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Homeowners often undertake remodeling projects with an ulterior motive. Sure, they want to enhance their living space; but frequently they hope the renovation or addition will boost their home’s value as well. After all, aren’t three bathrooms better than two? Who wouldn’t want a state-of-the-art kitchen, a finished basement or a swimming pool?
Misguided thinking. When it comes to adding value, not all home improvements are created equal. In fact, “some home projects can actually decrease your home value,” says Mischa Fisher, chief economist at Angi, the contractor search service and house renovation site.
In general, you can expect home improvements to provide a 70 percent return on investment, according to the home remodeling loans platform RenoFi. That figure can vary significantly however, depending on the specific type of project you take on.
Do home improvements always add value to the house?
The short answer is no, home improvements do not always add value. Even if they do, that’s not quite the same as you actually making a profit on the project, or even recouping your costs. There’s a big difference between adding value to your home and earning a return on your investment, says Fisher.
You can look at a project’s returns in two ways: First, how the project raises the total resale or market value of your home. This is a nice way to see how your home’s worth has changed, compared to the money you spent on the project. It can be useful to know if you’re thinking of putting your house up for sale, are contemplating borrowing against it or just want a sense of its overall value — and your equity stake in it — when totaling up your assets.
Alternatively, you can look at the project’s return on investment, or ROI. “This is a measure of how much the home’s value rises as a share of the project cost, typically expressed as a percentage of the total project cost,” Fisher explains. “For example, if a $4,000 garage door improvement adds $3,500 to the value of your home, you could say the project has an 88% ROI. This means you are able to recoup a large share of the project cost. This is different from the financial investment world, where an 88% ROI would mean you nearly doubled your initial investment.”
The point is, don’t confuse a project’s return on investment percentage with the amount of profit — or amount of increased home value. For example, Remodeling’s 2021 Cost vs Value Report says replacing a metal roof costs $46,031 and has an ROI of 56 percent. That means it bumps a house’s potential price tag up by $25,816 — it does not mean the entire value of your home increases by 56 percent. And you’ll notice that the $25K the new roof adds falls significantly short of the $46K spent on it.
Frankly, very few renovations and remodels fully recoup their costs, or even most of their costs.
What kind of home renovations are more likely to add value?
There are specific renovations that historically have been more valuable than others. Here are some that earn the biggest bang for your renovation buck, based on the latest intel from the Remodeling 2021 Cost vs Value Report report and Angi.
- Garage door replacements: Garage doors are one of the few home renovations that actually come close to recouping their entire cost, offering a 94 percent ROI. Installing a new garage door can be a relatively inexpensive project, costing anywhere from $750 to $1,600. And it’s an investment that can seriously boost your home’s curb appeal.
- New stone veneer: Putting a stone veneer on the facade of your house (instead of, say, vinyl siding) is not a cheap undertaking. Expect to spend $87,500 to $125,000 for a 2,500-square-foot home. But stone is a sturdy, aesthetically pleasing material that works wonders for curb appeal, says Fisher. It also provides a rock-solid return: 92 percent ROI.
- Kitchen remodels: Kitchens are easily one of the most important rooms in a home, so it’s no surprise people value a smart, modernized space, says Fisher. On average, kitchen remodels lead to a 72 percent ROI. The average cost of a kitchen remodel is between $25,000 and $40,000.
- Siding replacement: Siding is one of the first things prospective buyers notice about a home, so it needs to be attractive and sturdy, says Fisher. Replacing siding, which ranges in cost from about $5,400 to $15,500 depending on the materials selected, can lead to a 69 percent ROI.
- Window replacement: Not only can windows step up the visual appeal of your home, but they can also help keep it as energy-efficient as possible, says Fisher. Though this won’t be an inexpensive project — windows can cost anywhere from $200 to $1,300 each — the 68 percent ROI is crystal clear.
- Bathroom remodels: Aside from the kitchen, spiffy, up-to-date bathrooms are often the most important aspect of a home that appeals to potential buyers, says Fisher. On average, updating your bathroom leads to a 60 percent ROI. As for how much you can expect to spend on this type of project, the cost varies significantly from $6,200 to $15,200. The national average is about $10,800.
What determines if a renovation adds value?
Are there any rules of thumb for determining whether a renovation will be a value-enhancing proposition? David Steckel, a home expert for Thumbtack, suggests asking yourself this question: Will this increase the number of people who would potentially bid on my home if I were to sell it?
“If the project adds structural renovations or makes it easier for additional projects to take place, then yes, it will add value to your home,” says Steckel.
Renovations that increase the size of a home, or create additional outdoor space with multiple functions, or increase the functionality of spaces, can also be relied upon to add value, says Steckel.
What home renovations might decrease your home value?
Not all home improvements improve your home’s value. Some actually detract from it, because they turn buyers off.
“Potential homebuyers don’t want features that require ongoing maintenance, like in-ground pools and built-in electronics,” says Fisher. “Buyers also prefer homes with more bedrooms, so removing one bedroom to make another one bigger may end up decreasing your home’s value, rather than adding to it.”
Also: Buyers prize ingenuity — hey, look at how that closet fits in there! — but not too much originality. Hyper-personalized styles and details can take away from your home’s value, making it harder for prospective buyers to envision themselves in the space. It also creates an automatic to-do list of projects before the space can feel like home to a new owner.
“If you’re getting ready to sell your home, think about whether your updates will appeal to prospective buyers,” Fisher says. “This will be a particularly relevant question for projects with high visual impact, like overdecorating, installing wall-to-wall carpeting, adding bright, patterned wallpaper to every room or adding texture to your walls.”
If you’re planning on staying in the home for several years to come, it’s fine to indulge your tastes and make rooms feel like you. But you may need to undo some of the work when it comes time to stage your home to sell.
How can you avoid renovations decreasing your home value?
While some projects certainly do increase a home’s value, it’s important to do your research, ensuring that you don’t make changes that may be a turn-off to future buyers.
“Talk to local [contractor] pros before starting a new project to ensure you aren’t accidentally decreasing your home value, especially if you’re thinking about selling,” Fisher advises. You might also get advice from acquaintances in the residential real estate industry, who have firsthand experience with trends and preferences.
You can avoid decreasing your home value by carefully choosing projects, settling on those that have a track-record of reliably boosting curb appeal or that are likely to appeal to the broadest range of prospective buyers.
And remember, the more customized your renovations are, the less likely it is that prospective buyers will like the work you’ve done.
It’s also a good idea to make sure the improvements you make are consistent in character and even in color with the rest of your home. And if the renovations will be obvious on the exterior, make sure any changes you make are also consistent with the surrounding neighborhood as well.
“Homeowners must choose wisely when selecting everything from the layout, contractor, paint colors, finishes and more,” says Steckel. “In order to avoid decreasing the value of a home, keep in mind that the ultimate goal of making upgrades and renovations is to improve the overall functionality of the spaces within the home.”
Should you renovate your home based on your house value?
There are many factors to keep in mind when contemplating home renovations. In addition to being clear on your long term goals for the home and understanding the potential ROI of your investment, you should also consider the home’s value before spending too much money on any changes.
This is because what you get back on renovation investments is also linked to the value of the home. And the value of your home is impacted by such external factors as the value of other homes in your neighborhood. Beware of “overbuilding”: that is, renovations that make a home a lot pricier than its neighbors. Improvements that bring your home’s value up to the average price in the neighborhood, on the other hand, may provide a better return.
If you’re planning on taking on major home improvement projects, like kitchen or bathroom remodels, Angi recommends being safe and budgeting between 10 percent and 20 percent of your home’s value for the job. “The ROI on your home projects will be impacted by the value of your home,” says Fisher. “Spend too little and it will seem like you cut corners, but spend too much and you won’t earn back your money.”
And try to think long term: The housing market is constantly changing, and your home’s value may not be the same six months or a year from now.
The bottom line on home improvements and house value
Homeowners considering major home improvements should think about their own comfort and needs first, and the value of the home second. While carefully selected renovation projects can indeed be a great way to increase your home’s value, the amount of return you’ll earn on that investment is another matter, and will depend largely on the type of project selected.
Real estate history shows that homeowners should not expect to recover all of their money when undertaking remodeling projects. While making a profit is certainly not unheard of, you shouldn’t count on it. It is simply one of many considerations to keep in mind.
“I don’t recommend renovating a home solely based on the current value, as this can change overnight, depending on the market and economy,” says Steckel. “Homeowners should approach renovations by asking themselves, ‘What will appeal to a future buyer the most?’ And consult a [construction] pro to find the best way to achieve this goal within your budget.”