One thing that most people want to know when they renovate their property, is how will the improvements affect the market value? This is explored in Damon Darlin’s Renovating With Profit in Mind? It Just Might Not Pay [NYT].

I think people perceive renovations and value as formulaic with the idea that each type of amenity equals some specific amount of value to a property. This is generally not true. Its the combination of what is done to the property. Here are some basic concepts of renovating a property to consider.

  • Be neutral. The renovations need to be acceptable to the typical buyer of your property in your market. Personalized renovations rarely translate into significant contributory value. Their removal can create more value.

  • The relationship of renovation costs as a factor of value is always changing. For example, in the early 1990’s during the recession, a renovated kitchen might see 50% of the cost translating into additional value. However, the benefit of a renovation could accelerate the marketing time by as much as 6 months. With an average days on market back then of 9 months, that could be a significant benefit to the owner. That same renovated kitchen today could see more than a 100% contribution to value but no change in marketing time.

  • Kitchen and bathrooms are expensive to upgrade. They are the most expensive rooms in the property on a cost per square foot basis but can be the most important in terms of the functionality of the house. Their weight, in terms of their contribution to value, is determined by how they stand relative to the market. The older these areas are compared to competing properties, the more weight their upgrade provides to value.

  • Basics like painting and refinishing floors go a long way from a cost-to-value perspective, in presenting the property to the market and creating a good first impression.

There are no simple formulas or calculations – the value of a renovation relative to cost is always changing. The consumer is fickle and the goal is to make the property appeal to the widest segment of the market that would consider it as an alternative. The more appeal the property has to more potential purchasers, the higher the value potential in that specific market.



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