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April 2020

Remodeling yields mixed ROI, but could lead to quicker sales

April 6, 2020

Home remodeling expenditures are projected to increase by just 1.5% this year, a decline from the 5-to-7% gains in recent years. Even with lackluster growth, homeowner improvement and repair expenditures are likely to exceed $330 billion this year.

Those prediction are based on the Leading Indicator of Remodeling Activity (LIRA), a short-term outlook of national home improvement and repair spending on owner-occupied homes produced by the Remodeling Futures Program at the Joint Center for Housing Studies (JCHS) at Harvard University.

Homeowners who are considering remodeling, especially if they're doing so in anticipation of selling, should be mindful of the return on their investment (ROI).

The National Association of REALTORS® (NAR) and Remodeling Magazine produce a Cost vs. Value report, which concludes few projects will yield a return of 100% or more. (Manufactured stone veneer and garage door replacements are among the best improvements, yielding 94% ROI or higher.)

Realtors advise owners to consider sprucing up the exterior of their home if it looks dated or poorly maintained. NAR research revealed that a lawn care service with weed control and fertilizer could provide a 300% ROI while adding to curb appeal.

When considering where to invest remodeling dollars, sellers should be mindful of what prospective buyers value most. A recent Realtor.com report indicated 80% of homebuyers said the kitchen was one of the most important spaces in their house.

Kitchen remodels typically yield only 65-to-80% ROI, but they're very likely to enhance a home's appeal. More than 25% of Realtors who recommended kitchen renovations said the improvements led to the sale of the home.

Other renovations that are gaining in popularity, according to JCHS are ones designed for aging in place, energy efficiency, and home automation. As examples, when redoing a bathroom, features like a walk-in shower with a bench and handrails will appeal to buyers with limited mobility or who are concerned about aging in place. Home automation features, such as controls for thermostats or lights, have appeal to buyers who spend time away.

Before making outlays on remodeling, owners would be well-served to research average costs for typical projects in their area in order to estimate ROI. Contingencies for unexpected problems, the cost of permits, the inconvenience during the project, and rebates and tax credits are other factors that can affect ROIs.