Remodeling ROI. Which project will pay the greatest return when you sell?

Whether you’re thinking about modernizing a room in your home or rehabbing an entire house, you’ll want to make sure the money you invest in the project has a positive effect on your home’s value. Before you start tearing up tile, ripping out old plaster or buying that “handyman’s special” you’ve had your eye on, consider consulting a professional real estate appraiser about the economics of your proposed project.

You may receive good advice on questions such as:

  • Is the improvement feasible and marketable?
  • Are neighborhood trends pointing to an upward cycle?
  • How to go about it

When it comes to improving your home, don’t count on a dollar-for-dollar return on every improvement. For example, real estate appraisers have found that remodeling a kitchen or bathroom or adding a room may bring the greatest return on a homeowner’s investment. Some custom installations can actually detract from value, which appraisers call “overimprovements.”

“The latest research shows that home improvements with a relatively low cost are most likely to generate a positive cost-to-value ratio,” says Appraisal Institute President Jim Amorin. “Spending big dollars on major renovations doesn’t necessarily equate to a dollar-for-dollar return. In short: cost doesn’t necessarily equal value.”

Amorin encouraged homeowners contemplating renovation projects to compare the planned improvement to what’s standard in the community. “Projects that move a home well beyond community norms are typically not worth the cost when the owner sells the property,” he says.

Make sure essential repairs are completed before you start improving — a posh sauna won’t make up for a leaky roof. In fact, simple and relatively inexpensive repairs such as plastering and painting could earn a better return on your investment than some major improvement projects. Many buyers can’t overlook tacky paint colors, old or dirty carpet and ugly kitchen cabinets. Start with freshening up what you already have before adding new features to your home.

When deciding what to improve first, take a look around and find out what other homebuyers want. That way, you’ll select those improvements for which the market is willing to pay. Beware of overimproving.

If you do it yourself, do it right. Keep your improvements consistent with the quality of your home and the character of the neighborhood. If you decide that you can’t do the job yourself, be sure to contact a reputable contractor. Pay a fair price for improvements, not an inflated price.

Also be sure to consider energy-efficient improvements. While they may not save you a great deal of money now, as energy costs increase, so will your savings. Many buyers are looking for “green” and “smart” features in homes these days. Even something as simple as installing a smart thermostat can be an attractive bonus to buyers.

Most importantly, obtain any necessary permits to make sure your improvements are legal. Illegal improvements might not add value. In fact, work done without the necessary permits can create problems for you and the new buyer when it comes time to finalize a sales transaction.

I would be happy to discuss ideas and a strategy with you that would be appealing to buyers. Let me know how I can assist you!

Sources:

The Appraisal Institute, “Remodeling & Rehabbing: Some Valuable Hints for Homeowners,” © 2014 (http://www.appraisalinstitute.org/assets/1/7/remodeling_rehabbing_web.pdf)

Florida Realtors News, “Top return on investment? Smaller remodeling projects,” April 20, 2017 (http://www.floridarealtors.org/NewsAndEvents/article.cfm?id=351064)

REALTOR Magazine, “Ugly Home Features Buyers Can’t Overlook, “ August 3, 2017

(http://realtormag.realtor.org/daily-news/2017/08/03/ugly-home-features-buyers-cant-overlook)

© 2017 Pinellas Realtor® Organization