Read This BEFORE You Renovate To Get More Money

Posted by Ed DePrato on Sunday, August 3rd, 2014 at 9:32am.

Many sellers prepare for the selling process by making their home show its best. This makes sense. To effect a sale and be successful with the ever more discriminating buying public, it’s very important for a seller to pay special attention to how well their home shows – a buyer needs to like what they see.

But some sellers go too far. They actually incur steep costs to improve/renovate their home before selling with the hope of achieving a higher sale price. Some sellers will add or refinish a deck, exterior siding, a sidewalk, build a garage, renovate a kitchen or finish their basement. And they’re doing this to try and maximize the price they sell for. Unfortunately, the evidence doesn’t support this kind of improvement and related expense.

Outside of interior paint (which we talked about in a previous post) – all renovations are a losing proposition.

Sellers have every right to try and sell for the most money possible, but to incur thousands in renovations with the hope that a buyer will agree that the $25,000 kitchen makes this home worth an extra $40,000 simply is NOT the case. Sellers attempting to maximize sale price by making these improvements are forcing their smaller home in an inferior area to compete with larger homes in better areas. Homes sell within a range dictated by the area they are in. There’s rarely a community that has both (liveable) homes in the $300,000 range and $600,000 range. Take Edmonton for example. North East Edmonton is a fine area to live (I grew up there), but it sells at a discount to South West Edmonton (where I live today) simply because SW Edmonton is more desirable. So a would-be seller in NE Edmonton with a $300,000 house who attempts to renovate and improve their home so much that he’s going to ask $450,000 for it will quickly learn that buyers willing to spend $450,000 aren’t shopping in his area. His buyers are shopping in his area because that’s where they can afford houses; so most buyers (even if they love the house) can’t afford it. Further more, even if a buyer is convinced to spend that amount when the appraisal company (representing the bank) evaluates the home at less than $450,000 the sale will quickly collapse.

I blame HGTV! Seriously, the sexy appeal of flipping a home for profit has created a frenzy of activity at the local hardware stores. But what these TV shows fail to explain (from what I’ve seen) is that investors flipping for a profit make money when they buy – not when they sell – and certainly not when they renovate. Buying right; at the right price makes an investor money, period. While a coat of paint may pay dividends, as a seller you’ve already bought your home, so your fate (profit or loss) is sealed. And if you’ve been in the home for a while, you’re likely fine. Don’t mess things up by making massive renovations.

I’ve linked to this excellent renovation guide written by Jackson Real Estate Appraisals Ltd. In the guide they break down what various renovations should average and how much you can expect to get back on the investment when your home sells. It's also full of great tips about how to work with contractors and how to get the most out of your home. Do your homework before you start renovating and you'll be better off financially afterward.

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