The squeeze on money has hit the real estate industry hard. Mortgage demand is down by nearly 30%, and the formerly strong seller’s market has transformed into a more even playing field.With so many challenges to buying a new home and selling your current one, homeowners are having to do more to make their homes appealing — either to themselves or to potential buyers.So how can homeowners and sellers choose home improvement projects that will net them the biggest return on their investment?We surveyed our field staff — consisting of real estate agents and renovation experts — in six markets across the country to find out which home improvements net the highest ROI.
One common theme emerging from our survey is that home maintenance is not the same as home improvement.“The biggest misconception is that common home features that buyers expect to work, like a new roof, or HVAC, can increase home value.
While these functional elements can be a reason people pay less for a home, they usually are not a reason people will pay more,” says Christina Kenny, a Service Advisor in Atlanta. Think of it this way: home improvement makes your home bigger, better, and/or more modern. Home maintenance keeps it in good working condition. Both are important to ensuring your home sells fast and for the most money, but improvement can boost your home value, while home maintenance will simply maintain it.
Another theme emerged from our data:Before taking on home renovations, you should understand what ROI really entails.A return on investment is profit that you earn after deducting the expenses of a venture. In home improvement terms, ROI is the difference between what you paid for the renovation, and the boost to your home value that it may (or may not) give you.Many people are accustomed to expecting a positive ROI — where the resale value is higher than the expenses of investment.But that’s not often the case in home improvement.“You will most likely not get a dollar for dollar return,” according to Wade Williams, an Orchard Listing Agent in Austin.“However, you will ensure that your home sells faster and for more money than a dated home in need of repair.” While home sellers might not see a positive ROI, that competitive edge can be priceless.
Williams’ point was echoed by many of our respondents, who underlined the importance of using metrics other than money to determine the returns on various home improvement projects.“Price is not the only factor home improvements impact. They decrease the days on the market for a property, increase the leverage you have in negotiations, and the number of showings,” points out Corbett Austin, a Service Advisor in Austin.These factors are especially important for home sellers or homeowners who plan to sell in the near future. If you’re in this position, speak to a real estate expert to help you choose the best home improvements to sell your house faster and for more money.
A kitchen remodel was the clear winner of the home renovation project with the highest ROI, with 86% of respondents recommending it over other things like a bedroom or bathroom remodel, or adding an ADU.
But not all kitchen remodels are created equal. “People focus on complete kitchen remodels and don't understand they could potentially lose thousands of dollars if they don’t choose their materials wisely," saysMichael Duffy, a Service Advisor based inAustin.
Consider this: You invest $30,000 to remodel your kitchen in the hopes of boosting your home value. As a part of the project, you budget $22,000 for new countertops, cabinets, and floors, and $8,000 for replacing your appliances, which are in good working order but not new.To stay on budget, you choose mid- to lower-end materials. What you may not have realized you’re better off keeping your slightly outdated appliances and allocating that $8,000 for mid-to-higher end materials for your countertops, cabinets, and floors. Those are the types of materials buyers in your neighborhoods eek out, and those are the types of investments that will really boost your home value.Duffy suggests consulting an expert before taking on these projects to make sure you maximize your dollar for the best ROI.
Our experts recommend granite as the countertop material with the best ROI. While it may have a higher price point than some alternatives, investing in this classic choice will appeal to buyers because of its luxury and durability.Materials like epoxy or formica, don’t have the same appeal. These materials may be cheaper to install, but won’t help entice buyers or give you more leverage in closing
Aesthetic improvements like new flooring, countertops, and a fresh coat of paint followed a kitchen remodel as top choices for value boosting renovations. Amenities like adding a new pool, hot tub or jacuzzi, and installing heated flooring ranked as renovations with the lowest ROI. It might seem surprising that these luxury features would have such a low return on investment, but when you consider the upkeep necessary for amenities like hot tubs and pools — which can cost as much as $200 per month to maintain — the diminishing returns make sense. Still, these renovations might be worth it for you if you plan on staying in the house and utilizing them.
Like countertops, not all flooring choices have the same value boosting benefits. Hardwood flooring and tile ranked as the top recommended materials, while carpet and laminate came in last.
Cash is king for financing home improvement. Just over half of our respondents recommend financing home improvement with cash. This zero-interest option can help homeowners get the most out of their investment by not having to pay additional financing fees on top of it.
But for homeowners who can't afford to finance their renovations with cash, a Home Equity Line of Credit (HELOC) is a solid option, recommended by almost 25% of our respondents. A HELOC lets homeowners turn their home equity into a line of credit that they can access during a predetermined draw period (like a credit card with a spending limit of however much equity you want to tap into).
HELOCs are a strong option because they allow homeowners to use as little or as much of it as they need and keep their overhead low. However, these are variable-rate loans; changing interest rates can make it difficult to budget monthly payments, so borrowers should be prepared.
Orchard’s Agent Survey was collected through an online poll of our field staff in Atlanta, Austin, Dallas-Fort Worth, Denver, Houston, and San Antonio. This includes licensed real estate agents and our expert Concierge staff.
You can read the full report here.
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