Improvements to Avoid When Remodeling

So your home has been sitting on the market for a few months.  You’ve had a few modest inquiries from investors, but the demand simply isn’t what you were expecting.  What are your options?  If you said home renovation, please raise your hand.

You are the people I want to talk to.

“Spend money to make money” is a truism as old as dirt, and even today its logic still holds up more often than not.  If you sink, say, $40,000 into a home remodel, the hope is that not only will you increase your home’s desirability, but you can play to the increased demand and up your asking price enough to cover the investment (plus ideally quite a bit more).

Seems reasonable, right?

But before you open Pandora’s Box and give your husband free reign over his power tools, consider the fact that not all home improvements are created equal.  Just because something can be upgraded doesn’t necessarily mean that it should.  If you want to get a sizable market return for your investment, you need to be smart about where you put your money and what improvements will give you the highest rate of return per dollar.

And, arguably more importantly, you need to know the areas of your home to leave alone.

Remember, I’m speaking purely in terms of increasing the value of your home on a seller’s market.  If you’re planning on living in your home for several more years and always dreamed of installing solid gold, bum-cleaning toilets, carpe diem. No renovation is off the table if it’s for your own personal enjoyment, because after all it’s your house and you can do with it whatever you want.  When trying to sell a home though, what you want is small potatoes compared to what the market wants–and these days you’d be surprised what the market is and isn’t willing to pay top dollar for.

These improvements, unfortunately (and surprisingly) fall into the latter category.  Spend at your own risk.

The Kitchen

This one might be a tough pill to swallow, especially considering it might intuitively be the first room you’d turn your attention to.  But kitchens, believe it or not, consistently offer some of the lowest returns on investment than just about any other home improvement project.  According to Zillow, any renovation on any level–be it replacing the cabinet doors to installing diamond-coated countertops–will only increase the value of your home by $0.50 for every dollar spent.  You may be increasing the value of your home, but the chances of recovering those costs through a higher sale price are microscopic at best.  So if your kitchen has a sink, a stove, and a place to store soup cans, consider yourself good to go in this department.

The Basement

Common sense might tell you that if you can get a huge investment return on adding an extra story to your home, then you should get that same return with a finished basement.  What’s the difference?  But for whatever reason, basements, with a $0.48 recovery per dollar, get half as much of an investment return than extra stories (which return about $1.02 per dollar).  Zillow cites several reasons why this might be the case (one of them being basements are where serial killers always hide in the movies), but their most compelling is that adding extra stories, unlike basements, actually add to your home’s overall square footage.

Upscale Windows and Bathrooms

Windows and bathrooms are two of the cornerstones of basic home renovation, and the value of improving them should never be discounted when trying to increase your home’s market value.  However, when trying to budget your investments you must draw a fine line between improving aesthetics and improving functionality.  Making sure your shower doesn’t turn on when you flush the toilet is one thing–installing a Whirlpool jacuzzi is quite another.

Bathroom and window improvements operate on a scale of diminishing returns, which means after the threshold of maximum functionality has been reached, each subsequent “upscale” improvement will give you less and less of a return on your investment.  Replacing those painted-shut windows will generate a huge return since you’re doing something to improve their functionality, but replacing a functional window with cathedral stained-glass (despite how expensive it may be) will increase your home’s value considerably less.  So for the sake of selling, focus on “mid-range,” function-based improvements to maximise your returns–no need to turn your home into the next Biltmore Estate.

A Better Use of Your Money

Instead of making renovations that can be a large investment costing you some serious coin, make some upgrades instead. Consider updating things in your home such as:

• Your HVAC system or multi fuel stove.
• Upgrade your kitchen cabinets.
• Paint your rooms a new color.
• Update your light fixtures
• Improve your home’s landscape

These are just a few examples of how you can improve your home. They may not add significant value, but they can assist in getting your home sold. It’s important that things like this are taken care of, especially when it comes to the inspection. The best part, they can be DYI projects to help save money.

Source: Zillow Talk: The New Rules of Real Estate by Steven Rascoff and Stan Humphries