Recent Data Suggests You Shouldn’t Spend Another Dime on Home Improvements Before Speaking With a Local Real Estate Agent
Lighter Side of Real Estate • June 14, 2023
If you do renovations or home improvements to your house, common sense says that doing so would raise the value, right?
The good news is that they do increase the value of your house!
The not-so-great news is that the amount your home goes up in value probably won’t be as much as you even spent on the project…
In fact, as CNBC recently reported, according to the 2023 Cost vs. Value Report, only 4 home improvement projects produce a positive return-on-investment. And if that’s not surprising enough, they probably aren’t even ones you’d think would make the list! The current projects that will net you the most profit when you sell your house are:
- Switching out a traditional furnace to a heat pump. That’ll put an extra $619 in your pocket based upon national averages.Replacing your garage door. That will add $116 to your bank account.
- Replace your siding with a stone veneer. Add $192 to your balance sheet.
- Change out your front door with a new steel door. Treat yourself to some lunch with the $21 you’ll recoup.
If you combined all four of those exact home improvement projects, you can expect to net a whopping $948!
The big, sexy projects most people think about doing to improve value — like a full-blown renovation of an existing bathroom or kitchen — will certainly add value, but they won’t increase the value as much as they cost to do. Those types of projects recoup less than 50% of what they cost a homeowner.
That said, those are based upon national data and averages. Here’s a link to the data CNBC cited in their article, which allows you to choose your specific area to get a better idea for how much you can expect to recoup on a project where you live. But the general gist is always the same: Very few projects will produce a positive return, regardless of where you live. And when they do, it’s rarely all that much of a return.
Should You Even Update or Renovate Your House at All?!
Once the initial shock wears off, the next question most homeowners have is whether they should waste any time or money on improving their house at all. But before you decide to never spend another cent or minute of your time on your house, here are a few things to consider:
- Updates and renovations will make your house more attractive and appealing to potential homebuyers.
- An outdated house (or one in need of repairs) can bring your value down. You need to maintain your house to about the level of other homes in the area, if you want to fetch a similar price to other recently sold homes.
- If your home isn’t updated, it can take a longer time to sell, or not sell at all, if it’s a slow market.
So you still need to make sure you’re keeping your house in good shape, and improving it over the years, if you want your house to sell readily and for as much as possible.
Things to Do and Keep In Mind if You Renovate
In order to maximize the money you spend on home improvements, here are a few key things you should do:
- Speak to a local real estate agent before doing any projects. Basing your decision upon national (or even regional) data can be misleading and inaccurate. Just because a particular type of project tends to produce a better return, and another does not in most areas, that might not be the case in your specific price range and market. A local agent will be able to help you assess whether or not a project will improve the value of your home enough to make it worth the investment.
- Don’t underestimate the value of your enjoyment. While a project may not produce a positive financial return, that doesn’t mean it won’t give you great satisfaction and enjoyment. There’s nothing saying you have to make money on the projects and home improvements you do, so long as you know what to expect ahead of time and aren’t surprised when you decide to sell.
- Be frugal and thoughtful about what you spend on improvements. New and updated is better even if it isn’t the highest end finishes or materials. Unless you’re in the luxury market, you can probably get away with doing lower-grade upgrades if you’re concerned about making as much of your money back as possible.
- Keep it neutral and universal. If you’re concerned about recouping as much money as possible, try to do projects and updates that will appeal to almost every buyer by keeping them neutral in style and color.
The Takeaway:
Many homeowners are surprised that their home renovations and improvements don’t increase the value of their home as much as they hoped, or even as much as they cost to do, when they decide to sell their house. But the reality is, very few projects produce a positive return-on-investment, and it isn’t very much of a return when they do.
If you want to maximize your ROI on home improvements, make sure to speak with a local real estate agent to help you assess whether a project makes sense before you spend time and money on it.
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Before You Fall in Love with a House, Do This First. Be honest. Have you started looking at homes online yet? If you have, it’s already time to get pre-approved . Because here’s what not enough people know. If buying a home is on your radar – even if it’s more of a someday plan than a right now plan – you don’t want to wait until later on in the process to tackle this step. No matter what you’ve heard, pre-approval isn’t about commitment. It’s about clarity. And here are the two big ways pre-approval sets you up for success. You Know Your Numbers Up Front During the pre-approval process, a lender will walk through your finances and tell you what you can borrow based on your income, debts, credit score , and more. And once you have that number, your search becomes a lot more focused. With a mortgage pre-approval, you know what you can borrow, so it’s easier to figure out your ideal price point, and what you can actually afford. And that clarity is key. Because if you just start browsing online and just guess at your price point, you run the risk of falling for a house that’s outside of your price range – or missing out on ones that aren’t. You want this number to be clearly defined before your search. Here’s why. You Can Move Quickly When You Find the One This is how a lot of home searches go today. You scroll through listings just to see what’s out there, and then it happens. You fall in love with something you’ve seen online. If you’re already pre-approved? You’re probably in great shape. But if you’re not… Instead of being able to jump on that house and quickly make an offer, you have to scramble to get a lender, gather the financial documents, and then submit the necessary pre-approval paperwork first. And while you’re waiting to hear back from your lender, someone else who’s more prepared could beat you to the house. As Bankrate explains: “The best time to get a mortgage preapproval is before you start looking for a home. If you find a home you love but don’t have a preapproval in hand, you likely won’t have time to get preapproved before you need to make an offer . . .” And that’s avoidable, with the right prep. Because while you can’t control when the right home shows up, you can be ready for it. Think of it like showing up to the starting line with your shoes tied and your warm-up done – while everyone else is still looking for parking. It’s not about rushing your timeline. It’s about removing the delay between finding the right home and being able to move on it. One Thing You Need To Know About Pre-Approvals Speaking of timing, pre-approvals do have an expiration date. So, be sure to ask your lender how long it’s good for. The Mortgage Reports explains: “ Mortgage preapproval letters are typically valid for anywhere from 30 to 90 days. However, a preapproval can be updated and extended if the lender re-checks your information.” Doing the right prep and knowing this information can make the whole process a lot smoother. You don’t have to be ready to buy to be ready to buy. Getting pre-approved doesn’t mean you’re committing to buy right now. It just means you’ve taken a step to understand your numbers. And when a home catches your attention, you’re prepped and good to go. Bottom Line Ask yourself this: if your perfect home popped up tomorrow, would you be ready to make a move? If the answer is no and you want to buy, it may be time to get pre-approved. You don’t feel behind before your search even officially kicks off.
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