Should I renovate my house before selling it?
One of the most common questions I am asked by people who are considering selling their home is:
"Should I renovate my house before selling it?"
The answer to this question can be complex and depend on numerous factors. In my 15 year real estate career I have broken down this question into 4 sub categories: state of current market, location of lot, prices of comparable properties, and neighbourhood dynamics. By evaluating these sub categories, a home owner will gain a better idea of whether they should starting swinging the sledge hammer or just put up the FOR SALE sign as is.
1. Current state of the real estate market.
If the real estate market in your area is slower and categorized as a balanced or buyers market then renovations can definitely make a home more appealing to would-be buyers and help set you apart from the competition. However, you need to be very careful since you may not increase the monetary value of your property, only make it more attractive and therefore salable. In a sellers market you will most likely be able to recover the monetary returns of your renovation. That being said... if the market is strong then there is certainly less need to renovate to attract potential buyers and offers.
The current state of the market as well as renovation costs need to be considered carefully as you could spend thousands on renovations and not see the return.
2. Location, location, LOCATION
In real estate, location is everything. Well maybe not everything, but it is definitely a HUGE factor. No amount of remodelling will be able to overcome a poor lot or property location. Before deciding to renovate you need to review your property's location and honestly ask yourself, "Is this location and lot desirable enough that people will pay for the renovations I am about to do?" If in doubt ask your Realtor to give their insight. They can provide comparable properties for you to review. Backing or facing a busy street or shopping centre could limit and even cap your resale value no matter how much money you spend inside.
You can never change the location so keep that in mind before investing tons of $$$ on the inside.
3. Prices of comparable properties & their features.
One of the biggest challenges facing a home owner is the reality that the amount they spend will almost certainly not be recovered in the home sale. Renovations give a certain percentage return and it is very rarely 100%. Mentally, it is a tough concept to grasp because most people think that if they spend "X" dollars to improve something then the property will automatically be worth "X" dollars more. There are numerous factors that contribute to why that is not the case but here is a quick and easy example to show why...
Dick and Jane's Realtor provides a market analysis that shows their home should sell for about $300,000 on the open market. Dick and Jane are eager to sell the house but they start thinking... "hmmm lets finish the basement so we can sell our home for even more". They obtain a quote for $30,000 to finish the basement and proceed, assuming that their property will be worth $330,000 now. Unfortunately, Dick and Jane should have asked their Realtor: " how much would you estimate our house would be worth with a finished basement." If they had asked that question their Realtor would have showed them comparable properties in their neighbourhood with finished basements were selling for only $320,000. The $30,000 renovation will likely only net them $20,000 in return.
Now this is a very simple example and depends on other factors such as features added in the basement completion (bedrooms, bathrooms, etc) but it does show that you need to check the market before renovating to have a better understanding of what prices the market will bear.
4. State of surrounding homes in your neighbourhood.
Another key aspect to consider is the overall market value and economic status of your neighbourhood. People shopping in the neighbourhood will have a certain expectation of what homes in that area will offer and neighbouring properties will put a ceiling on the return you will receive from renovations. A big mistake is over renovating for the neighbourhood and the current value and size of your house. You do not want to put a $10,000 high-end stove in a $300,000 house or a $65,000 basement in a $350,000 house. The pricing principles of progression and regression shown below explain why neighbouring properties can either help your homes value or hurt it.
If other homes in your area are renovated and updated it may make sense for you to do the same. On the flip side, if homes in the area are dated or run down they may bring down the value of your home due to their lower sale prices.
Here is a chart to show you the best renovations for you money. This is as per Harrison Bowker Valuation Group and their 2019 Home Renovation Guide.
It is vitally important for you and your real estate professional to evaluate the state of the current real estate market, location of the property, value of comparable properties in the area, and state of neighbouring properties in order to decide if it is worthwhile going ahead with a renovation or not. If one does decide to renovate, focus on the renovations that will provide the biggest percentage return.
I hope you have found this informative. If you have any questions please feel free to comment or contact me.
About the author: Peter M Leveille is a licensed real estate agent in Edmonton, Alberta, Canada. He has been selling real estate for 15 years and is the Broker and Owner of AB Realty LTD.