Why This is For Appraisers Too
If you saw part A of this blog post, Upgrades, Is It Worth Keeping Up With the Jones, you’ll remember that I promised a part B! This post focuses on whether or not a homeowner should make upgrades, and if so, which upgrades should they make? So you might ask what this has to do with appraisers? You can share this post with your clients if they have questions that are covered below! So whether you’re a homeowner or an appraiser (or both!) this article is for you!
Thinking About Selling?
So you’re thinking about selling your house. It’s a big investment, and you want to get the most ROI (return on investment) out of the sale. How do you make sure that your house gets the highest selling price possible with the least amount of output from you? There are several factors to consider, including the state of the market, how your home compares to its competitors, and if the improvement has a history of providing an ROI of 100% or higher. After some research and real estate agent and appraiser input, this is what I discovered.
Return On Investment (ROI)
First of all, do you understand what ROI is? To make it super simple, it’s what you get back from what you put in. Say you put $10,000 into a home repair, and because of that home repair you received $10,000 more on the price of your home. That gives you an ROI of 100% on the home repair. Pretty simple really.
Break Out The Sander?
You really want to do SOMETHING to fix your home up and you have some time to get the project(s) done before you put your home up for sell. What is the best use of your money and time? Real quick, let me point out that the numbers included in this article take into account the total cost of home improvements, including supplies and labor, so if you’re a do-it-yourself whiz, the final estimated costs will likely be lower.
The key question is: is your market hot? Yes? Then don’t do it. Only a couple of the big upgrades historically give an ROI of over 100%! I know, if you’re like me, you always thought that any home improvement would make your home worth more. Well, any home improvement will likely make your home more, but at a cost to you! Overall, in 2019 Americans saw an average ROI on home improvements of only 66.1%, not such a hot number if you’re looking to recoup all of your money and then some! Want a little more explanation? If you sink $66,000 into redoing your entire kitchen it raises your home price by $41,000, was it worth it? In a hot market, no! The exception, of course, is if you’re in a market where selling your home is going to take a lot of time and effort. In that case it might be worth losing $25,000 on your investment just to sell the house, assuming you have a chunk of equity that will soak up the financial loss. Or in worse case scenarios, it might be worth actually paying for the improvements at a financial loss just to sell the house, because holding onto a home that must be sold can actually cause more headache and financial devastation then keeping it.
What Upgrades Should You Make?
I mentioned that there are a couple of home improvements that are worth the money. In all of my research, I consistently found two home improvement projects that had an ROI over 100%: deep cleaning (935% ROI) and decluttering (432% ROI). That’s it. There are a couple of other improvements that come close to an ROI of 100%: replacing your garage door (97%) and adding manufactured stone veneer to the front of your home (95%). You might find some other improvements that do well, especially in different areas of the country.
Here’s a helpful site that gives you the ability to look into your local city’s data for projects including city job costs, city resale value, city cost recouped, city/region comparison, and city/national comparison. This site will give you an idea of what home improvements help the most in your specific area. But over all there really aren’t that many home improvement projects that actually give you all of your money back and then some. One hundred percent ROI is an elusive beast when it comes to home improvements.
Now that I’ve told you that only two home upgrades have an average ROI of over 100%, are you curious about the ROI on the other home upgrades? Here’s a great chart that shows the national averages on costs and values and sales in 2019:
When We Did, And When We Didn’t
My husband and I have been considering upgrading our home. I love the warm honey oak stain on the wood floors, railing, and cupboards, but it is looking a bit worn. We got a quote on simply refinishing our wood floors and were surprised to find it would cost $1,800. That might not sound like much for a home repair, and it’s not, but it’s more than we wanted to put into the home considering it is in pretty good shape, the yard is beautiful, and we have other obligations to put $1,800 towards.
After researching the benefits and downfalls of home improvements for this article, I shared the results of my research with my husband. We live in an area (Roy, Utah) where the market has been extremely hot for a few years. Homes in our town receive multiple offers above the asking price, so we know that our home would sell quickly should we decide to sell it. In fact, we have some neighbors who recently put their home up for sale and were counseled by their real estate agent not to put any major repairs into it for that exact reason; it’s in good repair and the market is hot right now.
After discussing the current benefits of upgrading our home, we decided not to put much money into home improvements. The appliances are in great shape, as is the roof, garage door, carpets, walls, fixtures, etc. Sure, we’re doing some work on the yard, our son is helping us to put in a new waterfall where our old pond is, and I’m painting doors, etc., but as far as sinking thousands into the house, it’s just not smart. If we do sell the home in the next couple of years, and our market stays like it has been for some time, I’m not too worried about upgrading. However, if the market falls, then we’ll have to revisit the idea of putting some money into the home should we decide to sell it.
We moved to Winnemucca, Nevada, in 2005 and bought a home in our just-starting-out price range. The home was cheap, in the low $120s. In 2005, the housing market was just about dead in Winnemucca. Three years later when we were ready to move back to Utah for a new job, the housing market in Winnemucca had slightly picked up, but was still pretty dead.
In the first year or two of living in Winnemucca, we installed a sprinkler system. The system was a lot of money for us (we have five kids and at that time they were all under 15 years old) and cost about $4,000. It was worth it though because it saved me hauling the hose around the large yard trying to keep it green.
In 2008, we put the home for sale and prepared to move. After a few weeks, nothing had happened. The home needed major upgrades and was nothing special, which didn’t help its prospects in the nearly dead market. Nothing was selling, including our home!
Months passed and my husband had to move to Utah without us so he could start his new job. He lived with my parents while I stayed in Winnemucca so our older kids could finish up the school year.
School ended and the summer passed without any offers. We started looking into renting the home out because the darn thing just wasn’t selling and the housing market in Winnemucca was still lifeless. The time came when we had to move so that the kids could start the school year.
The day we left for Utah our home finally sold even though the market was dead. The offer was just enough to almost clear what we owed on it (we lost a couple thousand dollars) and we attribute the fact that the home sold at all to having the new sprinkler system installed. We were unaware of any other reason that our home sold when nothing else was moving.
In the case of that Winnemucca home, the home improvement was worth it because not being able to sell the house would’ve forced us to rent it out, and considering we were going to live over eight hours away, that wasn’t our ideal option. Losing a bit of money on the home upgrade was worth it!
Is The Market Hot or Cold?
To sum up my findings, if your market is hot and your home meets market expectation and is in good shape (appliances are in good working order, the roof doesn’t need replaced, etc), don’t put heavy money into it unless it’s to declutter or deep clean it. However, if your market is tough and you have to sell your home, it might be worth sinking some money into the home so you can actually sell it. Talk to a real estate agent or real estate appraiser to get some input if you’re not sure what to do.
House Showing Tips
Now that you’ve got some insight into whether it’s worth putting money into your home before you sell it, let’s jump to some low-cost home improvement suggestions that can help your home show better and possibly sell faster. Here are a few things that real estate agents suggest to clients.
- Open the blinds and curtains. Turn on the lights. Get as much light as you can into your home for the showings.
- Freshen up the front yard with fresh mulch and flowers. Trim your roses, deadhead any spent blooms, and make sure everything is fresh and alive.
- Add splashes of color with bright pillows and plants.
- Replace family photos with neutral pictures.
- Declutter counter tops, desks, and bureaus.
- Downsize as much as possible. If you have somewhere to move excess furniture and stuff, move it. If not, minimize the appearance of your possessions as much as possible.
- Get rid of icky smells. Fill your home with the scent of fresh baked bread (hello bread machine!). Scented candles or plug-ins are discouraged because some customers might be allergic to them or not like your choice of scent.
- Wipe baseboards, clean your windows, make sure the walls are clean, and clean behind the toilets in the bathrooms.
- Check your pet’s area. Make sure their bedding and living area is clean. Better yet, take your pets with you when you leave the home for the showing. Some people are allergic to animals, and I admit that if we were ever house hunting and saw signs of cats throughout the house, we’d walk away because my husband is extremely allergic to them (as in breaking-out-in-open-sores allergic).
- Anything else that you think needs done that adds a little bit of appeal to your home but with minimal cost and effort, go for it!
If you have time, applying new coats of paint onto faded or outdated walls can also make a big difference! If you’re considering doing some quick painting, here’s an interesting tidbit to consider: currently the colors with the widest buyer appeal are:
- Off white
If you’re considering selling your home in the next several months, now is the time to find out if putting money into home improvements is worth it! Research your market, consult real estate professionals, and make the right decision for your bank account!