Last week, we wrote a post for the proud new owners of fixer-uppers. If your idea is to buy the worst house on the best block and dump a bunch of money into renovations, read on! Unfortunately, the market doesn’t care about specific accounting or how much time, money and effort you put into your remodel. It’s not a simple equation of home price plus renovation costs equals new, higher home value. When it comes to home renovation and value, here’s the insider’s perspective.
Market Perception vs Reality
Let’s say you bought a $1 million home and spent a cool $250,000 on the most fabulous dream kitchen. It’s a natural assumption that the home is now worth at least $1.25 million. But the value a consumer may place on any given attribute of your home often isn’t the market price of renovation. The cold, hard truth is that value is based on what the market perceives and that perception is often changing.
It’s true that most buyers are willing to pay more for a well renovated “turn-key” home over one that needs a lot of work. But the actual money spent on those renovation doesn’t dictate their value. It’s a rare buyer who truly knows what renovations actually take, not just in terms of cost but also in the time it requires to make those decisions and the work involved in managing every step of it. Generally speaking, buyers perceive renovation costs to be much higher or much lower than they actually are. In comparison to new construction, where developers’ wholesale costs bring the construction price down, homeowners who are paying retail to remodel their individual home often spend far more money for identical (or often, inferior) aesthetics or quality.
It makes sense that without the benefit of scale, individual home renovations are just going to cost more. There are materials, labor and design costs, not to mention the downtime of not being able to use a kitchen undergoing a major remodel. Add in permitting, engineering and architectural fees. There’s the price of living off-site during the work, if that applies. Sadly, you can’t simply add up all these numbers, tack it onto the purchase price, and assume that’s what a remodeled home is now worth. It just doesn’t work that way.
The Best Practice
The best way to remodel a home and recoup costs is with a little homework. Ask an experienced real estate advisor for their insight into the updates and splurges that add true, quantifiable value, and what should be considered purely indulgent. You may still decide the indulgent is worth it, and that’s fine. But at least you’ll go into the renovation with a clear understanding of how it may affect the value of your home and what attributes are most important to the existing pool of buyers. Ping me, I’m happy to help!