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Homeowners often undertake remodeling projects with an ulterior motive. Sure, they want to enhance their living space; but frequently they hope the renovation or addition will boost their home’s value as well. After all, aren’t three bathrooms better than two? Who wouldn’t want a state-of-the-art kitchen, a swimming pool or a finished basement? And new exterior siding should make you the envy of the neighborhood, right?
Misguided thinking. When it comes to adding value, not all home improvements are created equal. In fact, “some home projects can actually decrease your home value,” says Northwestern University data scientist Mischa Fisher, former chief economist at Angi, the contractor search service/house renovation site.
The return on investment that home improvements offer can vary significantly from over 100 percent to a mere 20 percent, depending on the specific type of project you take on. Fact is, very few renovations and remodels fully recoup their costs, or even most of their costs.
Do home improvements always add value to the house?
The short answer is no, home improvements do not always add value to your home. Even if they do, that’s not quite the same as you actually making a profit on the project, or even recouping your costs. There’s a big difference between adding value to your home and earning a return on your investment.
“Some improvements might not add significant value because they are too personalized, going beyond the taste of the average buyer, or are not in line with the style and value of other homes in your neighborhood,” says Roman Smolevskiy, a general contractor and owner of A+ Construction & Remodeling in Sacramento, Calif.
You can look at a project’s returns in two ways: First, how the project raises the total resale or market value of your home. This is a nice way to see how your home’s worth has changed, compared to the money you spent on the project. It can be useful to know if you’re thinking of putting your house up for sale, are contemplating borrowing against it or just want a sense of its overall value — and your equity stake in it — when totaling up your assets.
Or, you can look at the project’s return on investment, or ROI. “This is a measure of how much the home’s value rises as a share of the project cost, typically expressed as a percentage of the total project cost,” Fisher explains. “For example, if a $4,000 garage door improvement adds $3,500 to the value of your home, you could say the project has an 88 percent ROI. This means you are able to recoup a large share of the project cost.”
ROI’s meaning in home improvement differs somewhat from its meaning in the financial investment world, where it refers not to cost recoupment but to direct profit. For example, if you had spent spent $4,000 on stocks whose price rose $3,500 to $7,500, an 88 percent ROI would mean you nearly doubled your initial investment.
The point is, don’t confuse a project’s return on investment percentage with the amount of profit — or the amount of increased home value. For example, the 2023 Cost vs Value Report done annually by Remodeling, an authoritative contracting industry trade journal, says replacing your old windows with new vinyl ones costs $20,091 and has an ROI of 68.5 percent. That means it bumps a home’s potential price tag up by $13,766 – it does not mean the entire value of your home increases by 68.5 percent. And you’ll notice that the $13,766 it ups your home’s worth by is much less than the $20,091 you spent on the windows.
Home improvements that add value to your home
Some particular home improvements historically have been more valuable than others. Here are some that earn the biggest bang for your renovation buck, based on the latest intel from Remodeling’s 2023 Cost vs Value Report, and the experts we talked to.
“The kitchen remains one of the most-used rooms in a home. Buyers often look for updated, modern kitchens, so a kitchen renovation may significantly increase your home’s appeal,” Smolevskiy explains.
Remodeling’s most recent Cost vs Value Report indicates that a minor kitchen remodel offers a good return: The ROI is 85.7 percent (up 71.2 percent last year) from based on an average job cost of $26,790 that adds a home resale value of $22,963. It involves mainly cosmetic changes to a “functional but dated” kitchen: replacing the floor, cabinet fronts, countertops and appliances with midrange-priced alternatives, and repainting the walls and ceiling.
However, if you want to get a decent return on your kitchen renovation, keep costs low. Larger and more costly kitchen renos recoup less cash, Remodeling notes. A $77,939 major kitchen remodel, which involves adding new cabinets, an island, extra appliances and custom lighting, in addition to the above — has an ROI of 41.8 percent. And if you go with a really upscale remodel — all top-of-the-line, state-of-the art appliances, custom-built additions and high-end materials — the ROI drops to 31.7 percent.
“High-end kitchen remodels can cost up to $150,000 but will likely only get about $50,000 in return,” Tom Nolan, founder of AllStar Home, a Raleigh, NC home improvement company, says. “A lot of this can come from over-engineering a kitchen with too many unique features that only a selected buyer will recognize.”
“Much like the kitchen, bathrooms are frequently used [and] highly valued by homebuyers. An updated, stylish bathroom can greatly appeal to prospective purchasers,” Smolevskiy points out.
But a bathroom renovation‘s ROI often follows the same pattern as kitchen renovations.
“These are some of the most expensive remodel projects you can choose, but they rarely fetch more than $20,000 in value,” Nolan cautions. “Keeping a bathroom clean, organized and appealing is better than spending $10,000 on a computerized toilet – so get the value you want to see out of this project.”
According to the Remodeling report, a midrange-budget bath remodel, with an average price tag of $24,606, will yield an ROI of 66.7 percent. Basically, it involves replacing all the fixtures (tub, toilet, vanity) with fresher, modern versions. Try a more ambitious project that involves expanding the room, relocating fixtures, adding a walk-in shower — all to an estimated tune of $76,827 — your return on investment drops to only 36.7 percent.
Energy-efficient enhancements to your home are definitely in, and can make a big difference in resale value, as increasing numbers of buyers are asking about green features or clean power sources. “Upgrading to energy-efficient options can help lower utility bills and increase the overall sustainability of your home, which is an attractive feature for buyers,” says Augusto Bittencourt, a real estate salesperson with Compass in New York City.
Case in point: A HVAC conversion, which involves converting a traditional fossil-fuel-burning furnace to an electric heat pump for cooling and heating. While this can cost $17,747, on average, it could more than pay for itself — its ROI is estimated at 103.5 percent, in fact, topping Remodeling’s Cost vs Value list.
“Equipping your home with a more energy-efficient HVAC system, upgrading your insulation or putting on a new roof will have a profound effect on your home’s value long-term,” says Calvin Lamont, co-host of HGTV’s By It or Build It. “And now is a great time to get more for your investment with the Inflation Reduction Act (IRA) in effect. Every state is different, but with the new IRA, homeowners may be eligible for tax credits or rebates when purchasing energy-efficient appliances.”
In terms of investment returns, exterior remodels rule — and have done so for the last 30 years, Remodeling’s report notes. In fact, four of the top five jobs yielding ROIs above 100 percent are outdoor enhancements.
“Replacing your garage door, front door or vinyl siding are particularly great options for making your house more sellable and getting back what you put in,” Nolan adds. Remodeling’s report concurs: A garage door replacement, with a job cost expected at $4,302, boasts a recouped cost of 102.7 percent, slightly more than a steel front door replacement (100.9 percent ROI and $2,214 expected cost). Covering your house exterior with manufactured stone veneer can repay you at resale by 102.3 percent. Replacing siding pays off well too: 94.7 percent ROI for vinyl siding or 88.5 percent for fiber-cement siding.
Even “simple tasks like adding a fresh coat of paint on the exterior can boost the value of your home,” Lamont says.
Finishing your basement and making it habitable is another home-improvement project that can pay off. That’s because it adds precious living space (always an addition to home value) without adding to your home’s footprint. Averaging around $57, 500, a full basement redo can deliver as much as an 86 percent return on investment, according to the National Association of Realtors’ “2022 Remodeling Impact Report.”
“Basement conversions don’t always get you back what you invest. However, if you do it right, you can convert your basement in a way that will make your house sell in no time,” continues Nolan. “These days, with many people working from home, turning your basement into a home office, for example, can ensure your house is more attractive than without it.”
What determines if a renovation adds value?
Along with the type of remodeling job, several factors determine if home improvements will add value at resale:
- Current real estate market trends
- Your home’s location and neighborhood
- The quality of work and materials used
- Buyer preferences
“Consulting with a real estate agent before committing to a renovation project can be extremely beneficial,” Bittencourt notes. “Agents have valuable market knowledge and insights into what buyers in your area are looking for. They can provide guidance on which renovations and design choices are more likely to attract potential buyers and increase your property’s market value.”
What home renovations might decrease your home value?
Not every remodeling project or home improvement will make your property appreciate. “An over-the-top renovation and highly personalized remodel will almost always decrease your home’s value,” warns Bittencourt — either because you’ve laid out too much money, inadvertently destroyed a valuable feature or simply because it turns buyers off.
Often, “potential homebuyers don’t want features that require ongoing maintenance, like in-ground pools and built-in electronics,” says Fisher. “Buyers also prefer homes with more bedrooms, so removing one bedroom to make another one bigger may end up decreasing your home’s value, rather than adding to it.”
Aleks Grigoriev, co-founder of Priority Home Buyers in Las Vegas, says the following home renovations stand a good chance of decreasing your home’s value:
- Lavish lighting fixtures
- Converting a bedroom into a closet
- Making highly personal customizations
- Bright and bold paint colors
- An extremely high-end kitchen
Also: Buyers prize ingenuity — hey, look at how that closet fits in there! — but not too much originality. Hyper-personalized styles and details can take away from your home’s value, making it harder for prospective buyers to envision themselves in the space. It also creates an automatic to-do list of projects before the space can feel like home to a new owner.
If you’re planning on staying in the home for several years to come, it’s fine to indulge your tastes and make rooms feel like you. But you may need to undo some of the work when it comes time to stage your home to sell.
How can you avoid renovations decreasing your home value?
You can avoid decreasing your home value by carefully choosing projects, settling on those that have a track-record of reliably boosting curb appeal or that are likely to appeal to the broadest range of prospective buyers. And remember, the more customized your renovations are, the less likely it is that prospective buyers will like the work you’ve done.
It’s also a good idea to make sure the improvements you make are consistent in character with the rest of your home. And if the renovations will be obvious on the exterior, make sure any changes you make are also consistent with the surrounding neighborhood as well. As any Realtor would advise you, consider the comps: If every other home in the ‘hood has an in-ground swimming pool, your above-ground variety is going to look tacky.
Make changes that will modernize but aren’t too trendy, to ensure you don’t over-do, and inadvertently harm your property’s worth. “Pay attention to the most popular new appliances, materials and items that people are putting into their kitchens, for example, and stick to the basics in your bathroom so you don’t spend your money on unnecessary equipment,” advises Nolan.
Should you renovate your home based on your house value?
Unless you’re a professional house flipper, probably not. “Your primary goal should be to make your home a comfortable and functional space for you and your family,” says Grigoriev.
That said, you should consider the home’s value before spending too much money on any changes: What you get back on renovations is somewhat linked to the home’s overall worth, and the value of other homes in your neighborhood. Beware of “overbuilding,” renovations that make a home a lot pricier than its neighbors. Improvements that bring your home’s value up to the average price in the neighborhood, on the other hand, may provide a better return.
Lastly, try to think long-term: The housing market is constantly changing, and your home’s value may not be the same six months or a year from now.
The bottom line on home improvements and house value
Increasing your home’s value doesn’t have to be your number one priority when remodeling or renovating. Homeowners considering major home improvements should think about their own comfort and needs first, and the value of the home second.
“However, if you’re planning to sell your home in the near future, it’s important to make some improvements that will appeal to buyers,” suggests Grigoriev.
Have realistic expectations. Real estate history shows that homeowners should not expect to recover all of their money when undertaking remodeling projects. While making a profit is certainly not unheard of, you shouldn’t count on it. It is simply one of many considerations to keep in mind.
“My advice is to plan carefully, understand the potential return on investment and align your renovations with your home’s overall style and your neighborhood,” Smolevskiy says. “Remember – it’s not just about making improvements, it’s about making smart and valuable investments.”