When our appraisers visit a site we are often asked “What can I do to increase the value of my home?” Although every property is different, it is worth noting that there are some general rules when it comes to getting the most bang for your buck in a home renovation. Before we get into these details it is important to consider one of the largest factors in a renovation... depreciation.
Depreciation is a reduction in the value of an asset with the passage of time, or as it is often phrased... “wear and tear.”
It is important to always consider the depreciation of any item you are thinking of rehabilitating. Just because a person doesn’t particularly like the look of the cherry cabinets in their kitchen, does not mean that replacing them with a more modern look will bring additional value to the home. Our appraisers have often seen situations where, for instance, a 1980’s home that has been meticulously cared for by the owner, will sell for a similar selling price as the same era home that has recently been “flipped”. We will visit the issue of depreciation further in this article.
With regards to gaining the most return on your property we have divided the renovations into 6 separate items as follows:
1. Kitchens and bathrooms – This is often the “go to” when people think of increasing value to a home, and for good reason. The kitchen and bathrooms are the only rooms in the house that feature fixtures that give people an idea of the quality of finishing in the house. Upgrading the kitchen or bathrooms with new cabinetry, plumbing and lighting fixtures can be a great way to increase the desirability of your home. There are two important factors that should be considered however. These types of upgrades are often not cheap and all too often people will spend more money on them than what the market is willing to pay. What home owners need to consider is... if I spend $20,000 on my kitchen will the value of my house increase at least $20,000?
We often tell our clients, when it comes to kitchen and bathroom upgrades, usually dollar value in = dollar value out. The goal in a kitchen and bathroom renovation should not be to increase the value of the home more than what was spent, rather to increase the desirability of the home in relation to other similar homes on the market. For instance, if your home and your neighbors home are identical in every aspect except that yours has a new kitchen, and if both of these homes go on the market at the same time.... it is likely that your home will sell faster, and for more money, than your neighbors.
2. Garages and outbuildings – When it comes to a home for vehicles the rule of two is always the way to go. A two car garage is typically what is going to bring the most value... A home that goes from having no garage to a two car garage is very desirable. Garages and outbuildings function on a concept known in economics as “diseconomy of scale”. What we mean by that is that adding additional garage space is desirable to potential purchasers; however, they rarely are willing to pay the true cost of the additional building. Because GVS specializes in rural and acreage properties, we often come across sites that will have a number of outbuildings. Let's say we come across a site that has a double attached garage, a double detached garage and a single detached garage. What we typically see when we do our research analysis is that the double attached garage is very desirable, however when we add the additional double detached into our research it seems it will be valued at far less than the double attached, by the time you consider the single detached, it appears there is virtually no additional value. This is also true for spending additional money inside the garage or outbuilding. Having a heated detached shop is very attractive however the cost to build this shop all to often outweighs the value it brings to the site.
3. Basement finishing – Finishing a basement is a great way to add valuable square footage to your home. The most common basement finish is to add two bedrooms, a full bathroom and a recreation room. Basement are a little like garages though - what it costs to finish them is not always reflected in the sale price. It is easy to spend a lot of money on basement finishing even when it is not necessary. It's important to remember, there is a reason that developers that build a house on spec rarely finish the basement. This is because what it costs them to finish it and what they can sell it for don’t typically add up. If you own a home that already has a finished basment and you're thinking of rehabilitating it, remember the depreciation perspective. The rule should be “don’t fix it if it’s not broken”. If you have a finished basement from the 1970’s that offers the bedrooms, bathrooms and rec room, it might be a good idea to do a light upgrade as opposed to tearing it all out and renovating from scratch. From the purchaser’s perspective, again they love the idea of having the additional space, however getting them to pay for it can sometimes be a challenge. The one type of purchaser who will often pay is the young family. Having that additional space in the middle of winter for the young kids to stretch out can be critical to a parent’s sanity! The other situation where basement finishing pays off is if the space is converted into a secondary suite. Provided it is a legal conforming suite, finishing the basement for a rental usually will pay off from a resale perspective.
4. Capital expenses – (i.e. roof, furnace, doors & windows, plumbing & electrical) – When you think of capital expenses, think of the items that make your home function as a home. Things like the furnace and hot water tank, the electrical wires and plumbing lines, and the roof shingles. There is no other aspect of the home where depreciation is so apparent. The replacement of these items so rarely will have a major impact on the value of a home; however they obviously are necessary items to keep your home running. When a buyer enters the market to buy a home they have certain basic expectations. They expect to have a roof, a furnace and overall a functioning house. If they see a house that does not have one of these items their desirability will typically decrease significantly. However having the item new, although will ease their mind, won’t convince them to pay more for the home. The reason the CRA won’t let you deduct the replacement of a furnace all in one year on a rental is the same concept of why a buyer will not pay extra for that new furnace. Our advice to clients who ask about these items is typically to try and squeeze as much life out of these items as possible. If a home owner has a 25 year life of their windows and they replace them after 20 years, that is a net loss of 5 years they could have waited to spend that money.
5. Exterior siding & Landscaping –These items are often location dependant and they too depend on depreciation. The exterior of your home is the first thing a buyer sees and all too often the first impression is the most critical. If you’re able to upgrade your siding and landscaping for a reasonable price this can sometimes go a long way in increasing desirability. Note: always remember time of year and landscaping go hand in hand. A buyer will not be inclined to pay for additional landscaping if they cannot see it because it is covered in snow. It should be noted however, one aspect where this rule is rarely true is when it comes to pools. Pools do not often increase the value of a house, certainly not to the extent of what they cost to install. Especially in the Manitoba climate where the use of a pool is so limited, at least some buyers mentality is that a pool is far more trouble than it is worth.
6. Paint and flooring and fixtures – Putting on a fresh coat of paint and upgrading the flooring and fixtures are one of the best ways to increase the desirability of your home. It sounds too good to be true but more often than not, these simple upgrades can have a big impact on buyers. Paint, flooring and fixtures, such as taps and light fixtures, are an economical way of setting a good impression on the buyer. These upgrades, if done properly, often leave the home feeling bright, clean and well maintained. This is especially true if the house is going to be listed with no furniture in it.
There are a few other tips that will help maximize the return on your house if you’re looking to sell.
1. Know your clientele – Far too often people renovate to curtail what they want in a home and not what is most desirable. If you live in an area surrounded by young families then converting a three bedroom home to a two bedroom with a large walk in closet is not the smartest move... If you are in an area where basement suites are common, then converting your basement suite to additional living space for the main floor may not be the wisest choice. Market research on the types of buyers who will buy your home is imperative. This is one area where an appraisal will certainly help.
2. Shop around for materials – Once way to rein in spending on a renovation is to find discounts on materials. Building materials often function like fashion; "out with the old... in with the new". This is why you see Home Depot blow out flooring and appliances, to make room for the new models.
3. Save on labour – Another way to ensure you do not overspend on a renovation is to save on labour. If there are any areas of the renovation you can do yourself this will help decrease the overall budget of the renovation. “Watch the pennies and the dollars will take care of themselves.”
4. Stage and decor – Staging can be one of the most effective ways to increase desirability to your home. If a buyer comes into a house that is cluttered with dirty furniture or stained area rugs, they will often leave feeling disappointed. Simply de-cluttering, hanging some modern photos and staging some plants in the corner of the room can go such a long way. Additionally, odour is all too often overlooked when it comes to selling. Having an air fresheners by the door when the buyer enters the home will leave a pleasant feeling when they think back on the home.
5. Time of Year- Statistically speaking, the best time of year in Manitoba to sell a home is in the spring. This is when buyers have awakened from hibernation and the flowers are in bloom. We should note: one thing our appraisals will offer is a market analysis of when the best time to list in your specific area is.
Deciding what areas of the home require renovation for resale can be a stressful endeavour. Remember, every property is different and the list provided above is only what is generally true for the market. If you’re thinking of selling and want the right advice to get the most money out of your sale, give us a call. We can help!
Your Home's Worth... Our Firm's Word!
#renovating #houseflipping #winnipegrenovation #homerenovation #increasevaluetoyourhome #homevalue #winnipegappraisal #interlakeappraisal #brandonappraisal
Thinking about the value of your home? Book an appraisal today!
https://www.gvshomevalue.com/book-appraisal
GVS Home Appraisals
Your home's worth…. Our firm's Word
by Dwayne Grantham P.App, CRA, JD.
