Is a remodel worth it? How do I figure the ROI on a home remodeling project? I am asked that question all the time, so I'm going to point you toward data-driven studies and information to help you evaluate if you should consider a renovation, explain how your Realtor (that's me) can provide you with valuable neighborhood data, and show you ways to avoid over-improving your home for your neighborhood.
Why are you considering a remodel?
There are two ways of looking at your return on investment (ROI) on a house remodel.
ROI of your quality of life and enjoyment. - This has actually been measured by HouseLogic.com by surveying people and mathematically creating a scale called the Joy Score - more on that later.
Financial ROI - Because most people come to me with this question as an investment ROI, I'm going to focus on the money side. What is the cost recovery of the dollars invested in a renovation?
Three Sources to See the ROI Data on Remodeling
1. NAR Remodeling Impact Report download here. This report takes a deep dive into the reasons a homeowner remodels, the outcome of taking on projects, and the increased happiness found in the home once a project is completed. It is divided up into two sections: interior and exterior remodeling projects.
This report covers:
The typical cost of 19 remodeling and replacement projects, as estimated by members of the National Association of the Remodeling Industry (NARI)
How much appeal each project is likely to have for buyers, according to REALTORS®
How much REALTORS® estimate that homeowners can recover on the cost of the projects if they sell the home.
That Joy Score mentioned earlier can be found in this report as well. There were numerous interior projects that received a perfect Joy Score of 10: paint entire interior of home, paint one room of home, add a new home office, hardwood flooring refinish, new wood flooring, closet renovation, insulation upgrade, and attic conversion to living area.
For interior projects, the highest percentage cost recovered was from refinishing hardwood floors at 147 percent, new wood flooring at 118 percent, and insulation upgrade at 100 percent.
2. Get data from your Realtor. That's Morgan Realty Team! We can compile reports for you that show you the total number of homes in your neighborhood and we can review the breakdown by square footage, number of bathrooms, past sales data, and condition and look at updates on homes sold. We can show you examples of local homes that sold with the renovations you are considering.
Also ask yourself, how long are you planning to own your home? Are you considering remodeling for your own enjoyment, or is this solely an improvement to increase the value of your home?
3. Remodeling Cost vs. Value Report. This report is published annually by Zonda which is the housing industry's leading provider of Data. Their Remodeling Magazine provides data on the average cost of various remodeling projects and the expected ROI by region. You can find it on their website here.
Fun Martha Fact: A million years ago, when I was in my 20s, I worked for Hanley Wood (now Zonda) producing trade shows for residential remodelers and home builders across the country.
How to Avoid Over-Improving Your Home
Preventing over-improving your home is important to ensure that the money you invest in renovations and upgrades aligns with the market value of your property. Here are some tips to help you avoid over-improving:
Understand the Local Real Estate Market
Morgan Realty Team is here to help! Reach out. We can provide insights into the market and guide you on which improvements are likely to add value to your home without over-improving.
Set a Realistic Budget:
Establish a budget for your home improvement project and stick to it. Avoid making excessive upgrades that significantly exceed the value of other homes in your neighborhood.
Consider the Neighborhood Standard:
Keep the improvements in line with the neighborhood. If most homes in your area have standard finishes and features, avoid going significantly beyond that standard.
Avoid Over-the-Top Upgrades:
While high-end finishes and luxury features can be appealing, be cautious about going overboard. Opt for upgrades that are in line with the overall quality and style of your neighborhood.
Keep Future Buyers in Mind:
Consider the potential resale value and appeal to a wide range of future buyers. Avoid niche or highly specialized improvements that may not be universally appreciated. Avoid Over-Personalization. While it's natural to want your home to reflect your personal style, be cautious about making highly specific or unique design choices that might not appeal to a broad range of potential buyers.
As with most things in real estate, it's about making informed decisions that balance your personal preferences with market expectations. Consulting with professionals and doing thorough research will help you make wise choices.