Often times I see people who are looking for advice on what renovations to do to maximize the price they’ll get for their home. The thinking is that if they want to get top dollar for their home it will need to be current and show well.
True, if you do renovations top to bottom, if your home is modernized with current finishes and fixtures, if your windows are new, shingles, mechanical, it will ultimately increase the value of your home.
However, at what cost, and will you get back more than you put in? The reality is that in most cases the answer is a definite NO! Let’s look at remodeling a kitchen, because we all know that a kitchen is one of the best places to spend your money when renovating. Let’s consider two possibilities: Hiring someone to renovate your kitchen, and doing all the work yourself.
CASE 1: Hiring a contractor
In most cases, and in most marketplaces, you tend to get around 75% of your money back in increased value when you hire someone to do renovations. Assuming the work is done tastefully, and the craftsmanship is good, that’s probably about the best you tend to get. So a $20,000 kitchen reno will net you about $15,000 in increased value when you sell your home. That means that if you do the kitchen and only live in the home for one more year, it will have cost you $5,000 for one year of enjoying that beautiful new kitchen. Is that really worth it to you? Probably not.
CASE 2: DIY Renovations
Of course, if you’re doing the work yourself and saving on labor the math works out differently. As a “quick and dirty” rule of thumb, consider that in many renovation projects the costs break down to around 50% materials and 50% labor. So, assuming you have the ability to do a really great job renovating your kitchen yourself, it might cost you around $10,000 and you could see an increase in value of $15,000.
So in that scenario, it appears that doing the renovation with the intent of selling your home is a good idea. But is it really? Let’s consider this. The contractors you’d have paid to do the work would have made $10,000 in labor. However you only achieved $5000 net gain in value. So, essentially, you did all that work for HALF of what a contractor would have been paid to do it. What is your time worth to you? Is it worth more or less than a contractor? Only you can answer this.
Now if you’re planning on living in the home for a number of years, renovating is a great idea because you get the long-term benefit of an increased standard of living. You get to live in a nicer home and enjoy the benefits of that for years to come.
However, if you’re planning on selling in the next year, I would often advise that major renovation projects are not necessarily worth doing.
There are exceptions, of course. Consult a qualified REALTOR for your specific case. Mechanical upgrades are important, not because they necessarily increase the value of the home substantially, but because it can be very difficult to sell a home with substantial mechanical deficiencies unless you’re willing to reduce the price substantially. If the furnace is on its last leg, you should probably replace it. If the roof is leaking, you need to repair that. If the garage door no longer closes because it’s so warped and banged up, maybe have that looked at.
But perhaps take a pass on kitchen and bathroom overhauls. Don’t finish the rec room and put in that extra basement bathroom. And maybe reconsider replacing all the windows with new triple pane argon filled low-e.
Just my 2 cents! Your milage may vary. :)
Josh Nekrep is a licensed REALTOR with Century21Carrie in Winnipeg, MB, and founder of AgentPreScreen.com
