There is no question that renovations can be a complex and time-consuming. That is why it is important that renovations are looked at on an individual basis to determine the best areas to invest in to ensure you get the highest return when you sell your home. You as a homeowner want to ensure that any improvement you make to your home will add as much value as possible.
According to the Appraisal Institute of Canada, the renovations that provide the best return on resale are typically cosmetic improvements, such as painting and decorating, where there is limited capital outlay. However, when it comes to cosmetic renovations, homeowners should take caution to not overly personalize the renovations because it could adversely affect the property’s function or market appeal to the general public.
Also very important to note is the actual quality of work completed. The savvy home purchaser now notices when work is not done well. Whether or not you are planning to sell your home, you should ensure that the work done is satisfactory, adheres to the local building codes and is done to completion.
When homeowners decide to renovate, they usually take one of two approaches. Some homeowners decide to renovate simply because it is something they’ve personally wanted, for example a pool or a skylight in the bathroom, which doesn’t typically yield high return on investment. Other homeowners take the “investor” approach – perhaps replacing old countertops, cabinets or the roof, for the specific purpose of increasing the overall market value of their home.
In either case, it is important to be aware that you might not fully recoup your investment. Just because you’ve invested $50,000 in renovations does not necessarily mean that your house will be worth $50,000+ more. Only a few renovations will return your full investment, most will not. This is one of the most difficult things to believe, but experienced appraisers know this to be true.
The amount that your renovations will return to you once you sell depends on several factors. These may include: the location of the property (i.e. rural or urban), direction of the housing market or the value of other homes in your neighbourhood. In some markets you could earn more than your renovation dollars spent.
For example, in some areas a rear deck will add more value than the amount you spent building it – however, in most areas, it will not. That’s why it is important to understand the demographics, needs, and wants of specific home purchasers in your immediate area when planning renovations.
It is also important to note that the longer you wait to sell after your initial renovations have been completed, the less you may get as a return. The renovations depreciate over time and trends come and go, so the item you renovated five years ago might no longer look up-to-date in the eyes of the prospective buyer.
Another thing to keep in mind if you undertake extensive renovations is that you might over-build for your specific area. Prospective homebuyers might not be willing to pay for all the renovations completed based on the location of your property or the prices of comparable properties in the immediate area.
Based on the Appraisal Institute of Canada’s latest Home Renovation Survey and the informed opinion of Canada’s professional fee appraisers, the home renovations with the highest, lowest, and average return potential are: