There are always pros and cons to any home renovation. The biggest pro is that your home will look better, and the biggest con is that it always costs too much money.
Renovation pros and cons also apply when it comes to home appraisals.
Renovations do give your home added value, but most likely, not as much as you spent on the renovations in the first place.
The question is then, are they actually worth it?
We will touch on that in a second. But first, let’s talk about the problems with them and the ones that contribute the most and least value.
I want to note that this is all written from an appraiser’s perspective. When it comes to the practice of real estate valuation, appraisers are required to be independent, impartial, and objective. There should be no bias.
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The problem with renovations and appraisals
A common problem with renovations is that people spend money on the wrong things. They spend money on things that are not always practical when it comes to added home value.
Carrara marble counters and heated floors might appeal to you, but do they add more value to an appraisal?
Not so much.
What about a sauna in the bathroom, expensive bathroom hardware, and smart appliances?
Most of the time, renovations like these are done for the homeowner, not for the added value to the house. They want the finishes and upgrades they choose, in the look they want, without consideration of the added market value.
Think of how many buyers would actually pay significantly more for these kinds of updates?
In most markets, not many.
So what kind of renovations should you do then?
Renovations that increase appraised value the most
At this point, you’re probably thinking, why even bother with renovations at all?
Good news. There are some renovations that add the value you hope to get from them.
Most of these updates are much-needed cosmetic updates to outdated homes.
Many of them you can even do yourself, without the help of contractors.
However, if you do try and do these yourself, make sure you know what you are doing.
Renovations that increase appraised value:
- Remodeling kitchens and bathrooms (In a tasteful manner)
- Landscaping (Curb appeal)
- New paint
- Replacing the front door
- Adding a deck
- Converting the attic to a bedroom
- Finishing off the basement
- Replace garage doors
- New furnace/AC (If necessary)
- Canned lighting in dark rooms
- Remove popcorn ceilings
- Open up some walls (If they are not load bearing)
- New roof
Renovations that add the least value to your home
On the flip side, there are many renovations that don’t make financial sense. These are typically renovations done from emotions and not practicality.
Most of the following are completely unnecessary, and the lack of added value reflects that.
Here are some other renovations that don’t make financial sense:
- Installing a pool
- Converting a bedroom to some other use (No, you don’t need a wine cellar, and neither does the new owner)
- Putting carpet over the hardwood
- Converting the garage into a “studio” or “man cave”
- Closet renovation
- Bathroom/bedroom addition
- Plumbing and electrical
- Extensive landscaping
- Outdoor kitchen
- Crown moldings
- Things appraisers can’t see
- Overbuilding for the neighborhood
- Fountains, ponds, gazebos, playgrounds
- RV garages
- High-end fixtures and finishes
The worst of these (Unless you live in a high-end market) are high-end fixtures and finishes.
I have done appraisals on houses where people spent half a million on high-end finishes for their home, only to get half of the cost back or less in the appraised value.
So is the remodel worth it?
Yes and no.
Now that you have read the lists above, making the call is up to you. Renovations can work in your favor, and sometimes they won’t.
Some general rules of thumb:
Renovations that add the most value:
Most of the time, if you are updating outdated features of your home, you should get your money’s worth. Just keep the spending reasonable and deliberate.
If the updates you make are tasteful and appeal to a large market, the chances of them increasing the appraised value are higher.
Renovations that add the least value:
If you are renovating out of personal preference for luxury or fun, then you might find yourself in the hole. Don’t expect to get the added value from renovations that are over the top and unnecessary.