Long before deciding on things like countertops and paint colors, homeowners considering major home renovations should ask themselves bigger, more basic questions, including:
How long are we going to stay here? Can we afford it? How much is our home worth and how much would a renovated bathroom or kitchen add to it? What about the curb appeal?
Most homeowners are well aware of the ins and outs of major kitchen or bathroom remodels—that is, the disruptions they cause to daily routines, as well as the hefty price tag. However, in the pre-recession market, renovation decisions were generally fairly easy to make from a financial standpoint, as most homes were rapidly appreciating well above their purchase prices. The renovations provided an instant return on investment. This made the disruption of a remodel easier to swallow for many. But in today’s market that may not be the case. So why entertain the idea of a renovation?
One of my clients owns a charming 1900’s two-story clapboard house with lots of windows in a very good neighborhood. But like many homes of its age, it needs updates to the kitchen and bathrooms and possibly a rearrangement of the entryway to create a foyer and upgrades to its energy efficiency.
My client loves her home, but has considered selling or renting it so she can move closer to her daughter’s school. She consulted with a local real estate agent, and to our surprise and delight, a new picture emerged of what it is wise to do in this market.
Traditionally, homeowners have been told not to spend more on their homes than they could expect to get in return when they sell, either immediately or in the future. Value engineering, which looks at the prices of homes of similar size and age that have recently sold in the same neighborhood, provided a prudent measure of what the return on a renovation would be.
However, due to the glut of homes for sale in today’s market, buyers have more bargaining power. Many are asking sellers to lower prices on homes with old kitchens and bathrooms. They argue that they will have to renew after the purchase anyway, and that sellers should consider themselves lucky to even have potential buyers.
This leaves some homeowners wondering how much or how little to do in a renovation. Should they go ahead with the renovation even if the increase in value for a bathroom is less than $5,000 or less than $15,000 for a kitchen? Should they only spend what they will get back, or even less?
My client’s real estate agent thinks it might be a good idea to upgrade a kitchen or bathroom, although the work may not generate a full return on investment if the house sells immediately or within a few years. If you’re willing to sell for the foreseeable future, by all means make the renovation modest. It could be new tile or a new vanity, new cabinet fronts or appliances, but the goal is to impress a potential buyer at first glance. Buyers want bathrooms and kitchens that look neat and functional, not dirty or outdated.
But if you have no intention of selling in the near future and decide to renew, we believe comfort comes first, followed by curbappeal. According to the value engineering equation, you may be spending too much dollar for dollar. But in the next few years, you You’ll enjoy your new kitchen or bathroom, and when you’re ready to put your home on the market, your cohesive and thoughtful renovation could make all the difference to prospective buyers.
When it comes to dollars and feela kitchen or bathroom renovation or remodel could be the right investment even in this market.
