Which home renovations are worth the cost? Fewer than you think

The owner of this two-story home, listed in Wayne, completed a mini-kitchen makeover to boost the home’s appeal. The renovations included fresh paint and replacing all of the appliances. Miniature makeovers, observers say, can often yield a better return on investment.

When it came to real estate in 2017, the residential housing market had, in many ways, a banner year: Home prices in Philadelphia and across the nation surged to pre-recession levels, mortgage interest rates remained low, and the number of residential sales picked back up again after years of sluggish growth.

Overall, that meant the 2017 market was largely a boon for sellers, who often were able to sell their properties quickly — and above asking price — as low supply and high demand sent buyers into a frenzy. Going into 2018, the housing market will largely be the same, observers and economists agree, with sellers having the upper hand again for much of the year.

Which likely has homeowners wondering, as they head into the busy spring real estate market, what kind of renovations should be undertaken now to get the home in shape for a potential sale.

Real estate agents, market observers, and appraisal experts who were asked what renovations were most worth homeowners’ time and money agreed on this: When undertaking a renovation, less means more.

It’s important, they said, to avoid “over-improving” a home — changing a house so much that it might not fit a buyer’s taste — or spending money on a major renovation just for the purpose of selling. Rarely, data show, do renovators make back the money they spend on a project.

According to a 2018 study by Remodeling magazine, the average payback on 20 different remodeling projects last year was just 56.8 cents of every dollar spent. Meanwhile, in the Middle Atlantic region — Pennsylvania, New York, New Jersey— homeowners recouped even less: just 51.3 cents of every dollar spent, on average. (Remodeling’s 2018 study was provided exclusively to the Inquirer and Daily News. It is expected to be released later this month.)

“Cost does not usually equal value…,” said Jim Murrett, the president of the Appraisal Institute, the nation’s largest professional association of real estate appraisers. “But that’s one of those decisions someone has to make. Do I do a renovation in the short term because I want to sell the house? Is it going to make the house more sellable and attractive?”

Camera icon Redfin
When it comes to kitchen renovations, minor projects often yield a better return on investment, according to Remodeling magazine. Massive renovations that include removing and replacing cabinets and drawers, for example, tend to require expensive labor and materials, making it much harder to recoup the full cost.

For the most part, the Remodeling study found, focusing on less-expensive projects typically can yield a higher return on investment, while bigger, more exciting projects — a major kitchen renovation or a bathroom remodel — tend to cost more and receive far less return. In Philadelphia, for example, a smaller undertaking such as installing manufactured stone veneer on the outside of a home to replace vinyl siding allowed homeowners to recoup almost 99 percent of the average $8,420 spent on the renovation.

In contrast, completing a full-scale kitchen remodel with “upscale products” — such as top-of-the-line custom white cabinets or stone countertops — yielded only 59 cents on every dollar spent in Philadelphia.

Recouping Your Renovation Costs

The cost of selected home renovation projects vs. the value recouped when the home is sold. Figures are based on 2017 projects.
Philadelphia-area averages
National averages
Staff Graphic

Still, the observers said, commissioning a major renovation is not necessarily a bad idea. Many homeowners complete renovations solely for personal enjoyment during their tenure in a home. And for good reason: Homeowners are staying in their homes longer these days — the typical owner now lives in the same home for 15 years, according to Zillow — as today’s competitive real estate market has scared off some potential buyers. As a result, the observers said, larger-scale renovations may make sense in those cases.

“If you are going to be staying in the house for a long period of time, maybe you do spend a little more remodeling the kitchen,” Murrett said. “It may cost $20,000 or $30,000 to do and you may only get $15,000 back. But you’re not selling today, you are going to use that kitchen, and you have the intangible value of using it over a period of time.”

Even so, for homeowners looking to undertake some renovations and sell this spring, Philadelphia’s market observers offered a few tips:

1. Make small repairs or replacements, rather than full-scale renovations

While large-scale renovations require expensive materials, labor and skill, smaller, more subtle repairs or replacements can yield better returns, the observers said, and create less headache or disruption. Take, for example, a bathroom renovation, Murrett said. Homeowners should consider taking out the old, wooden cabinet and replacing it with a sleek, white one, or upgrading to a pedestal sink. “That’s a heck of a lot different than ripping out the tub and ripping out the entire room,” Murrett said.

According to the 2018 report from Remodeling magazine, replacement jobs yield much higher returns than remodeling ones. Replacement projects, such as replacing the garage or front door, yielded, on average, 76.1 percent returns nationally, the study found, while remodeling projects, in contrast, received 20 percentage points lower.

Camera icon Redfin
Major renovation projects, such as a deck addition, do not yield as much of a return on investment. According to a study by Remodeling magazine, homeowners across the nation, on average, recouped just 71 cents of every dollar spent adding a wooden deck to their home.

2. Know your surroundings

“It’s not bad to have the best house in the neighborhood,” Murrett said. “But you’re not going to get the complete return if you are the best house. … If the norm in the neighborhood is a two-car garage, renovating to have a four-car garage is an over-improvement, and a potential purchaser might say, ‘Wow, that’s cool, but I don’t need that.’ ”

Buyers, the region’s experts agree, are not willing to pay extra for things they do not need.

So while a basement-turned-man-cave or a theater room might be worth it for one homeowner, the amenity could be negligible — or even a deal breaker — for the next. As a result, the observers said, try to keep your renovations in line with what the rest of the neighborhood has done.

3. Think about the smart-home future

Since emerging a few years ago, smart-home features have intermittently risen and faded in popularity. Increasingly, market observers say, some buyers are looking for energy-efficient technology, such as solar panels or smart thermostats, as well as smart security systems that can be controlled by a smart home or computer.

In nearly all cases, the real estate agents and observers said, homeowners will likely not make their money back on such renovations — yet. But as smart-home technology increases in popularity, they could be wise investments.

Either way, the observers said, paying for renovations, even if a homeowner does not recover the full cost, can still be helpful in moving a home off the market faster, and therefore reducing holding costs.

Camera icon Zonoff
Many market observers are hopeful that smart-home technology, such as this thermostat from Zonoff, will be a prudent renovation investment.

4. Focus on the essentials

“I recommend, for the most part, spending money where you are going to get some of it back,” said Matthew Mooney, a Redfin real estate agent based in the Philadelphia suburbs. “If you have a 25-year-old roof, then spending money to replace it is not a bad idea at all. Anything you can do to reduce ambiguity for the buyer.”

“A lot of buyers, when coming into a house, want to make it their own,” Mooney continued. “So if you spend money on some things, they are just going to end up redoing it.”

As a result, Mooney said, it’s important to focus on the upgrades that are needed, rather than the ones that are preferred.

5. Think about staging and cleaning first

When full-scale renovations are unaffordable or do not make sense, spending just a little to boost curb appeal can go a long way, the observers said. So can some smart cleaning and staging.

“Landscaping and trimming trees and bushes” can boost a home’s aesthetic without having to take on a major project, Mooney said. So can “making sure everything is incredibly organized” inside the house.

“Make sure you are focused on bringing in natural light and that you are spending your money on cleaning,” Mooney said. “It makes a huge difference in the way a home photographs or presents … and is by far the best money spent on getting it ready to sell.”

Camera icon Redfin
This three-bedroom house in North Wales, Montgomery County, sold in two weeks and for its asking price last year. Matthew Mooney of Redfin attributes that to the home’s staging and cleanliness. Decluttering and choosing neutral paint colors can appeal to a wide variety of home buyers and can often save a homeowner from investing in a lot in renovations.

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