When it comes time to sell, it’s natural to think that you need to make all of those renovations you’ve been putting off to increase your home’s value before listing.
That’s probably why the amount of money homeowners spend on remodeling is on the rise. In fact, the Joint Center for Housing Studies of Harvard University predicts that remodeling spending will increase by 7.5% in 2018.
But investing big bucks in fixing everything isn’t the smart move if you want to see the highest return on your investment (ROI). It’s tough to know which renovations increase home value.
Buyers shopping for an existing home do not expect it to be in brand-new condition. So when you’re deciding where to spend money on renovations to increase your home’s value, you need to stop thinking like a homeowner and start thinking like a salesperson looking to make a positive impression on potential buyers.
According to Peter Clark, who ranks in the top 3% of 5,347 agents in the Portland, Oregon area, “The basic concept is that you don’t ever want a buyer to wonder what else is wrong with the home. So what you see and feel when you’re walking into the house is what matters.”
Unless your home has problems that pose health and safety risks, your remodeling dollars are best spent on projects that improve its appearance. Sellers still thinking like homeowners probably feel like their whole home needs a facelift, so how do you narrow in on which cosmetic fixes will bring the best benefit? Ask your agent.
“There are very specific areas that increase the resale value of a home. They are, most of the time, found by region rather than nationally. For instance, for a mid-range priced home in Portland, if you put attic insulation, you should be able to recoup 145.6% of your investment. If you do a major kitchen remodel for a medium-priced home in Portland you can expect to get back only 80.9% for every dollar you spend,” says Clark.
Finding data on what projects are projected to add the most value to your home is easy. Professional organizations like the National Association of Realtors (NAR) and Remodeling Magazine create annual reports studying national and regional statistics on which remodeling jobs are most popular and promise the highest ROI.
However, it’s not always easy to determine which renovations are most likely to increase your home’s value. Thankfully, top notch real estate agents not only keep tabs on which repairs, remodels and upgrades have the best ROI nationally, they’ll know which ones are most popular and beneficial in your specific neighborhood.
When talking with your agent it’s always best to be well-informed about potential projects and their projected ROI. So let’s take a look at the data on the nation’s top remodeling projects.
Kitchen Renovation vs. Kitchen Upgrade: Which has the Best ROI?
Most agents will tell you that kitchens sell houses. That’s probably why both kitchen upgrades and full renovations top the list of what buyers want. Realtors also believe that kitchen renovations are the most likely to increase your home’s value—but that doesn’t guarantee that you’ll make back every penny you spend.
Remodelers project that a kitchen upgrade will cost an average of $35,000, while only adding an average value increase of $20,000 to your home. That puts the ROI for the project at just 57%.
Complete kitchen renovations fare better, but only just with an ROI of 62%. The national average for a full kitchen renovation comes in at $65,000 with an estimated $40,000 recovered.
Given that kitchen remodel projects average an ROI that’s only slightly better than fifty cents on the dollar, you should think twice before investing too much money in major updates—especially if smaller, cosmetic fixes will do the trick.
A deep cleaning, a fresh coat of paint, and installing a new kitchen faucet or cabinetry pulls (link to kitchen & bath makeover blog) will go a long way toward helping your kitchen make a favorable impression on buyers.
Before making bigger upgrades—like new countertops—consider both your price point and your competition. If your house is valued in the low or mid-range, installing high-end countertops can actually hurt your home’s value.
On the flip side, if local comparables all have granite countertops and yours doesn’t, you have a choice to make. In order to list at the same price as your neighbor, you’ll have to invest in new countertops—otherwise, you’ll have to settle for selling at a lower price point.
And sometimes, selling at a lower price point will actually save you money.
Clark lays out the statistics for his clients to help them make the decision. If a home is worth $425,000 without upgrades, but the client wants to sell for $450,000, Clark says, “Well, we can get $450,000 but you’re going to have to spend $35,000 to get that extra $25,000, is that something you want to do?”
While kitchens are the first place sellers consider spending investment dollars, other projects actually bring in a higher return and improve the look of the whole house.
Wood Flooring Installation and Refinishing Bring a High ROI
New or refinished wood flooring is also high on the list of upgrades that attract buyers and it’s a project that’s definitely worth the investment.
The NAR’s 2017 Remodeling Impact Report projects that homes with existing hardwood floors will likely see a 100% return as the average $3,000 cost to refurbish them adds $3,000 in value.
Installing wood flooring pays off almost as well, with a 91% return. Wood flooring installations that cost $5,500 are projected to add around $5,000 to the home value. However, these estimates vary depending upon the type of wood flooring you install.
If you’re replacing carpeting or vinyl with wood, you have to make a choice between actual hardwood and manufactured wood, also known as laminate.
Hardwood flooring appeals to buyers because it is easier to clean than laminate and has a longer lifespan. Scratches and damage to laminate flooring is permanent, but hardwood floors can be repeatedly sanded and refinished. That’s why some buyers are willing to pay over $2,000 more for hardwood.
Hardwood is more expensive, though, averaging $12-20 per square foot versus $2-8 for laminate.
Manufactured wood has the added benefit of being easier to install, too. Most laminates are designed to snap together, which means that handy homeowners can save even more by handling the installation themselves.
Aside from project costs, you also need to factor in your home’s current market value when you’re choosing between laminate and hardwood. If you spend $20,000 to install hardwood throughout a luxury home, you’re likely to see that 90% or more ROI. But spend the same amount in a home valued at just $200,000 and you will lose most of that money.
Of course, improving your home’s interior is just one way to increase its value. Amping up your home’s curb appeal (link to curb appeal article) is just as important.
Exterior Spruce: Should You Repaint?
The condition of your home’s exterior tells buyers a lot about what they’re likely to find inside, so you need to make sure your curb appeal is on point.
Whether your home is brick, stucco, wood or another material, if it’s been painted, it’ll need to be repainted before you sell. In some markets, repainting nets a return of 112% ROI. The national average for a professional exterior paint job costs $2,769 for a home that’s 1,500 square feet or less.
When you’re hiring your painters, make sure you get the details before accepting a bid. Selecting the lowest offer isn’t always the smartest decision if the quality suffers. A poor paint job may actually lower your home’s value.
|Bidder||Price||Product Quality||# of Coats Applied||Preparation Quality||Repaint Cycle (Years)||15 Year Total Cost|
Source: Protect Painters
Repainting isn’t your only option. In 2017, traditional siding replacement on a midrange home offered an ROI of 76.4% with the average cost of $14,518 and a return of $11,093.
Homes that have been either repainted or resided may also increase their curb appeal and value with the addition of decorative trim. Remodeling Magazine’s annual 2018 Cost vs. Value Report indicates that adding manufactured stone veneer offers a 97.1% ROI—that’s up from an 89.4% RIO in 2017.
Improving your home’s appearance is the top way to increase its value—but it can only do so much. Your home’s square footage plays a major role, too.
Does More Square Footage Increase Value?
When valuing a home, some appraisers and agents utilize price-per-square-foot tools to determine the base price for a home. So that means increasing your home’s square footage will automatically increase its value, right?
In some cases, it will, especially if you’re converting existing unfinished spaces into livable square footage. Both attic and basement conversions made the NAR’s 2017 Remodeling Impact Guide’s top 12 list of remodel projects.
Clark notes how conversions can work to increase a home’s value:
“If you have an 800 square-foot bungalow in Portland and it’s selling for $400 per square foot, and you can add a master suite upstairs—which the older homes don’t have—that master suite can add 500 square feet. That’s 500 square feet times $400 per square foot, that’s $200,000.”
Statistics indicate that it’s slightly more cost effective to convert a basement into a living area at a national average cost of $40,000 and an estimated value increase of $25,000—that’s an ROI of 63%. Attic conversions run an average of $75,000 while adding only $40,000 in value—at an ROI of 53%.
But increasing square footage won’t always add value, and in some cases, it may prevent your house from selling. Clark tells of a neighborhood in Portland:
“We have a neighborhood where most of the homes are 2,400 square feet, but there are also a couple of 3,300 square foot homes. The 2,400 square foot homes in that neighborhood sell in days, but the 3,300 square foot homes sell in years because nobody that lives there wants such a large home.”
Whether you’re thinking of investing money to improve your home’s appearance or increase its square footage, it’s important to remember that there’s no guarantee that you’ll make back the money you spend.
As Clark advises, “I can tell you that the average return on investment for updating or remodeling a home, you get back seventy-four cents for every dollar invested on average.”
But smart sellers who do their research and ask their realtors first before investing a penny have the best chance of earning a top dollar Return On Investment.