We are proud homeowners, passionate about investing in properties that will increase in value and make us a profit. But what has produced for us some of the highest financial returns and helped us sell our homes above our expectations is the work we’ve put into increasing the value of our real estate ourselves.
In this article, I’ll reveal exactly how to ensure the work you do will add significant value to your home, but first, let’s dive in and talk about the ways property value can increase.
How Does Home Value Increase?
The value of home real estate tends to increase in two ways:
- Market Appreciation: inflation, population growth, a growing economy, and trends toward suburban or urban living can drive up the prices of homes. For example, during the pandemic, the need for more space led to a boom in suburban housing markets, and a lull in urban condominium sales.
Market appreciation happens over time and can reverse. In 2008 the market crash caused depreciation in much of the North American housing market. No matter what the cause, market appreciation and depreciation are out of your control. - Forced Appreciation: For the homeowner, forced appreciation happens when you add perceived value to your property through upgrades, updates, and maintenance. Forced appreciation is completely within your control and is largely independent of the market. In a market that appreciates, forced appreciation is a great way to build upon your investment, while at the same time protecting the value of your home during a downturn.
Forced Appreciation for the Homeowner: A Proven Value Add
House flippers and contractors who buy, renovate, and sell properties as a business used forced appreciation to make their income. But it’s not just for them; making improvements to your own home can help you earn more money than the flippers while enjoying your home at the same time!
Financial institutions appreciate the value of real estate as a means of accumulating wealth. This is why they have designed a variety of financial tools to help people maximize their real estate investments.
For example, most bank mortgages are now automatically structured so they can be increased to cover the cost of your renovations. In other words, banks are willing to finance your renovations because they are confident the value they will add to your home will be worth it.
Homeowners certainly do also see the value in improving their homes. During the pandemic, home renovation saw a definite spike. While the reno boom is slowing, it shows no signs of stopping.
Harvard University’s 2021 Leading Indicator of Remodeling Activity (LIRA) study projects that year-over-year increases in residential renovation and maintenance spending will peak at 19.7 percent in the third quarter of 2022 before sliding downward to 15.1 percent in the first quarter of 2023.
Without the high increases in building material costs, and cost-of-living inflation, it’s interesting to contemplate if we would even be seeing a slow down in renovation spending at all given our new appreciation for our home space and the recent wave of relocations to homes in the suburbs.
With any project, 80 percent of the work is done in the planning stage. We have simple checklists to help you get organized and make sure you’re prepared for every step along the way. Download them now for FREE:
Choosing the Right Renovations to Add Value to Your Home
While renovations are a great way to add value to your home, it’s important to make sure the renovations you’re doing actually build wealth in your home—not all do.
Even if you’re not in a hurry to sell your home, you don’t want to begin a renovation project without thinking about your eventual return on investment in the long run.
This is where four factors come into play:
- The quality of work done,
- The consistency of the work done throughout your home,
- The desirability of the renovations, and
- The market value of your home.
Let’s briefly run through each so that we can get to the quick wins with an understanding of how to ensure our ROI.
1. Quality Renovations Return More Value Than Shoddy Ones
Some folks see newer as better but good investors know that buying inexpensive, poorly made items is shortsighted. While there’s a cheap version of everything available for the home, you may not save as much as you would think if you choose to adopt the cheap but inferior approach to projects. In fact, it’s likely you’ll be forced to pay more for the labor (it’s usually more difficult to work with flimsy or poorly made materials) as well as incur additional costs for repairing it later.
Even if you aren’t staying long enough to have to make repairs yourself, you can actually erase the value of your home’s equity by taking shortcuts or by constructing things improperly.
You can also devalue your home by creating inconsistency in your home with your renovations, or by doing the wrong renovations altogether so keep reading to make sure you don’t make those costly mistakes.
2. Patchy Work Returns Less Value than a Consistent Space
If the only work you do in an untouched, 40-year-old home is a high-end bathroom renovation, it will do little but emphasize the neglect in the rest of the home, and actually bring down the overall perceived value of the property for potential buyers.
If however, that new bathroom reno is complimented by updated, modern finishes and upgrades throughout the home, the perceived value of the whole home will increase because of it.
In other words, a consistent space yields more than patchy and flashy upgrades here and there.
3. Widely Valued Renovations Always Yield More of a Return
Since forced appreciation of real estate is such a solid and beloved method of making money, it’s no surprise that many people have spent a lot of time analyzing each type of renovation to determine if it offers a solid return on investment (ROI) or not.
Appraisers, remodeling experts, real estate agents and the media all have their own opinions and can sometimes spit out percentages, claiming that a kitchen will get you 80% of your investment back, whereas new windows will only yield 60%.
But all those numbers you’ll find scattered over the internet are unreliable at best. There are just too many variables involved and too many contractors who have proved that you can easily get your investment cost back during resale and often, if done right, turn a profit on the work done.
What you can bet on is that a renovation to a widely valued, important part of the home, like a kitchen, front door or bathroom will yield more return than something quirky like an indoor slide.
Of course some homes can benefit from a wider range of renovations, even the quirky ones, but that is largely dependent on the market value of the home, so keep reading to learn how to determine what renovations your home could return value from.
4. Choosing Renovations In Line with The Market Value of Your Home Will Ensure A Return
If housing prices in your neighborhood are modest, buyers may not be willing to pay more for an expensive professional-grade cooktop or a walk-in wine cellar. On the other hand, if your home is in a wealthy neighborhood, a brand-new laminate countertop, no matter how stylish, may be less of an improvement than a disappointment to a potential buyer.
Making home improvements that are appropriate to the value of your property and location is essential to getting the greatest return on your home improvement investments.
To help you determine the market value of your home and neighborhood, speak with a real estate agent. They will be happy to help you, since that means it’s likely you’ll contact them when you’re ready to sell your home, and they are able to take a look at comparable properties in your area, previous sale numbers, etc. and give you an accurate picture of both your home and community value.
How to Maximize Your Renovation Return
I’m going to get into some things you can do right now to add value to your home right before sale in a second, but first I want to tell you how to maximize the return you get on any major renovations when you sell:
Document them!
The best way to increase the perceived value of your home when it’s on the market is to show what you’ve done. Take pictures and notes of all the major renovations and maintenance you do and provide them to your agent so they can show any prospective buyers who ask.
Even better, if you have even moderate computer skills you can create a small, free website for the property and upload pictures and make notes right on there as you work. When it’s time to sell your agent can simply provide a URL to any prospective buyer who will then be able to see what was done.
While prospective buyers may not take the time to ask about the work done, they will pop over to a website for more information before making their offer. Showing them how much work has been done, and that it’s been done well and with care, can skyrocket the perceived value of your home against other homes on the market with no such documentation.
Just make sure not to include any prices of materials or labor unless it’s important to know. When done right, the perceived value of your renos should be higher than the amount invested.
Quick Ways of Adding Value to Your Home Before Selling
The most meaningful things you’ll do to add value to your home before sale will be the larger, longer-term improvements and maintenance you do, which we touched on above, but there are some last-minute changes you can make to get top dollar for your home when selling.
Here’s a quick list:
- Get all your documentation and photos of your renovations and improvements together if you haven’t already. Again, building a website to show off your property is also a great way to set your property apart.
- Prep or stage your home so that it “shows well” meaning it looks fantastic but neutral. If using one, your real estate agent should help you with this and can walk through your home room-by-room to tell you what needs to be done.
- Repair any cracks or stains on the walls and ceilings. Make sure any outstanding issues have been fixed and that the home is in good repair.
- Make sure all ceilings and walls have a fresh coat of neutral paint. Remove all wall decals and stickers.
- Clear out closets and cupboards. These don’t need to be, and shouldn’t be, empty but should look like they are more than adequate to hold an owner’s things. If things look like they are stuffed to the ceiling and are going to spill out, this will give the wrong impression.
- Wash all your windows inside and out.
- Wipe down your washer and dryer, water heater, and other fixtures in your laundry and utility room. Prospective buyers will be convinced that you’ve taken good care of the home if the places in your home that are usually a little dirty or overlooked are neat and clean.
- If you have an unfinished basement, empty it as much as possible to show buyers all the space available for storage or finishing. Consider adding a light or two extra to illuminate any dark areas.
- If there’s any dampness in the basement run a dehumidifier. A dry feeling throughout the home, and particularly in the basement will emphasize the good condition of the property.
- Make sure all of the parking spaces in your garage are clear and clutter-free to show buyers the potential parking and storage space.
- If you have older hardwood floors that squeak, broom some baby powder into the cracks and allow it to sit for a day or so. The powder will settle into the grooves and act as a lubricant between the boards to reduce the sound.
- If it’s warm out, make sure the grass is freshly cut, the garden is weeded, and the driveway is clean and clear. If it’s winter, make sure any snow is shoveled and walkways are salted.
- Make sure all tables, surfaces, and counters are clean and clear at all times.
thewriteDuffy
At home, April is a mom, wife, and DIY darling. Among other home projects, she helped her husband Dan renovate their 1986 bungalow and is currently designing and decorating the 2023 custom home they are building themselves. Professionally, April is a writer, author, and online marketer with 15 years of experience writing for newspapers and magazines, building online authority websites, and publishing books.
With any project, 80 percent of the work is done in the planning stage. We have simple checklists to help you get organized and make sure you’re prepared for every step along the way. Download them now for FREE: