What's the payback for remodeling before you sell?

What's the payback for remodeling before you sell?

Sellers often ask, "How much work should I do to my home before I sell?"

Every year the National Association of Realtors® puts out a "cost versus value" report that estimates the resale value of various home improvements in sixty regional markets. It's a noble effort but one that's taken a few hits. It'll take a few more here.

Let's look at the survey's projected rates of return for improvements to homes in the San Francisco region. Do NAR's numbers match the reality of that market?

NAR's idea of a "major kitchen remodel" is un-ambitious for much of this area, and so is their projected payback: 83¢ back for every $1 spent. And you might well lose 17¢ on every $1 spent on a new kitchen if you installed the report's laminate ("Formica") countertops and vinyl flooring in a local mid-range or top-end house. But put that same kitchen in an entry-level home, or spend a few more bucks to make it glitter like a top-end kitchen, and you should get more than $1 back for every $1 you spent. Often far more. And a far happier buyer, which is also worth a few bucks.

Now let's see what NAR says you'll get back for every $1 spent on replacement windows: $1.32. Maybe so, but no buyer has ever told me she just loved those new vinyl-clad windows. But I do hear "I just love that new kitchen" all the time. So let's swap the numbers: Let's say 83¢ back for every $1 spent on windows, and $1.32 for every $1 you plow into a new kitchen. Not scientific, but much more likely. And even then, I think it understates the payback for the right kind of new kitchen.

How about adding a 16x25-foot family room to your home? I'm not too excited about the vinyl siding they use, but a family-room addition is a great idea and the projected $1.25 payback for every $1 spent seems in the ballpark.

But getting just 99¢ back for every $1 spent to add a master suite (bedroom and bath) seems way too low, especially if your house now has just one bath.

And $1.37 back for every $1 spent on a new composition roof? It's possible, but again, I've never had a buyer gush "I just love that 30-year dimensional asphalt composition roof".

The problem with the NAR's survey is that, even at a regional level, it doesn't recognize significant differences in taste and budget between micro-markets within that region. But it's true that today's buyers will often pay a seller to, in effect, be their general contractor. Not always, but often. Putting money where it shows is hardly ever a bad idea for any seller.

Two things are clear. First, adding space is good. Second, putting your home in "move-in condition" is even better. And, although NAR's report doesn't say this, adding luxury or at least the appearance of luxury is best of all, at least here in Silicon Valley.