# Upgrades how much value do they add?



## jamesbe (May 8, 2010)

I'm trying to determine how much value I am "adding" to my home by doing upgrades.

Recently I fenced the yard
Built a rear patio
Added garden and front interlock to our entry.

All of these things add curb appeal, especially the front walk. Cost was not huge for these things but I am wondering if I will recoupe this on resale (let's say i were to sell tomorrow). Or would I only get 1/2 of it etc.

In a hypothetical situation where say my house was evaluated at $450k on Day 1 then I did $10k in these upgrades Day 2, how much would the home be evaluated at on Day 3?


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## the-royal-mail (Dec 11, 2009)

IMO that's very hard to measure. I don't think the increase in value will be immediate or even guaranteed. I see this as changing the tires on your car. Sure the new tires look good, but the old ones were worn out and were no longer useful. New tires were required for performance and to allow you to continue operating the vehicle. Same thing here.

Never consider these things as increasing value of any house. I see them purely as a maintenance function. They help you MAINTAIN your home's value.

And really, you didn't add those things for the benefit of the future buyer of your house. You added them for YOUR benefit and enjoyment. Some future buyers may not want them.

Just enjoy those things today. There are too many variables to know what effect, if any, they may have on the value of your house when you sell it.


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## Four Pillars (Apr 5, 2009)

jamesbe said:


> I'm trying to determine how much value I am "adding" to my home by doing upgrades.
> 
> Recently I fenced the yard
> Built a rear patio
> ...


I love these scenarios. 

Unfortunately, I don't know the answer you are looking for, but I do have a few thoughts: [edit - I think this is enough for a post]

1) My opinion is that for a brand new renovation - in theory, the buyer should be willing to pay the full price of the reno (if it's something they would have done anyway). Ie if the fence cost $2k, then that should add $2k to the value of the house.

2) If you remove something that has value, then you should subtract that amount from the transaction. For example if you remove new lamanite counters in good condition from your kitchen (value $600) and install new granite tops (value = $2,000) then right off the bat, the value added will be a maximum of $1,400.

Exactly how you are supposed to accurately value the "old" kitchen, fence etc is not within my abilities. 

3) Buyers don't necessarily appreciate the cost and hassle of a reno. This especially applies to renos that involve a lot of "invisible" work, such as insulation, wiring etc. 

You can spend $50k on a new kitchen. A buyer might love it, but only attach a value of $30k to the kitchen because that's what they think it would cost them to build it.

4) Not everybody wants/values the same things in a house.

This is a big one and I think it is the reason why outside renos tend to have lower "benefits" for value, compared to inside renos.

As I said in #1 - if you add something to a house (ie new kitchen), and a buyer would have done that exact same reno, and they know the cost of that reno, then I think they will give the proper value (ie the cost of the reno if it is recent). 

The problem of course is that if a buyer isn't crazy about the new kitchen or doesn't want to pay for the extreme costs of a high end kitchen, then they won't. This is why more modest renos tend to hold their value better then going over the top.

A lot of inside renos are fairly standard. An updated kitchen, bathrooms, nice floors, decent walls, ceilings, windows, lights are things that most reasonable buyers also want and will (hopefully) value appropriately.

Outside renos are a lot more variable. A fence (where there wasn't one before) is somewhat standard, so perhaps most buyers will like that. Decks are pretty standard and probably add a fair bit of value, within reason. 

Mandatory items like roofs should give good value. Ie if I'm buying a house with a new roof that cost $10k, then it should be worth $10k. If it's halfway through it's life - then maybe it's worth $5k.

Things like extra patios/gardens etc are very subjective - some people will love them, some will remove them after buying the house.

A pool is a great example - some people love them, others hate them.

Last example: my neighbours have a back yard which is beautifully landscaped. The deck is old, but the main back yard had all kinds of great patio stones (like flagstone or something) and gardens etc. The only problem is that they have 2 little kids and they are envious of our plain grass/weed yard because it's a much better play area for the kids. They've removed quite a few of the stones.

Conclusion

For any renos you should consider:

The value of what you are removing.
How standard is the reno you are doing? Is it something a new owner would want to do themselves? Would they spend the same amount of money you did?


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## MoneyGal (Apr 24, 2009)

Upgrades! How do they work? 

The Appraisal Institute of Canada has developed an online tool to help calculate the ROI on home improvements. You can find the tool here.


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## Four Pillars (Apr 5, 2009)

MoneyGal said:


> Upgrades! How do they work?
> 
> The Appraisal Institute of Canada has developed an online tool to help calculate the ROI on home improvements. You can find the tool here.


I don't think these "calculators" are very useful.

For one thing, it assigns a percentage range. Ie for bathrooms it gives you a value of 75% to 100% of the renovation value - regardless of how much you spend. So if I spend $10k, then my return is $7500 to $10k. If I somehow spend $100k, then my return is $75k to $100k which doesn't make sense for most houses.

It also ignores the value of the existing bathroom etc.


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## MoneyGal (Apr 24, 2009)

Well, here's the thing. Your upgrade is "worth" whatever a willing buyer will pay for it (in aggregate with the rest of your house) if and when you are willing to sell it. 

I actually think the whole discussion about ROI on upgrades to your house is relatively meaningless. However, I also think your point about placing a value on the existing infrastructure is very good. 

My MIL has moved out of her existing house and is "waiting" to sell it until she gets a bunch of "upgrades" done. In the meantime, she is maintaining two properties. I think this is insane, personally; but she's convinced there will be a positive ROI from remodelling the bathroom, etc. and she's found a slew of "helpful" contractors who fully agree with her position.


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## Four Pillars (Apr 5, 2009)

MoneyGal said:


> Well, here's the thing. Your upgrade is "worth" whatever a willing buyer will pay for it (in aggregate with the rest of your house) if and when you are willing to sell it.
> 
> I actually think the whole discussion about ROI on upgrades to your house is relatively meaningless. However, I also think your point about placing a value on the existing infrastructure is very good.
> 
> My MIL has moved out of her existing house and is "waiting" to sell it until she gets a bunch of "upgrades" done. In the meantime, she is maintaining two properties. I think this is insane, personally; but she's convinced there will be a positive ROI from remodelling the bathroom, etc. and she's found a slew of "helpful" contractors who fully agree with her position.


I think it's useful to look at ROI when you are planning to selling your house. If you are trying to fix things up, make easy improvements then trying to decide what to work on is a good idea.

I don't think that is the time to be putting in a new kitchen - you probably get a better return by fixing up the old one ie repainting cupboards etc.

As for the two house situation - we did that with my wife's house. I wanted to sell it "as is" or after doing some very basic fixups. She wanted to do a whole bunch of stuff. We ended up carrying the stupid thing for about 6 months so it's hard to imagine we didn't end up losing some money.


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## kcowan (Jul 1, 2010)

All renovations should be consider maintenance. A well-maintained house commands a premium on resale. Bathrooms and kitchens hold their value if updated tastefully. But how do you know that a buyer will value granite over one of the other choices?


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## bean438 (Jul 18, 2009)

Royalmail is right. Do the reno if you want to do it and will enjoy it.
Money spent will not necessarily be gotten back.

If you have 2 identical houses and one hapens to have a 3 season sun room, the house with the sun room will not sell for more, but will sell before the one with out.

Just because you spent 10K on a new roof doesnt mean you will get it back. You are expected to keep the house in good repair.


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## brad (May 22, 2009)

MoneyGal said:


> Well, here's the thing. Your upgrade is "worth" whatever a willing buyer will pay for it (in aggregate with the rest of your house) if and when you are willing to sell it.


Exactly.

The couple who bought the house I grew up in spent more than $1 million on renovations, including adding five more bathrooms - apparently so there would be one bathroom for every day of the week. And then they divorced; the woman lives there alone now with her seven bathrooms. Somewhere out there is someone who would be intrigued with the idea of a house with seven bathrooms, and a person like that probably wouldn't blink at paying half a million more just to have them. 

We just spent the ungodly sum of $10,000 to have a new shower put in to replace the (leaking) one that came with our house. I'm sure we'll never get it all back if we ever sell the house, but it's a really lovely shower and it might help make the difference between a sale and a nibble. There's a degree of irrationality that enters into every home-buying decision, and sometimes it focuses on one little feature that you fall in love with and that tips you toward buying (or spending more than you otherwise would).


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## james_57 (Jul 5, 2010)

jamesbe said:


> I'm trying to determine how much value I am "adding" to my home by doing upgrades.
> 
> Recently I fenced the yard
> Built a rear patio
> ...


The market value of a house (note that evaluations are done by agents, and appraisals by appraiser) is calculated by three methods. The RE agent is only really capable of one method, 'comparison'. 

Your house is _evaluated_ by the recent sales in your neighborhood. There will be a pricing curve in your neighborhood, where some houses are under, and some are over the average. If your house is already over the median point, you are less likely to see any return, and that likelihood diminishes as you move higher away from the price median. Houses priced below the median, have more likelihood to recover renno costs. If you are selling your house and it needs a new roof, i would get three quotes, and give them to the agent to present to prospects. But if its leaking, fix it today. Anything whatsoever structural - fix it. 

As a general rule, renno costs are not recouped dollar for dollar, and not only that, but you are losing Mr-fix-it as a buyer.


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## jamesbe (May 8, 2010)

Thanks for all the comments and to Moneygal for the link which I heard existed but couldn't find.

The renos we did were small, about $4,500 worth, the house is "new" built in 2005 and not in need of repair but mostly curb appeal to get prospective buyers.

We actually planned on doing a front garden / walkway for our own enjoyment this spring, it finally got done just as we decided we wanted to move hence the question. I just laid out this $4,500 in the past week. So say our house was worth $490 2 weeks ago and is still $490 well that sucks, I could have used the $4500 to pay for the move (lawyer fees etc etc). If we could perhaps get $493 or $495 now that would be the most ideal situation.

Less ideal but more realistic is that I still get $490k but see faster because curb appeal is higher. From other things I have read the least expensive renos are the ones that get the most back. Like $100 in paint can get you thousands more in resale -- we painted the entire house last year it was builder white until then, now it is homey with earth tones and wow factor when you walk in the door (probably the biggest attention grabber).

Very good debate / conversation I guess the lesson here is what I thought, you may or may not get anything and you could attract more buyers or maybe deter them if they don't like it and would need to rip it out. Do it for yourself and remember it's a home not an investment


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