Do remodeling projects pay off when you sell?April 4, 2017
Upgrading home features seems like an easy way to increase your home’s selling price. It might be a waste of time, effort and money. Historically low inventory and an aggressive market should have you thinking twice about pouring cash into remodeling projects if you’re planning to sell your home.
In fact, Remodeling magazine’s latest Cost vs. Value report evaluated 29 popular home projects with surprising results: expect to get only about 64.3 cents on the dollar (overall) for these improvements. Projects listed were based on the cost of a licensed contractor. These numbers are on a national scale for return on investment (ROI), so drill down to the state and even city level to see what your market will bear. Click on the image below to see how remodels fare where you live.
Ho hum hurray!
The top improvement, at 116.9% ROI, was arguably the most boring. For whatever reason, attic insulation is a big winner for home improvement. Granted, it’s cheap to put in and improves energy efficiency quite a bit. In fact, aside from a minor kitchen remodel at $20K, the top seven remodels were under $8,000.
Start on the outside
Everyone knows curb appeal is important. And when it comes to remodeling, it’s a winning investment. Nine of the 10 winners were exterior features, with returns ranging from 72.1% to 91.1 percent. The concensus here is that replacing rather than fixing what’s broken makes a big difference, from doors to siding to windows. A seemingly luxury item – stone veneer – gives homes a high-end appeal under $8K and pays back a 92.9% return. And while front-of-home upgrades make sense, skip the backyard redo – the patio project netted only 54.9% ROI.
The usual suspects
Updated kitchens and bathrooms are a coveted feature, especially to cash-strapped buyers. But unless you’re doing these remodels for your own enjoyment, do your research about whether or not this is necessary in a seller’s market. You’ll need to consult an agent who’s currently active in the market if you’re unsure.
Big additions and high-end remodels are a big loser on the ROI list. Super specific rooms for hobbies like billiards only make sense in luxury listings or large properties with bonus space. These kinds of redos are about your enjoyment, not what you’ll make back on the listing. If you’re good with that, go ahead.
Reasons to remodel
Remodeling isn’t always about resale. If what you put into your home gives you a better quality of life and you can afford the outlay, go for it. Some good reasons to remodel:
- Outdated compared to the neighborhood. If yours is the only house in the neighborhood with an out-of-date kitchen, consider a minor remodel. Put the money into the counters, and give the cabinets a facelift with paint and hardware. Stainless appliances are nice, but if they’re out of your price range, do your best to make sure they match or blend in (i.e. white appliances with white cabinets). The same goes for bathrooms.
- You need more space. If you’ve had another child and you aren’t ready to move, adding a bedroom may be an option. But take a look at the market before you do – sometimes selling and buying something bigger is still the best option.
- Disproportionate to the neighborhood. If you’ve only got one bathroom in a two- to three-bathroom neighborhood, you might need to do something about that. Again, in a seller’s market this might not be the issue that it could be city with higher days on the market.
Where remodeling makes sense
Projects vary in value, especially on a local level. Homes in San Francisco and other expensive Pacific markets saw a 78.2% return overall, with 10 projects garnering a minimum 90% ROI. The profit margins are higher and people expect a more finished home. But slow, inexpensive markets like the Midwest paid back only 54.9% with no projects over 80%.
If you’re thinking of remodeling in order to sell, talk to an agent first to get an understanding of what your local market demands.
This story is based on an article by Redefy President and CTO Chris Rediger for Inman News.
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