Return on Investment (ROI) on Renovations
Many home improvement companies will tout their particular specialty as the best possible way to increase the value of a home. The truth, however, is that just about every major change ends up adding less value to the property than its initial cost. There are a few exceptions, though.
The Worst Possible Renovations
Although repainting the house in bright green with contrasting orange trim may seem like a bad idea, it is not the worst. The worst addition to a home is a swimming pool. Not only will it not contribute to the value of the home commensurate with its cost, but it will actually frequently make a home less valuable than one without a pool. After all, with the smaller lots that dot many Alameda County communities, a pool is a waste of scarce space, as well as a major source of potential lawsuits and significant consumer of energy and water. Along the lines of a pool, many “custom” amenities tend to have very low paybacks. Wine cellars, home theaters and the like may be extremely desirable for the installer, but the number of potential buyers who will see them as an asset is limited by the number who share those interests.
Wiser Renovations
The key spaces in a homebuyer’s mind are bedrooms, bathrooms and kitchens. Changes to these areas can generate paybacks in the range of eighty to ninety-five percent. In other words, $10,000 spent on kitchen upgrades can yield an increase of up to $9,500 in a home’s value.
Reasonable kitchen renovations are an excellent example of an economically efficient renovation. Many buyers want stainless steel appliances, granite counter tops, modern sinks and the like, and will pay a premium for them. Along these lines, adding a bathroom to a home that only has one or renovating existing bathrooms will also yield strong ROI. Finally, adding additional bedrooms or, at lower cost, finishing an attic bedroom can offer an excellent return.
The Best Renovations
Every renovation noted above will not offer a 100% ROI. In other words, the homeowner will be spending money to improve the house for the buyer. Of course, any of these changes make sense if the homeowner is to remain in the residence and enjoy them, but not if one is simply preparing for a quick sale.
The best renovations for a quick sale are small, cheap cosmetic changes. Low cost and easily performed tasks like new paint on a home’s interior, neat landscaping, or new bathroom plumbing fixtures can significantly change a home’s appearance for the better. In addition, they can also convey a message that will lead the buyer to believe that the home is well-maintained and likely to present a pleasant and trouble-free ownership experience.
To live comfortably in a home, one should make major changes to compliment one’s lifestyle. To sell a home quickly for maximum net proceeds, small changes are the key to maximize ROI. This is as true in today’s market as it has ever been.
