Will This Home Renovation Pay Off?

Kimberly Palmer

A guide to deciding which home renovation investments are worthwhile and which are not

Here's the dirty little secret about home renovations: Most of them don't pay off. According to Remodeling Magazine's annual survey, only steel entry-door replacements can be counted on to boost home value enough to recoup 100 percent of costs. Of course, the value of a renovation doesn't depend on the resale price alone, which makes deciding whether to do one more complicated than just crunching numbers.

"If the purchaser walks into a home and says, 'Wow, look at this kitchen, honey, it's so great,' and if that home sells quicker, the seller still gets value from the renovation, whether they get the return on investment or not," says Kit Hale, general manager of MKB Realtors in Roanoke, Va. The home might sell quicker, or the buyer might be so excited about a particular feature that they ignore other problems, such as water damage or much-needed maintenance elsewhere.

For anyone trying to decide whether to take on a home renovation, these five tips can help:

Think about what you, the current homeowner, want from your home. Homeowners can get a lot of value out of renovations before they even put the home on the market. "If you have a dated kitchen or the stove doesn't work, you can invest money now to glean some enjoyment as well as make the home more appealing when you sell it," says Hale.

That's what Erin Schaff and her boyfriend did when they decided to upgrade their two-bedroom condo in Victoria, Canada, several years ago. "It wasn't in horrible shape, but we wanted to upgrade," she says, so they spent about $10,000 replacing the baseboards, window trim, and floors. They also remodeled the bathrooms and upgraded the hardware. In addition, they put new cabinets, appliances, and granite countertops in the kitchen.

Schaff and her boyfriend enjoyed all those upgrades before deciding to sell their home earlier this year. She believes the renovations paid off, too. "Had we not renovated, we probably would have lost money as we had purchased the condo at the peak of the real estate boom. Instead, we turned a profit and covered most of the costs of purchasing the house we now live in," she says.

Consider maintenance costs separately from renovations. If a roof needs to be fixed and the owner replaces it, sellers look at that as routine maintenance rather than a renovation, says Hale. That means it might just help the home sell for its existing market value, as opposed to adding extra value. Similarly, if parts of the home are in disrepair and in need of maintenance, sellers can subtract the cost of those upgrades from what they consider the home to be worth.

Don't forget about cheaper upgrades, from landscaping to staging. Realtors don't slip apple pies into the oven before an open house just in case they get hungry; inviting smells, sights, and sounds are known to put buyers in a home-purchasing mood. "Many folks form an opinion from the sidewalk," says Hale. If potential buyers see weeds, broken sidewalks, and unkempt shrubbery, then they might not even want to go inside. But if they see a well-cared-for exterior, they might get excited about the property before they even see the kitchen or master bedroom.

That's why renovations that affect "curb appeal" can go the farthest. According to Remodeling Magazine, replacing a home's siding recoups 80 percent of its costs, on average, and window replacements replace just over 70 percent of costs. Both of those types of renovations are usually visible from the road. Meanwhile, the average major kitchen remodel recouped just 60 percent of its cost, and the average cost was a hefty $113,000. Similarly, master suite additions, bathroom renovations, and deck additions also recouped less than 60 percent of their costs.

Cleaning up can help as much as building bigger closets. Buyers like to see clear spaces without a lot of clutter. Hale says that some buyers make the mistake of trying to make bedroom closets look bigger by moving clothes into the basement. But that just shows buyers that the closets aren't sufficient, he says. He urges sellers to get rid of clothes and other items they no longer use to make their homes seem bigger, without doing a single dollar's worth of renovating.

Think like a buyer. "I tell sellers to walk into their homes as if they were the buyer. What are the things they see walking up to the home?" Hale says, adding that they should focus on the kitchen, appliances, and curb appeal. Today's buyers are especially interested in common spaces for the family to gather, such as screened porches and family rooms, as well as open-floor plan kitchens. That way, parents who are preparing meals can keep an eye on their children as they play or do homework. Buyers also care less about formal spaces today, which means a formal dining room could offer more value as a study or playroom.

The bottom line: Home renovations aren't just about the numbers, but a few basic guidelines can help buyers decide where to put their cash.

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