Sixteen percent of remodeling clients -- 25% in the West -- cite improving the home's energy efficiency as a reason for remodeling. Only 2% of customers found their remodeling contractors through the Internet. And despite low mortgage rates and the prevalence of refinancing, only 6.4% used or planned to use money saved in this way for remodeling.
That's just skimming the surface of Professional Remodeler's 2002 Home Remodeling Study, a nationwide survey of 819 consumers -- 565 who had remodeled with a professional during the previous 12 months and 254 who planned to do so during the next 12 months. The survey details the kinds of projects customers are doing, what they're spending and how remodeling has increased the home's market value. Moreover, the study delves into their perception of the remodeling experience.
Use the following results to help you identify market trends and anticipate customer needs.
Why remodel? Looks and luxury come first
When asked their reasons for remodeling, 62.7% of respondents said they wanted to update the look of the home and make it more luxurious. Preparing for personal needs, such as aging, was mentioned by 25.0%, and 18.5% plan to sell the home or are remodeling it as an investment. While they cited other reasons for remodeling, such as improving energy efficiency (16.2%), a new baby (5.5%), parents or in-laws moving in (2.7%) and insurance restoration/fire damage (2.7%), none scored as high as a fresh look.
Reasons remained fairly consistent across the demographic board, with a few exceptions. Homeowners whose homes were built in 1981 or later were less than half as likely as the overall group to cite energy efficiency as a reason for remodeling. Respondents in the Northeast, as well as those who had owned their home for at least 15 years, placed preparing for aging at a higher level, 31.3% and 33.7%, respectively. Finally, those who had lived in their home for three to five years were most likely (27.3%) to be preparing the house for sale.
Here's a convincing statistic to share with clients preparing to sell or wondering about their return on investment: Regardless of location, remodeling increased home value by an average of 20%. In the Northeast, average home value rose from $210,000 to $254,000; in the North Central, from $139,000 to $164,000; in the South, from $117,000 to $140,000; and in the West, from $238,000 to $289,000.
Even for those with homes built in the past two decades, remodeling increased their home value by 15%. Homes built in the 1960s and '70s tended to have a 20% ROI, while homes built in 1960 or earlier increased in value by 25%.
Finding a professional
Referrals from family and friends, that time-tested method, led 77% of the respondents who have remodeled to a remodeling contractor. However, 85.1% of those who hadn't remodeled yet initially found a contractor this way. Among total respondents, referrals from building supply stores (11%), newspaper advertisements (7.3%) and the Yellow Pages (7.2%) came in a distant second, third and fourth. Some found a contractor at a home show (4.6%), via a company sign or truck (3.8%), a professional organization or chamber of commerce (2.6%), or a flyer (2.6%). Only a small number used an article in a local newspaper or magazine (2.2%) or were referred by an architect (2.0%). Even fewer found their remodeler from a lending institution or a parade of remodeled homes.
Those with lower incomes were more likely than wealthier folks to go with a recommendation from family and friends: 82.1% of respondents with an income of less than $35,000 did so, compared with 77.7% of those with an income of $100,000 or more. People in that top income bracket were more likely than others to go with an architect's recommendation (5.4%). And homeowners in the South and West were slightly more likely (12.8% and 12.3%) than homeowners in the Northeast (9.0%) and North Central (9.5%) to go to a building supply store for a referral.
Choosing a professional
Good news on price: It is a deciding factor for just one-fifth of consumers, with 20.4% of those who have remodeled awarding their projects to the lowest bidder, and 20.9% of those planning to remodel considering a low bid to be key. In fact, among all income levels, only households earning less than $35,000 per year included "lowest price" as one of the top five factors in their decision. So what do people want? A contractor they can count on. Among all respondents, 71.5% said reliability was an important factor in choosing a remodeler, followed by a guarantee or warranty (58.6%) and a good reputation (53.2%). Being licensed or bonded came in fourth-most important at 36.9%, followed by good referrals (31.4%), on-time completion (22.9%) and then lowest price (20.6%). Years in business (9.1%), professional certification (4.4%) and the offer of financing (.9%) proved to be far less important than dependability, although those characteristics often go hand in hand.
Of all types of professionals hired for remodeling projects, consumers most often seek a general remodeling contractor (see figure 5). The higher the household income, the more true this is: Just 47.4% of respondents earning less than $35,000 chose a general remodeling contractor. That jumped to 56% for those in the second income bracket, 59.2% in the third, 60.5% in the fourth and 64.1% for those making $100,000 or more. Consumers in that top income bracket were twice as likely as any other economic group to hire an independent architect (14.5%) or interior designer (9.2%). Fewer respondents (11.3%) in the lowest bracket hired or will hire a kitchen/ bath specialist, compared with 18.1% of all respondents.
Geographically, respondents in the Northeast are more likely than those in other regions to hire general remodeling contractors (65.1%) and independent architects (10.1%). Those in the North Central region are the greatest users of kitchen and bath specialists (20.2%), while those in the South hire more installers (12.6%) through building supply stores or home-improvement centers than other respondents. The West leads the way for subcontractors (34.1%) and also in the use of interior designers (8.3%) and structural engineers (7.6%). Across the board, very few said they had used a designer or an architect employed by a remodeler, perhaps indicating a lack of understanding of the design/build process, especially considering that more than a quarter of all respondents (27.2%) cited the contractor as a source of design ideas.
Financing: Savings are preferred
Even though loan rates have been low, nearly 60% of respondents used or plan to use personal savings to pay for the job. About 15.8% used a home equity loan (16.7% plan to), and 9.1% used a credit card (6.8% plan to). About 6.4% chose refinancing their original mortgage, while 5.6% were extending a personal line of credit. Loans from family and friends come to 3.5%, and loans from credit unions come to 2.5%. A second mortgage is an even less popular option (2.2%), while taking out a loan against a pension or 401(k) is the least favorite.
Those with homes built in 1999 or later stand out in sharp contrast. Clearly, most of their liquid assets went into purchasing their homes, forcing them to use a home equity loan (26.9%) or a personal line of credit (15.4%) to finance their remodel. Others are using a credit card (11.5%), refinancing their original mortgage (7.7%) or getting a loan from someone they know (3.8%). Only 42.3% of this group is using savings.
Income level and geography also make a difference. Households in income brackets I and II are more likely to pay with savings than wealthier households, especially those in III. Also, consumers in the Northeast and North Central areas are more inclined to pay with their savings than are homeowners in the South and West. When it comes to home equity loans, a quarter of consumers in bracket IV take one out, as do 22.5% of homeowners in the Northeast.
Most surprisingly, only 1% of respondents financed or planned to finance the project through the remodeler. It might not be an option they're aware of before entering the remodeling process.
A design of their own
Most people get remodeling ideas by reading books and magazines (65%). Home-improvement centers (48.5%), building supply stores (42.6%), friends' homes (32.7%) and design centers (28.1%) are other sources of inspiration. New model homes (23.1%) and television programs (22.7%) rank fairly high as well. Lumberyards (9.5%), newspaper articles (8.8%), architects (6.9%) and interior designers (6.1%) trail.
More than a quarter of consumers said they get ideas from their remodeling contractor (27.2%), while designers employed by remodelers (2.9%) are at the bottom of the list.
Pricing the project
Figuring out who will spend how much on what can be a little tricky. First, there's a correlation between the age of the home and the type of remodeling (see figure 4). Among those in pre-1946 homes, beauty is truly skin-deep: One-fifth of residents are redoing the exterior. Even more wanted a room addition. Old houses are notorious for their lack of storage, particularly in the kitchen. Indeed, almost 70% of respondents who own pre-1946 homes and had done or were planning a kitchen remodel (see figure 11) gave extra cabinet space top priority (compared with 55% overall). Large numbers of those respondents also chose to upgrade the wiring, change or add plumbing fixtures, change the floor plan and remove walls. In the bathroom, those who own the oldest homes (see figure 8) are the most likely to change the floor plan, add sinks or add windows. They're also likely to tear out plumbing and upgrade electrical work.
Respondents adding a room or rooms to their home added or plan to add an average of 600 square feet. Almost one-third of them added or plan to add a master suite -- an especially popular project in homes built from 1946 to 1973, before the concept became mainstream. Half of respondents who own homes built from 1961 to 1973 added or will add one or more baths. In homes of 1946-1973 vintage, one-third of respondents wanted to add a laundry room. Owners of homes built before 1961 are keenest on adding contemporary features such as a home office, a mud room or an in-law suite.
Those with homes built in 1999 or later are likely to be finishing a room in the basement or attic (figure 4). A finished basement or attic is an expensive upgrade that buyers of new homes tend to postpone until they can afford it.
You might think it would follow that those with newer homes would spend more money on basements than other people do, that those with older homes would spend more money on exterior remodeling, and so on (see figure 9). In fact, people with homes built from 1974 to 1980 are spending more than anyone else to finish a room in the basement or attic ($10,909) or do an exterior "facelift."
Owners of homes built before 1946 spend more money, on average, than other homeowners on adding bathrooms in existing space ($7,470). Those with homes built from 1946 to 1960 spend more on adding garages or carports ($19,473) and whole-house remodels that involve redesigning or restructuring more than half the home ($98,990). Owners of homes built from 1961 to 1973 spend more than other consumers do on kitchen remodels and room additions. Those in the newest homes spend, on average, $18,000 to enclose a porch, patio or breezeway, more than twice as much as any other group.
Slicing the data by income level reveals another way of looking at the puzzle. For the most part, people with higher incomes spend more money, on average, on each type of project than people with lower incomes. But that's not always the case. Respondents in the two highest income categories spend about the same on kitchen remodels. Those in bracket IV spend more than the wealthiest respondents on enclosing the porch, breezeway or patio ($9,046), finishing a room in the basement or attic ($12,469), adding a garage or carport ($19,520) and doing a remodel involving more than half the house ($74,875). People in both the highest and lowest brackets spend about $7,700 on adding a bathroom in existing space, more than the other groups. However, in the lowest income category, remodeling an existing bath was a far more popular option than adding a bathroom, while in the highest bracket, adding a bath to the master bedroom was the most popular bath project.
Geographically, major structural changes are more important to homeowners in the West, with 23.6% adding rooms and 12.9% redesigning more than half of the home's interior, compared with 20.9% and 9.2% of all homeowners. In the North Central region, 20.3% finished or plan to finish the basement or attic, compared with 13.7% of all respondents. While enclosing the porch, patio or breezeway is a less frequent event, 14.7% of respondents in the South want one of these areas to be a room that is comfortable on the hottest, most humid day. Northeasterners spend more, on average, than other Americans on kitchens, garages and carports, adding bathrooms in existing space, whole-house remodels and exterior remodeling. Residents of the North Central region spend more on bathrooms and sun rooms, while Westerners spend more on finishing basements and attics, enclosing porches, patios or breezeways, and room additions.