Market Analysis

Data Shows that Sellers Should Not Get Involved in Costly Renovations

Homeowners can get carried away with the idea of renovating their home before selling.  The evidence, however, from an overwhelming number of major sources, shows that there is either minimal or no payback from the dollars spent on renovations. When one considers the risk involved and the time and energy spent on renovating a home, it may make a lot more sense to just lower the listing price.

The table below is derived from Bankrate, the National Association of Realtors,and an independent brokerage show that the return from investment (ROI) for almost all home improvement projects is negative.  We also provide links to 11 source articles for more information.  

For example,Bankrate puts the ROI from a major kitchen remodel at 62%.  That would mean that $15,000 spent on this project would return just $9,300 from a home sale.  Given the disruption and energy required to accomplish this project, it would make sense to just lower the price of the home by $15,000 instead of losing $5,700 through renovation and sale.

Compass and other Real Estate Brokerage companies are introducing programs to advance the money to sellers for home improvement projects. This money is paid back after the sale. Sellers should weigh the consequences of these programs carefully in terms of ROI.  

 

Home improvements can be done for a number of reasons. The project may:

1.     be necessary to create a functioning home

2.     improve the home living experience

3.     improve the chances of an upcoming sale

4.     raise the potential price of the house for sale

Given the statistical data, only (1) and (2) above are valid reasons for taking on the financial risk and hassle of a renovation. (3) could probably be better accomplished by just lower the listing price by the amount of the proposed renovation.

There are, however, relatively inexpensive projects that almost always make sense.  Some of these are listed below in order or ease and expense.

1.     Clean up the house; especially trouble areas like the garage, attic, and basement

2.     Brighter light bulbs

3.     Small repairs:

·       Replace any broken or cracked windows

·       Fix cracked or missing tiles

·       repair grout

·       fill small cracks in walls and ceilings

·       update hardware and lighting fixtures

·       replace damaged, worn and dated, or mismatched items:  doorknobs, cabinet pulls, light switches and plug-in plates

4.     Painting walls and trim(neutral colors)

5.     Landscaping

6.     Refinish floors

7.     Consider upgrading your furniture if it is in bad shape. You can always take it with you when you go.

 

Renovation and improvements made for the purpose of selling a home should only be undertaken if they make financial sense.

SOURCES:

https://magazine.realtor/home-and-design/feature/article/2020/01/presale-renovations-take-off?hs_social=linkedin&hs_profile=national%20association%20of%20realtors%C2%AE&hs_sid=08f14270-a2f5-4f29-92ea-9e95d7875a0c

https://www.nar.realtor/research-and-statistics/research-reports/remodeling-impact

https://frederickrealestateonline.com/home-improvement-best-return-on-investment/

https://www.remodeling.hw.net/cost-vs-value/2019/

https://sellingwarnerrobins.com/diy-projects-that-increase-your-home-salability/

https://www.bankrate.com/real-estate/home-renovations-that-return-the-most-at-resale/

https://www.thebalance.com/should-i-fix-up-my-home-or-try-to-sell-as-is-1798973

https://www.moneycrashers.com/7-home-improvements-to-increase-its-value/

https://www.hgtv.com/design/real-estate/top-home-updates-that-pay-off-pictures

https://realestate.usnews.com/real-estate/articles/10-diy-projects-that-add-value-to-your-home

https://www.zillow.com/blog/prepare-your-house-for-sale-213113/

Jeffrey Sloane

Jeff Sloane is a former Wall Street trader who now provides institutional research for banks and hedge funds. His most recent projects are focused heavily on emerging technologies in the real estate market.

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