A recent release by the Appraisal Institute advises homeowners to choose upgrades instead of major remodeling projects to see the greatest potential return on investment.
“In general, simpler, less expensive projects have the best cost-to-value ratio,” says Appraisal Institute President M. Lance Coyle, MAI, SRA. “Homeowners should invest in projects that are most likely to preserve the value of their homes.”
According to Remodeling magazine’s most recent Cost vs. Value report, only five projects saw their cost-to-value ratios rise over the past year: roofing replacement, garage door replacement, 20-gauge steel entry door replacement, vinyl siding replacement and fiberglass entry door replacement. Among projects with the biggest declines were two-story additions, composite deck additions, master suite and kitchen remodels.
Other minor projects with potential major payoffs, says the Cost vs. Value report, are mid-range and upscale garage door replacements, manufactured stone veneer, mid-range window replacements and minor kitchen remodels.
“It’s possible that consumers won’t be able to recoup the cost of the upgrade when the home is sold, so it’s important to meet, not exceed, what’s standard for the neighborhood, and to also consider expected length of time in the property,” Coyle says.
Making routine home repairs is essential to maintaining a home’s value. A house that has been well-maintained will likely have a higher value than a similar house that is in disrepair, Coyle says. For example, replacing worn out trim boards may in certain situations not add any additional value to the home. However, the home’s value is preserved when compared to similar homes in the area without worn-out trim boards.
For an unbiased analysis of what their home would be worth both before and after an improvement project, a homeowner can work with a qualified real estate appraiser to conduct a feasibility study. During this study, the appraiser will analyze the homeowner’s property, weigh the cost of rehabilitation and provide an estimate of the property’s value before and after the improvement.
Some green and energy-efficient renovations – such as adding Energy Star appliances and extra insulation – are likely to pay the homeowner back in lowered utility bills relatively quickly. Lower utility costs are also a draw for potential homebuyers. Use that to your client’s advantage.
Overall, making minor home improvements increases the likelihood that home sellers will get the best return on their investment. Research similar houses in the area to decide which upgrades will best benefit their home’s value.