Often sellers ask me if it would be worthwhile to remodel their homes prior to putting them on the market. I recently saw a short blurb on one of the home improvement television shows that mentioned that baths and kitchens had the highest return per dollar invested. However, I also have been reading some reports that echo what I see out in the real world. In only a very few specific markets, do any remodeling projects exceed a 100% return on investment. Even when they do, they are just slightly over that mark. While it is true that a bathroom or a kitchen remodel will increase the value of your home more than, say a home office or a Florida room. To me it does not make sense to spend $40,000 when the work will only increase the value of your home around $35,000. Looks to me like you will be losing $5,000 on the deal. Not to mention the stress and headaches that most home projects create.
Here are some general guidelines that I think are worth considering:
- A remodeling project is more worthwhile if you will not be selling your home for a few years. Here the main goal is to create a space or feature that your family will enjoy for a while, not to immediately increase your home's value. Even if your immediate return on investment is only 80%, over a few years the natural appreciation that will take place should move your return above the 100% mark, and thus help you recoup your costs.
- You might want to consider remodeling if your home is not as competitive as others in your neighborhood. If all of the houses around you are 3 bedroom, 2 bath, 2 car garage homes, and yours is a 2 bedroom, 1 bath with just a carport, you might want to try to make yours more like your neighbors'.
- The reverse of the previous item is that if your home is unlike your neighbors' because it is the best property on the block, you should think carefully before doing anything more. The danger of "over-improving" your home is very real. If someone wants to buy an expensive luxury home, they usually want the homes around it to be of the same kind. They usually do not want their mansion surrounded by homes of lesser value. If you put in an inground pool in an area of small homes and small lots, your return will be greatly reduced. I am not saying you should never do it, but you should think long and hard before arriving at a decision.
- If you are capable of doing the work yourself and will only be paying for materials, you have a better chance of getting your money back when you sell, even if you sell a short time after the work is done. Labor is a large part of any remodeling project. If you can eliminate it, almost any change can pay off. However, if you are not qualified to do the work, it is better that you leave things as they are. Poor workmanship, or what a carpenter friend of mine used to call "cobjobs", stick out like sore thumbs and turn buyers off. And if the buyers do not catch shoddy work, you can be sure their home inspectors will.
- Keep in mind that if the changes you make are according to your specific tastes, they may not appeal to the majority of the home buying public. I knew of a lady who spent a fortune on creating a music room, with baffles, sound proofing, a small stage, etc. There was no way she could recover her costs since finding someone who needed that exact type of room was very, very small. Most buyers could only see that they would have to redo the entire room to get back the third bedroom that the home lacked.
- If the work you have done requires a building permit, be sure to get it. Sellers will be asked on the "sellers disclosure" to reveal any work that was done without the proper permits. This can be a big problem when buyers find out that your home's new addition may not be legal and has to be brought up to code or torn down. Real estate agents are required to disclose these types of problems if they exist. The law does not allow us to keep our lips sealed. We must tell.
- Do not confuse remodeling with "fixing-up". If your home needs repairs, these should be done prior to putting your home on the market. When buyers see problems, they start adding up in their heads what repairs will cost, and they usually double the amount of what the repair costs really will be. If they see a lot of work that needs to be done, they often assume that there are hidden problems that they cannot see and they subtract these costs from any offers they might make. Frequently, they just walk away thinking there is too much that needs to be done. In today's "sellers market" they have many other homes that they can buy. They will not feel forced to take what they see as a "fixer-upper".
- "If it ain't broke, don't fix it". It may not be to your advantage to replace all of the flooring, even if it is not perfect. Just as soon as you put in new wonderful wall-to-wall carpeting, some buyer will walk through the door and say "Gosh, too bad it does not have wood floors." And if you put in wood, they will wish it had ceramic tiles. Sometimes it is better to offer a credit and let them put in the flooring they like. Though, steam cleaning the carpets if they need it is a good idea. Dirt anywhere is never a good thing.
- Sometimes the cheapest investments will get you the biggest returns. If you have a bright purple wall or there are chips and stains in your walls, a small investment in paint can put thousands of dollars in your pocket. If your carpets are dirty, have them steam cleaned. Get the cobwebs out of the corners. Clean the heating vents. Spray and brush the outside of your home. These items take just a little time and a little money, but the return can be way over 100%. A home that looks and smells fresh and clean will sell faster and for a higher price. Let your home be the shiny apple on the block, not the moldy peach.
These are just general guidelines. Each situation is unique. Rely on the advice of your local real estate professional. He/She has the training, experience, and knowledge of your local market to confidently advise you on the best way to make (or not make) changes to your home prior to marketing it.
Feel free to contact me if you have any questions concerning this topic. My e-mail address is: firstname.lastname@example.org Best of luck!
John Elwell - REALTOR
Bill Nye Realty, Inc.
Licensed in Florida