that has the wherewithal to undertake the challenge: the most attainably priced and the highest return on investment over the next five to ten years.  

Typically older foreclosure properties have not had significant investments since their original construction and require roof replacement, exterior façade work, modern systems and a facelift in the kitchen and bathroom, and a bathroom and or half-bath addition to suit the needs of a modern homeowner (most pre-1960’s constructed homes had only one bathroom).*

The logical proceeding question: How much will the necessary upgrades and repairs cost?**

Roof Replacement:  $20,000

Removing the existing roof down to the bare wood and replacing with a high quality fiberglass shingle replacement typically runs about $20,000. 

Siding Replacement:  $10,000 – $15,000

Giving the exterior façade an instant facelift may be cheaper than expected and is the least expensive of the likely improvements.  About $10,000 will purchase new vinyl siding and trim.  For more attractive and durable fiber-cement composite siding, expect a cost of $15,000.

Kitchen Remodel: $21,000 – $56,000

The cost to update or improve a kitchen to modern standards can vary significantly.  If the bones are good – cabinet casing can be retained and the only appliance requiring replacement is an oven – a kitchen can be updated for around $21,000.  This minor kitchen update would include new cabinet facing, sink, lighting, flooring and countertops as well as and an energy efficient oven. 

A more extensive kitchen upgrade will cost significantly more. About $56,000 will cover all new appliances, cabinetry and central island, sink, fixtures, lighting, and flooring.

Bathroom Upgrade:  $15,700

For under $16,000, an entire bathroom can be essentially replaced:   a new porcelain sink and tub, ceramic tile on floors and surround, fixtures, lighting, and a recessed medicine cabinet.

Full Bathroom Addition:  $48,000

Adding a full new, standard-grade bathroom will likely cost around $50,000.  This estimate assumes 6’ x 8’ space is added to the footprint of a house (not added within existing space) that is built-out to the quality cited above for the bathroom upgrade.

*The importance of a pre-purchase inspection, particularly for an older foreclosure property, is priceless. It is necessary to make sure that cosmetic and minor structural repairs are the only improvements needed before a transaction occurs; major structural defects could cost much more than the property could be worth in this lifetime and should be a deal breaker. 

**Renovation Magazine provides average cost data for the most common home improvement projects.  This data is available for the nation, region, and Atlanta metro area and serves as the basis for the estimates provided here.  © 2009 Hanley Wood, LLC. Reproduced by permission. Complete city data from the Remodeling 2009–10 Cost vs. Value Report can be downloaded free at www.costvsvalue.com.

Fortunately, there is information available that provides guidance for enterprising imaginations that cannot stop viewing properties through “could be” lenses.

Hanleywood – a real estate research firm that specializes in residential construction research and data collection – provides average cost data for the most common home improvements as well as the percentage of cost recouped in the form of increased home value. 

Cost information is available for the Atlanta metro area; interestingly Atlanta reports about 2 – 3% lower average project cost than the national average.

Data is available for the nation, geographic regions, and – most importantly – for the Atlanta metro area, which provides an opportunity to compare. Although Atlanta is more expensive than the South Atlantic region, the good news is that home improvement projects in the Atlanta area cost 2-3% less than the national average.

The chart presented features regional cost and the percentage of costs that translates into value boost for the most common home improvements. [Atlanta data is available for free but cannot be published by any other source.]

(For a full-sized image, please email:  ericamchampion@yahoo.com)
 

Biggest bang for the buck improvements:  Front door and siding replacement

Front door replacement is not only the least expensive home improvement reported, but it also, on average, contributes more to the value of a home than the project cost (Cost = $1,130; value-add = $1,240).  A grand entrance improvement, essentially upgrading a standard-size front door to a much larger door(s), will return 85% of the $7,250 price tag to the home’s value. 

Siding replacement also registers a high return on value.  According to the data, siding replacement projects cost between $10,000 and $15,000 and provide a return of $8,000 (77%) to $12,300 (92%). 

Most upscale projects cost significantly more and add about 15% less value than the same project completed to a mid-range size and level of finish

Upscale additions and renovations of master suits, bathrooms, kitchens, roofs, and decks add only about $0.60 of value for every dollar spent on the project. The same project in a mid-range level of finish and size add about $0.70 of value per dollar spent.  Not only do upscale projects cost as much as 2 to 3 times more than a more moderate scale, but about 15% less of the cost will translate into resale value of the home.

 SOURCE: © 2009 Hanley Wood, LLC. Reproduced by permission. Complete city data from the Remodeling 2009–10 Cost vs. Value Report can be downloaded free at www.costvsvalue.com.

A common thought that the most valuable investment a home owner can make is in kitchen and bathrooms is somewhat true, but within parameters. According to Renovation Magazine’s data (http://www.remodeling.hw.net/2009/costvsvalue/division/south-atlantic/city/atlanta–ga.aspx) for the most common home improvement projects, exterior improvements are among the least expensive improvements and can bring the highest return on investment.  Renovating kitchens and bathrooms to a moderate level of finish can also result in a relatively high return on investment.  But, upscale bathroom and kitchen improvements can cost 2 or 3 times more and the costs tend to translate less, dollar for dollar, into increased home value.

Exterior Façade Improvements:  Many cost less than $15,000 and provide the greatest boost to home value relative to the project cost

Adding a deck, replacing siding, and upgrading front-door entry can provide a relatively low-cost facelift and significantly improve the overall curb appeal of a home.  These projects can be relatively low cost and translate into a home value boost of $0.86 cents, on average, for every dollar spent.

• Front door upgrade to fiberglass: 
  • $1,130 average cost
  • $1,240 value boost at resale
  • 110% return on investment
• Front door size and quality upgrade: 
  • $7,260 average cost
  • $6,160 value boost
  • 85% return on investment
• Siding replacement: 
  • $10,300 (vinyl) – $13,300 (fiber-cement) average cost
  • $8,000 (vinyl) – $12,300 (fiber-cement) value boost
  • Return on investment as high as 93%
• Deck addition: 
  • $10,000 average cost
  • $7,600 value boost
  • 76% return on investment

Kitchens and Bathrooms: Keep it moderate scale to realize a higher return on investment

Updating kitchens and bathrooms can cost anywhere from about $16,000 (bathroom) to $56,000 (major kitchen) if the completed to a moderate level of finish.  A relatively high portion of the cost of these projects will be translated into improved home value on resale, about 77% on average. 

However, custom kitchen and upscale bathroom renovations with all of the bells and whistles tend to cost significantly more – from $52,000 (bathroom) to $110,000 (kitchen) – and increase home value by only $0.64 cents for every dollar spent on renovation, on average. 

• Bathroom Renovation (Moderate): 
  • $15,700 average cost
  • $11,400 value boost
  • 73% return on investment
  • Includes a new porcelain sink and tub, ceramic tile on floors and surround, fixtures and lighting, and recessed medicine cabinet.
• Bathroom Renovation (Upscale):
  • $52,000 average cost
  • $31,600 value boost
  • 62% return on investment
  • Upgrades include custom cabinetry, heated towel bars and floors, upgraded toilets, flooring, counter and surround materials, and separate shower and tub.
• Kitchen Remodel (Moderate): 
  • $21,100 – $56,000 average cost
  • $17,600 to $41,500 value boost
  • 79% average return on investment
  • $21,100 renovation includes new cabinet facing, fixtures, lighting, sink, countertops, flooring, and an energy efficient oven.
  • $56,000 renovation includes all new appliances, all new cabinetry and central island, and new a sink, fixtures, lighting, and flooring.
• Major Kitchen Remodel (Upscale): 
  • $110,000 average cost
  • $72,000 value boost
  • 66% return on investment
  • Upgrades include all custom cabinetry, solid surface countertops, commercial grade appliances that are built in, cork floors, and custom lighting.

SOURCE:

Cost estimates are based on data from Renovation Magazine’s cost value data.   © 2009 Hanley Wood, LLC. Reproduced by permission. Complete city data from the Remodeling 2009–10 Cost vs. Value Report can be downloaded free at www.costvsvalue.com.