When Making Home Improvements, What Should You Keep in Mind to Get the Best Resale Value?
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When Making Home Improvements, What Should You Keep in Mind to Get the Best Resale Value?

Make sure you know what kind of return you'll get on your home remodeling investment before you commit to a new project

April 19, 2021

When making home improvements, we want to get the biggest bang for our buck. But we also want to make sure that our upgrades will not only increase the home's value but increase it much more than the amount we invest. While every home is different and the amount of financial returns you'll reap will vary, some home improvements typically offer reliably higher returns when it comes to resale value.

Work With a Realtor if you're going to sell soon

When it comes to your home and the market, an experienced Realtor knows what's going on. So if you're going to be selling your home within the next year, reach out to a Realtor to get a jump on the process. The Realtor can meet with you, take measurements, assess the current state of the home, and give recommendations for improvements based upon the area and the current market. Your Realtor may, depending upon the market and the state of your home, recommend no improvements at all especially if the whole home needs significant work. After all, who wants to pay more for a home that has a modern kitchen but 1970s appeal everywhere else?

If you are going to do major work, it might make sense to delay final painting until you're close to listing your home. That way you don't have to make last minute touch-ups.

It's possible to do too much

More isn't always better. While it can be tempting to keep going once you've made one improvement, it might backfire to make a lot of major improvements. Sometimes the smallest improvements are the best ones to make. If you're working with a Realtor on listing your home, you'll typically get a list of things you must do, such as cleaning, patching the hole in the wall, and plugging the leak in the roof. You'll very rarely have a Realtor making suggestions on serious upgrades. After all, new buyers make their own minor improvements once they move in, such as changing paint colors and swapping light fixtures.

If you have time to plan or if you'll be in the home for a while, then more significant improvements might be the way to go. But it's easy to go too far. You can spend tens or even hundreds of thousands of dollars making massive improvements to the home. But unless you live in an area with high demand and lack of inventory, you might invest too much money. No one wants to buy a $400,000 home in a $120,000 neighborhood. So you won't get a return on your investment, even if you added the pool, a bonus room, a garage, a lavish kitchen, and $5,000 shower heads.

Better materials might be nice, but may not increase value

When making the decision to improve a part of your home, you always come to the point where you must decide upon materials. It can be tempting to purchase more expensive and higher quality materials, but it doesn't always translate into more money, especially with flooring, counters and paint. A prospective buyer doesn't care about the brand of paint used, so why not just use the cheaper paint?

When it comes to counters, it doesn't make much difference whether you use a granite that's priced at $45 per square foot or $200 per square foot. A prospective buyer will only see granite. An exception might be for a surface that is unusual yet still desirable, such as a texture. Likewise, buyers won't necessarily see much difference between a quartz counter and a granite counter. In the end, it's usually a step up from the typical counters found in many homes.

Flooring is an area where people have many different options, and that makes resisting the urge to go all out that much harder. It usually makes little difference whether you install a regular carpet pad or a thicker pad. Buyers won't see that. The same goes for the quality of the carpet. Buyers won't notice if the carpet is designed for high traffic or has more fibers per square inch. Buyers only see that the carpet is new. If you do decide to make a significant upgrade on carpet with the intent to wow buyers, place a sample out for them to see with a comparison to traditional products. The same rule applies to hardwoods and tile. They'll see a hardwood or tile floor, not the added money you put into getting hickory flooring or marble tile.

In a slow market, Returns on investment might be less

It all really does have to do with where you live. Homes that have no improvements might still move very fast and for a premium if the available housing supply is scarce. Likewise, if people don't want to live in your area and you have dozens of other competing properties, investing significant money into upgrades and repairs won't necessarily fix it. If you're in a hot market, you can command a premium for your home. When you add improvements to that home, you can command more of a premium.

Best focus areas when the budget is tight

These days, it's all about the kitchens and bathrooms. In older times, the living room was the place for people to gather in seclusion and privacy. Now, open floor plans with spacious kitchens seem to be where people hang out. So if you already have a home that's in good shape and doesn't need much beyond cosmetic fixes, focus your attention on the kitchen and bathrooms. Sometimes just a simple counter upgrade and new floors can be enough to make a home twice as desirable. That's why these two areas consistently return the most in resale value and help to sell a home. Just don't go crazy. Buyers are more likely to respond to a modest kitchen makeover than one that has you wondering which movie star lives there.

.Kitchen and bathroom remodeling projects consistently return the most in resale value and almost always help to sell a house. Converting a basement into a family room generally yields the smallest return on the investment.

Small projects can be huge money makers

Projects can be large or small. The cumulative effect of small projects can sometimes pay back more in resale value than one or two larger projects. Small projects tend to be cosmetic in nature: fresh paint, new doors, garden windows, and ceiling fans. Large improvements involve adding or upgrading living space and come with a lot of upfront investment for unknown returns. Unless yesterday's fad has become today's standard, you're best to start small and then evaluate. Decks, for example, were hard to find a few decades ago. But now it seems that most homes that can have them do have them, making their desirability much greater.

Be careful with unknown costs

When making many upgrades, it's easy to anticipate the cost. If you are replacing a few light fixtures yourself, the cost is usually just the cost of the fixtures. If you're making major improvements, such as renovating a kitchen, you face a number of unknown costs, as well. You might find that certain plumbing and electrical items that were fine when your home was built must now be brought up to code. You might also find that the sub-floor is damaged when removing old linoleum, necessitating repairs before the upgrade can proceed. Don't become blinded to potential hidden costs when making the decision to improve your space.

Multiple estimates are the way to go

You know that getting several estimates is a good idea, but many people simply don't do that. Whether it's a matter of available time or whether the contractor can start right away, many people pick one and stick with it. But getting multiple estimates can help you figure out whether you're paying a good rate or being overcharged. If you replace carpet with a company that advertises heavily, such as 50 Floor or Empire Today, you might be paying as much as twice what it would cost if you had the work done through your home improvement store, and generally with materials that aren't as high in quality. Companies that advertise heavily and have sales people come to your home have to pay those advertising fees and sales commissions somehow, and that comes from you. So get multiple estimates and never get forced into a contract without time to evaluate.

Project costs are typically not recouped entirely

As much as we hate to say it, the costs of many improvements aren't always recouped when it's time to sell your home. Sometimes you paid too much. Other times you made an improvement that no one cares about. You might even have made too many or too few improvements to wow the buyers. In any case, don't go into an improvement project thinking that you'll make a lot of money, if any. Many home improvements, while not realizing monetary gains for homeowners, help in other ways, such as getting more people interested in the home, more offers on the home, and faster sales.

Improvements you make yourself carry added risks

If you happen to do home improvements yourself instead of hiring labor, you can generally make a much larger return on your investment. But you have to make sure you know what you're doing first. You have to follow all applicable building codes and obtain the required permits. Failure to do so can cause you big headaches when it's time to sell and your buyer's home inspection turns up a litany of issues that should be repaired prior to closing. Never start work yourself if you are unsure how to proceed. Also keep in mind that labor costs fluctuate like any other cost. If contractors are begging for work, you can often get a lower bid on the job than if there is too much work and not enough labor.

Important Points

Not all home improvements are the same. Some projects net a much higher return than others, which might have you losing money in the end. The chart below highlights where some improvements may fall. Please note that these figures are only averages. The real cost and return of your project depend on a number of variables, including the market, the labor expense, and the age of the home.

Project Average Cost Return Percentage
New Heating or A/C System $2,000 to $4,900 60 to 100 percent
Tankless Hot Water Heater $1,400 to $3,500 Eight to 40 percent
Minor Kitchen Remodeling $2,000 to $8,500 94 to 102 percent
Major Kitchen Remodeling $9,000 to $25,000 Up to 90 percent
Add Bathroom $5,000 to $13,000 Up to 92 percent
Add a Family Room $30,000 Up to 86 percent
Remodel Bathroom $8,500 Up to 77 percent
Add a Fireplace $1,500 to $3,000 Up to 75 percent
Build a Deck $6,000 Up to 73 percent
Remodel Home Office $8,000 Up to 69 percent
Replace Windows $6,000 68 to 74 percent
Adding a Pool $10,000 and up Up to 44 percent
Landscaping $1,500 to $15,000 30 to 60 percent
Finished Basement $3,000 to $7,000 Up to 15 percent