Dollars spent on home renovations are on the rise, but overall return on investment is shrinking. According to a recent report from Remodeling Magazine, the current cost-to-value ratio for home improvements in the U.S. is 63.7%, down from 71% last year. That means that for every dollar spent on home improvements, homeowners receive just 64 cents back at the time of sale. Much of this decline in return is due to recent increases in contracting and material costs, but it’s still important to recognize that some home improvements are going to yield a better return than others.
Right now, it’s all about curb appeal. Nine out of the top ten home improvements on Remodeling Magazine’s list, from a return on investment standpoint, are exterior. The only interior improvement that made the top ten list is a mid-level kitchen remodel, which came in at #3 (78% return on investment). Updated bathrooms didn’t even make the top ten. In the current market, homeowners are going to get a better return on their investment by:
When clients ask me about spending money on kitchens and bathrooms before listing their house for sale, I generally discourage the expense. Though the updates might make the house more appealing to some potential buyers, it’s unlikely to put more money in your pocket at the end of the day because design choices are so personal. Many buyers will prefer to buy a less expensive house in need of minor cosmetic updating than to pay a premium for your design choices.
One tried and true way to maximize your return on a home renovation is to improve functionality and/or address a floor plan issue. Adding a bathroom to create a master suite is a great example, particularly if you can add that bathroom without having to add square footage to the house. Sometimes, it’s just a matter of capturing and repurposing existing, underutilized space. The same holds true for creating living space in an unfinished basement, as long as you have adequate ceiling height.
If you’re considering home improvements on a house that you’re planning to live in for the next ten to twenty years, potential return on investment isn’t that important. Make the changes you want, within reason, and enjoy them. If you might be selling your house in the next 3-5 years, you’ll want to be more careful about the investments you make.
Thinking about selling your house and wondering what improvements to make before listing? Give me a call. I’d be happy to weigh in.