How Remodeling Projects Influence Home Prices at Resale

Many remodelers say that they share the Remodeling Cost vs. Value Report with clients to help put homeowners’ minds at ease when deciding on project type and scope. Survey numbers are drawn from construction professionals via RemodelMax and members of the National Association of Realtors (NAR), who also share figures with home buyers and sellers. So, according to Realtors, how do remodeling projects influence home prices at resale?

Market vs. Perceptions

Remodelers like clients who are forever planning and upgrading their homes to fit their lifestyles. Realtors are all about helping people buy and sell their homes, but they would agree with remodelers that homeowners should do whatever home projects they want if they plan to remain in their homes for five years or longer. A homeowner can’t worry what the return on investment for her kitchen will be if she’s not going to move for a decade.

“You don’t know what the market will be,” says Realtor Pat Vredevoogd Combs. “If a brand-new kitchen makes you happy and you have the money to do it, you should. But if you’re going to sell your house, you just shouldn’t spend that much on remodeling.” Vredevoogd Combs says she uses Cost vs. Value as a guideline, but that “the marketplace determines what really happens in the long run.”

“You’re really competing against the house down the street.” —David McKey, broker with Coldwell Banker One, Baton Rouge, La.

Realtors such as Vredevoogd Combs—a broker with Coldwell Banker, in Grand Rapids, Mich., and a past president of the National Association of Realtors—use their experience (Vredevoogd Combs has been selling real estate for 42 years), market pricing history, and what the clients have already done to the house and how it’s reflected in the marketplace to come up with a home’s sales price. “Realtor perception and the marketplace go hand in hand,” she says.

When filling out the Cost vs. Value survey, Vredevoogd Combs says that she looks back at her numbers from the previous year, looks at the marketplace, and thinks about whether in today’s market that particular project would be worth more in resale than it was last year. Mike Gaughan, a broker for ReMax Choice Properties, in Nashville, Tenn., and 2014 Region 4 vice president of the NAR, with three decades in the industry, says, “We look at the value [of a project] from a neighborhood perspective. What have homes that have been sold had done to them compared to ones that didn’t have anything done to them?”

“You’re really competing against the house down the street,” says David McKey, a broker with Coldwell Banker One, in Baton Rouge, La., and the 2014 Region 10 vice president of the NAR.

12 Number of weeks a typical home buyer searched for a home NAR 2013 Profile of Homebuyers and Sellers

45% Percentage of home buyers who want to purchase an existing home rather than a new one

57% Percentage of people who responded that a laundry room is an “essential” feature for a home they would purchase

70% Percentage of people who responded that an elevator is a feature they “do not want” in a home they would purchase Percentages source: NAHB “What Homebuyers Really Want”

Competition, in this context, means considering projects such as turning the attic into a bedroom if all the other homes on the street have three bedrooms and your house has only two. Will that bring in more at resale? Maybe, but it comes down to Realtors having the knack of looking at a home through the eyes of a buyer, says Bill Hanley, manager for Prominent Properties Sotheby’s International, in Westfield, N.J., and Region 2 vice president for the NAR. “We learn through experience what [home buyers] are looking for.”

Site Unseen

Oddly enough, what buyers say they’re looking for in a home may not be exactly what they’re prepared to pay for. According to the National Association of Realtors’ 2013 Profile of Homebuyers and Sellers, “Heating and cooling costs were ‘somewhat’ or ‘very important’ to a whopping 85% of [home] buyers.”

That may be so, but the reality, say the Realtors who were interviewed for this article, is that these “important” features aren’t going to turn a looker into a buyer, and home shoppers aren’t going to pay more for them. As Gaughan says, “Visual appeal is what sells the house.”

Tony Szak, a former remodeling company owner and house flipper who now is regional projects business development manager for TCI, a construction management and design/build company in La Crosse, Wis., learned this lesson on his first house flip. “I thought about it like a contractor,” he says. “What a great value to redo all the plumbing and the electrical and the other things behind the walls that were good for the house. But it was a hard sell because people couldn’t see these things—and they expected them, anyway.”

Buyers fall in love with a house and then wonder about whether it needs new windows or a roof. “Buying a house is emotional. You don’t get emotional over a roof,” Vredevoogd Combs points out. “You cry when it leaks, but you don’t get emotional over buying it.”

Curb Appeal

So where are home buyers willing to spend their money? Realtors caution homeowners against undertaking large remodeling projects in the hopes that such work will help to sell their home, lest they price themselves out of their local market. Simply put, a $250,000 home in a neighborhood of other similarly valued homes doesn’t need a $100,000 kitchen.

In fact, it’s the low-hanging fruit that brings the greatest ROI—especially with exterior projects, Hanley says. “It’s like when someone is selling a used car; you clean the trunk, you wax the exterior. It’s the same when you sell a home. The outside of the house is where they’ll really recover their money,” with projects such as replacing the entry door and garage doors, re-siding the exterior, or installing a new deck. (Recent years’ Cost vs. Value figures bear this out, with the entry door being one of the top 10 projects.) “A new kitchen may make your home more marketable,” Hanley says, “but that doesn’t mean you’ll get more money. The first impression is really important. People are prepped on what will happen when they go through the front door. They make a decision before they go inside.”

Once inside the home, it’s the simple fixes—new tile for the backsplash or new cabinet hardware—rather than the grand overhauls, that will pay off, Realtors say. And it’s no surprise that the kitchen and bathrooms are the top recipients for such tweaks.

“A new kitchen may make your home more marketable, but that doesn’t mean you’ll get more money. The first impression is really important.” —Bill Hanley, manager for Prominent Properties Sotheby’s International

In the kitchen, granite countertops are the standard that people judge against, Vredevoogd Combs says of her Grand Rapids market. But from the Realtors we spoke with, it’s the same story from Baton Rouge, to Westfield, to Nashville, and La Crosse. Other simple upgrades suggested by Realtors include installing new appliances, refinishing wood floors, doing a simple bathroom update, and painting or changing cabinet faces or hardware. (Trend alert: Vredevoogd Combs is now recommending that her clients “de-brass” their hardware and fixtures.)

Some suggestions are particularly market-specific: Vredevoogd Combs says that while people in her market want hardwood or tile floors in the kitchen, she doesn’t find many buyers demanding them in other parts of the home. “Hardwood with rugs is a fairly European feel,” she says, “and a lot of people are happy with carpet.” And in Baton Rouge, McKey says, a lot of old electric cooktops are being replaced with gas.

More important than any remodeling project, though, is the home’s cleanliness. “Sure, buyers would like to see updated baths and kitchens,” Hanley says. “But if the home is not updated, as long as it’s clean, people can see through it and have a vision of what they want to do next.”