Updated: Sep 23, 2020
Thinking about doing a home renovation? It might be beneficial to first consider the value it will add to your home. Even if you’re not planning on moving in the immediate future, if you are considering moving within the next 3-5 years it is wise to keep in mind the impact any renovation costs might have on resale value. After all, who doesn’t want to get to enjoy the renovations you complete on your home AND reap the benefits of added resale value?
You might assume that you would be able to recoup any investment you put into your property but unfortunately, that’s not true. In fact, according to a recent survey in Remodeling magazine, the average return on investment (ROI) on 21 popular remodeling projects came in at 56% in 2018. Yes, that means on average, people recoup about half of their remodeling costs.
That’s not to say you shouldn’t do a project, you just have to be smart about exactly what you choose and the total amount of money you’re spending. If you are planning on selling at some point in the future, the key is to figure out exactly which upgrades increase home value. This is going to depend on the type and price range of the house you have.
One of the biggest dangers in home renovation often comes in “over improvement”, which means adding features that are too expensive for your area, neighborhood, or specific home. For example, if you have a $200,000 home but install a $50,000 kitchen, you have likely outpriced your market and are not going to be able to recoup that large of an investment.
The second common issue is over personalization. While you obviously want to choose renovation projects that are attractive to you, making them too specific or not considering typical buyer wants and needs if your long-term goal is to sell can make it even less likely that you recoup your investment. Not sure if a project is a good decision? I’ve done some research on the most common renovation projects and their average ROI to give you a better idea of what might be the best long-term investment for you. Keep in mind however that these are national averages so there will be some variability by region and market. If you have specific questions about your market, you can always contact a local real estate agent to get more specific advice.
Figure 1: Rank of Common Home Renovations' appeal to buyers (highest to lowest) according to the National Association of Realtors 2019 Remodeling Impact Report
Kitchen Upgrade vs. Complete Kitchen Renovation - You may have heard that kitchens and bathrooms sell houses. That’s true…to a point. These types of renovations are also typically the most expensive, and, if you’re not careful, the ROI might not be as great as you imagined. According to the 2019 NAR National Remodeling Impact Survey, a midrange minor kitchen remodel is likely to cost an average of $22,507 with an average resale value increase of $18,123. That’s an 80.5% cost recovery. However, midrange major kitchen remodels cost an average of $66,196 with an average value increase of $41,133. That’s just a 62.1% cost recovery. So, if you’re primary goal is to add to resale value, find ways to minimize cost on this project. Refacing or repainting vs. replacing cabinets is a great way to save money here. Also, consider the quality of the appliances you install. Stainless steel still has the best resale value but ultra-high-end appliances should be reserved for the higher price ranges if you’d like to recoup their value.
Bathroom Renovation - Updated bathrooms are also higher on the typical buyer’s priority list. The average mid-range bathroom remodel will cost you $20,420 and result in a $13,717 increase in resale value. That’s a 67.2% return on investment. On average though, an upscale bathroom overhaul will only recoup about 56% of your investment. It’s good to be smart here too, skipping things like heated floors and towel racks, elaborate shower and bathroom fixtures will keep your costs down to maximize your budget.
Opening Up the Floor Plan - Let’s face it, the majority of buyers these days are looking for open floorplans. Over 70% of current buyers are looking for homes with an open layout and homes that are missing this feature are sitting on the market longer and selling for less money. Having sight-lines into multiple rooms is a must-have for many people and the open space can be desirable for things like entertaining on top of daily function. The ROI on this is much harder to track though because there’s going to be huge variability in expense here depending on the structure of the home. Generally, creating a more open floor plan is an excellent investment from a resale perspective. However, keep in mind that a floorplan can be TOO open. Having defined spaces is critical to helping buyers figure out how to use a space. If a layout is completely open with no defined areas, it gives off more of a warehouse feel than a true cozy design and makes it difficult to figure out exactly where to put things. If you want to open up the layout of your home, talk to a licensed contractor to determine structural factors that will cause the price to vary drastically. For example, removing a large load-bearing wall is going to run tens of thousands of dollars whereas a smaller non-loadbearing wall will cost a fraction of the price to remove.
Installing New Flooring - The National Association of Realtors says you will actually recoup 100% of the cost of refinishing your hardwood floors at resale. And, if you install new wood flooring you will recoup roughly 91% of the cost. Most buyers are looking for solid floors over carpet, so it is generally a good investment. That said, the ROI on flooring still also depends on its current condition and the price range of the home. Generally, if the existing carpet is in good condition it does not pay as much to replace. However, if you have pets or your carpet has seen better days, a couple of thousand dollars to replace it is well worth the expense.
Adding Livable Square Footage - One of the quickest ways to add value to your home is to add additional livable square footage. Typically, true home additions have a huge price tag that won’t get you much in the way of return on investment. True home additions can very quickly and easily run you into the six figures in cost depending on structural needs. So, building out existing spaces or adding exterior living space is a great way to do this at a fraction of the cost.
Add a Deck – While it won’t technically add to the square footage of your home, having an outdoor living space is hugely popular right now. The space adds additional livable square footage and allows for a lot of versatility in use whether you want to host a party or just have space to grill or relax outdoors. The average wood deck addition will cost you about $13,000 with an average increase in the resale value of $10,000, that’s a 76% return on investment. A composite deck doesn’t fare quite as well though with an average ROI of about 69%.
Finishing a Basement – Since the space already exists finishing a basement is much more cost-effective than an addition. Keep in mind that additional square footage is calculated a bit differently if it is below ground and the additional square footage isn’t valued quite the same. But, finishing this space can give you a significantly more livable area in your home that can function in a variety of ways from a home gym, media room, playroom, additional bedroom, or many things in between. Finishing a basement is also generally a solid investment from a resale perspective. According to the NAR report, you to recoup approximately 70% of your investment. Certain other factors will also impact ROI including your specific real estate market, materials used, and use potential.
Finishing an Attic – This is another way to add additional living space within the existing structure of your home. In general, though, an attic conversion doesn’t do quite as well as finishing a basement, with an average ROI of about 56% of the total renovation cost. However, factors like being able to add an additional bedroom or bath in the space can definitely help you here. Just be wary of the total cost of doing so.
HVAC Replacement – While not quite as fun as having a brand new kitchen or bathroom, this project ranks high up on a buyer’s wish list for updates. Your HVAC system is something you don’t truly appreciate until it stops functioning. Buyers will want to know when the HVAC was installed or replaced and if your system is nearing the end of its life, it can be beneficial to replace from a resale perspective. In fact, the National Association of Realtors notes an average ROI of 85% from this project, one of the highest of all so far.
Figure 2: Average Return on Investment of Common Interior Home Projects according to the 2019 National Association of Realtors Remodeling Impact Report
Don't have a big budget? Don't worry, you can still add major value to your home with these low-cost upgrades:
Interior Paint - Light, neutral wall colors are great for resale because they provide a great palette that allows for buyers to imagine living in the space. Loud or highly personalized walls do the exact opposite and may make a home feel dated so this is a quick, low-cost fix that is sure to up your resale value. A neutral interior paint palette has been shown to increase a home’s resale value by between $6-10,000…a huge ROI, especially if you complete the project yourself.
Lighting – Brighter lighting in rooms (either natural or artificial) makes the space feel bigger, lighter, and more welcoming. Let’s face it, most of us don’t want to live in a dark cave. Even just swapping for brighter bulbs can go a long way in improving the feeling of a space and your overall mood while you’re in it. Consider the value of updating your light fixtures as well. They can easily make a space feel dated so a quick swap can go a long way in making your home feel fresh and new.
Kitchen and Bathroom Fixtures – Want to make your home feel more updated but don’t have a ton of money to sink into a bathroom or kitchen remodel? Swapping out drawer pulls and knobs or faucets can quickly modernize a space on a fraction of the budget. Styles will vary significantly by region, but brushed nickel, stainless steel, and oil-rubbed bronze fixtures are relatively classic colors and generally safer bets.
What renovations have you done on your home? Is there a specific project you're planning for in the future? I'd love to hear about it!