Are Home Upgrades Worth It?

Pricey renovations won’t necessarily increase the value of your home

Back Article Jan 22, 2018 By Ryan Lundquist

As an appraiser, I get asked questions about the value of particular home improvements all the time: How much is a kitchen remodel worth? What about a bathroom remodel? Are solar panels a good way to boost property value? My answer is simple, and always the same: It depends. I know that’s frustrating to hear, but there’s a reason why it’s the best answer. So let’s talk about it.

You’ve likely seen those lists, maybe distributed by a real estate agent or published in Remodeling Magazine, that tell you what various home improvements are worth. They’ll state that a kitchen remodel increases the value of your home by $43,000, and upgrading a bathroom brings $22,000. Or wood floors compared to carpet will make your property worth $12,000 more. The home improvement lists are great because they’re easy to understand, but there’s one glaring omission: location, location, location.

If we’re not careful we start to expect that each time we spend a dollar on our homes, we’ll get at least a dollar back in the resale market.

A high-end kitchen in East Sacramento is not going to be worth the same amount in Stockton, just as extra garage space in San Francisco commands a very different price in Elk Grove, and solar panels in a $150,000 housing tract don’t yield the same value in an $850,000 neighborhood. The truth is, there isn’t a single figure attached to any given item, because the value of upgrades depends heavily on not only the improvements themselves, but the location of the property.

Related: The local real estate market doesn’t look the same at all price points

Related: These four Capital Region houses are something to write home about

Let’s also remember there’s a difference between home remodeling shows and real life. On TV, we watch flippers spend $40,000 on a house they then sell for a $300,000 profit. That makes for killer entertainment, but it would be a miracle in real life. In reality, profit margins are much thinner and access to cheap property is not what it was in the aftermath of the foreclosure crisis.

If we’re not careful we start to expect that each time we spend a dollar on our homes, we’ll get at least a dollar back in the resale market: “I spent $75,000 on concrete and backyard landscaping, so my home is worth $75,000 more.” Or, even more common, owners say, “I paid $35,000 for energy upgrades, so buyers are going to pay that.” But we have to remember value in real estate boils down to what the market is willing to pay — and that might be far different than the cost. It’s not an easy pill to swallow, but it’s the truth.

Okay, that was kind of philosophical, so let’s get into the practical side. Here are some things to keep in mind if you’re upgrading your home:  

Be careful when embracing personal taste: You love black shag carpet and zebra wallpaper — and your style is important when it comes to your home. I get it. But if you plan to sell down the road, you might consider marketability. Are buyers going to jive with your “upgrades,” or will your personal taste make your home less marketable? Be unique in life; in real estate, appeal to the masses.

Don’t outdo the Joneses: If you want to command the highest price in your neighborhood, then pay attention to what is selling at the top. Walk through the open houses, look at interior photos online, and talk to the real estate community. But don’t do anything more than what the top sales have done. In other words, keep up with the Joneses in term of upgrades, but don’t try to outdo them. You don’t want to over-improve your home to the point where buyers won’t pay for the extra stuff.

Search the market: If you want the skinny on what certain features are truly worth, try to find homes with and without those features. What is the price difference? Conduct some keen detective work to gauge if there’s any price reaction for the features. This is what appraisers essentially do when pulling “comps” (comparable sales). The idea is that support for value is found in the sales, so we look to the market for similar properties to tell us what buyers have been willing to pay. Remember, just because something was expensive doesn’t mean it’s worth anything to buyers.

Focus on the small things: The big stuff like adding square footage, a new kitchen or a full interior remodel definitely sways value, but buyers also see the small stuff. This is good news, because you don’t have to be swimming in cash to add value to your home. You might consider doing things like painting the kitchen cabinets, installing trendy light fixtures, painting a few rooms with on-trend colors, getting a new mailbox or planting flowers. It’s also a good idea to tidy-up any deferred maintenance, which could include fixing broken sprinklers, inoperable outlets or a patchy yard. A few hundred dollars here and there can really build up a home’s image.

Do absolutely nothing: Here’s the irony. Someone could do everything I mentioned above, but what makes the most difference for value is the market. For instance, we’ve seen huge appreciation rates since 2012 in the Sacramento region, and in many neighborhoods a property owner could literally have done nothing to a house and yet be sitting on a property that is easily worth 30–50 percent more. Yes, a kitchen remodel might increase value, but the big trend of the market has so much more power. And on the other hand, when prices were tanking in 2007, there was very little an owner could have done to outpace the rate of decline.

So what should you do to improve the value of your home? Well, it depends. 

Comments

Jamie Owen (not verified)January 29, 2018 - 12:09pm

Great article Ryan! You touched on so many great points. Thank you for bringing out the fact that the television fliping shows are not always reflective of reality. I also appreciate your point that it’s good to not ignore the little things that can contribute to a better market appeal.

Sandra Scott (not verified)January 30, 2018 - 9:47pm

I'm going to have to memorize a few of your points. SO many clients have no idea what their home is really worth. It takes talent on the part of REALTORS to get them to price with the market. Thanks for the great ideas on how to get closer to that goal.

Tom Molinari (not verified)February 1, 2018 - 5:29am

Very well said Ryan. Homeowners primary reason for making expensive upgrades, like that dream kitchen, should be for their personal enjoyment with full knowledge that they are likely to not get the full cost of the improvement back in a sale of the property. Enjoy your home. Loving that commercial quality range and the Calacuta marble counters has value different from market value. But it is value nonetheless. And also be aware that after a few years have passed that current trends and styles are likely to change and the market value of that dream kitchen may only be a small fraction of its cost.

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