Do all Home Improvements add value?

Renovating, remodelling and improving your home can be great way to freshen up your home, gain extra space, and make it possible for you to stay in one place for longer – but does it always increase the value of your home?

Not all home improvements are made equal. This can become particularly apparent when it comes time to sell your property, whether through want or necessity. Some renovations will increase the value of your home and some can actually make it more difficult to sell. How can you tell the difference before you fall into the renovators trap?

Projects with the highest resale value:
Certain projects add more resale value than others. Those which generally have the best financial impact have:
•    Kitchens. People like to see modern conveniences and style in their kitchen-to-be. This is especially the case in older homes where well executed kitchen improvements can add value.
•    Bathrooms. Second to kitchen remodels are bathroom remodels. Again, modernizing older styles or appliances will usually result in good return for you on sale day.
•    Outdoor improvements. First impressions count and are often made quickly, so sprucing up the outdoor appearance of your home is a smart move. This can include new siding (fibre cement tends to cost the most, but often has the best return) and landscaping, particularly in the front yard.
•    Roofing and windows. Roofs and windows can be expensive to replace, but buyers expect these areas of a property to be in good condition. Unfortunately, that means whilst replacing them might not dramatically increase resale value, not replacing them could significantly decrease it.

Projects that can negatively affect resale value of your home.
The general rule of thumb is that the more personal your choices are - meaning they’re made to accommodate your particular lifestyle or taste - the less likely they are to have a positive effect on your property’s resale value. This doesn’t mean you shouldn’t do a project, it does mean that you shouldn’t expect all projects to add value to your home.

For example, a soundproof music studio might be your dream come true but it’s not necessarily a practical choice for a young family looking for an extra bedroom for their new baby. If the time comes to sell your property, you may find that these types of buyers won’t pay the premium it cost you to build the studio.

Some general indicators a project might have negative resale value are:
•    High quality upgrades. Whilst no one wants to see cheap renovations in a home, high-quality upgrades don’t often have the same return as mid-range ones, with the exception of those in high-end homes. Marble floors in the bathroom or custom cabinets in the kitchen may be nice, but you shouldn’t assume buyers will pay proportionately for these luxuries.
•    Rooms that don’t fit with the floor plan. Converting the back patio to a family room may be a perfect way to add more space to your home but, if your dining room window now looks into the family room, it probably won’t be well loved by all buyers.
•    Garage conversions. Garage conversions can give homeowners much needed space, but buyers like having garages. Converting this space doesn’t usually increase the value of properties.
•    A swimming pool. A pool may seem like the ultimate luxury for you but when it comes to selling your home it could be more of a hindrance than a help. Pool’s can be seen as safety hazards by parents with small children. It’s also worth considering whether it’s going to be usable more often than not. For example a pool may be a selling point for homes in Brisbane and Darwin, but could be a serious liability in Melbourne or Adelaide.

Other factors which can affect the resale value of your home.
Even if you undertake the right kind of renovation project you’re not guaranteed a high return on your investment. Before deciding whether an improvement will add value, consider some of the more general factors involved.

Changes to your property should fit with the neighbourhood. If you live in an area where two bedroom bungalows are prevalent and you add a second story to put in a couple extra bedrooms, you aren’t likely to see a high return. Buyers looking for homes that large won’t be looking in your neighbourhood. On the other hand, if your neighbours are making similar improvements - perhaps because these affordable homes are on large lots and in a great school district - you might fare well on sale day.

Any upgrades you undertake should be in sync with the rest of the house. Focusing narrowly on only one room - the ‘perfect’ master suite for example - can be a mistake. If the rest of your house was last updated 30 years ago, it could look even shabbier when compared with the upgraded suite.

Stay within the price range for similar homes. From a practical perspective, you shouldn’t expect to recover as much from improvements to a modestly priced home as you would from improvements to a high-end home. Be realistic about the value of the improvement and your expectations come sale day.

July 2011