Highest ROI: Top Home Renovations

There’s no doubt that 2021 was a hot real estate market, but there was another hot market this year, and that was the renovation market. Because of a lack of inventory, many homeowners opted to stay put in their homes and create their dream home in their current home. This is a trend we will likely see more of in 2022 as we navigate inventory challenges throughout much of the country.

If a home renovation is on your to-do list in 2022, keep reading to learn more about top renovations that will bring the best and worst return on investment (ROI).

Home Renovations and the Appraisal Process

Before you go knocking down your kitchen walls, it’s important to understand how home renovations impact the appraisal process when you go to sell your home.

While some homeowners aren’t concerned about their return on investment (ROI) for their remodel, others may be anticipating that their $90,000 in kitchen upgrades is going to gain them $90,000 in value when it comes time to sell. Hold it right there.

While most remodeling projects add value to a home, here are some things you’ll want to consider:

  1. The true market value of a property is based on what buyers pay for similar houses in similar areas. “Similar” doesn’t mean “exactly the same.”
  2. Home remodeling projects rarely increase the home’s value dollar for dollar—or 100% of the renovation total cost. For example, if a homeowner spends $40,000 on adding a guest bathroom, it’s doubtful that the home will sell for $40,000 more.
  3. While some renovations end up earning a higher ROI than others, it’s impossible to know for sure which projects will deliver. Homebuyers’ priorities change, and these changes are unpredictable.

A homeowner who spends $70,000 on a state-of-the-art kitchen or bathroom renovation should keep in mind that this investment won’t be reflected 100% in an appraiser’s home valuation down the road. To learn more about the responsibility of appraisers during the appraisal process, click here to read our full article.

2022 Top Renovation Predictions

Now that we’ve set some expectations on renovations, let’s explore what we anticipate to be some popular renovations in the new year.

  • High-tech mudrooms do more than keep floors cleaner. Remodeling magazines report that they’re now called “drop zones” because family members can drop keys, backpacks, and sports-related items there. Many also have built-in charging stations for cell phones and laptops.
  • Enhanced backyard space is a trend from 2020 that’s still going strong. Popular choices include backyard kitchens, with pizza ovens still a hot item (pardon the pun).
  • Accessory dwelling units (ADUs) are usually detached from the main house, with floor plans that resemble a remote office or small apartment. Increased approval from city planning departments has also boosted demand.
  • Multiuse home offices continue to be a major draw for buyers. During 2021, searches for home offices within properties were up by 108%. Those who aren’t able to convert an existing room to a home office sometimes opt for an ADU instead.

Renovations That Deliver Higher ROI

While ADUs may be a good choice for homeowners preparing to sell in more expensive areas, tried-and-true projects also deliver respectable returns on investment (ROIs). So does anything that increases curb appeal. Replacing a home’s exterior with manufactured stone veneer or vinyl siding are two ways to do this; so is installing a new entry door.

Here’s an interesting statistic: Midrange renovation projects that max out at $50,000 often yield the best ROI. The following three are examples of when a minor remodel can work harder than a major renovation:

  • Kitchen renovations can earn up to a 72.2% ROI, as long as they’re limited to basics. Smart sellers will opt for improving the area’s “eye appeal” with refinished cabinets, new flooring, or new countertops.
  • Bathroom remodels are almost as popular as kitchen renovations. A 2021 report found that, while a midrange remodel will cost around $25,000, average ROI may be up to 70.1% of that amount in increased market value.
  • Garage door replacements are actually one of the biggest ROI redeemers. A new garage door yields on average a 93.8% ROI, and it’s an easy, cost-effective fix.

Renovations to Avoid

While homeowners who aren’t selling soon may be happy with these projects, they’re high risk when it comes to your return on investment. Some may even drive off potential buyers:

  • An in-ground swimming pool isn’t just costly to install; its upkeep adds to the monthly expenses. Also, families with young children often avoid properties with pools for safety reasons.
  • A designer kitchen remodel may add to a home’s appeal, but this is one project that is easy to overspend on. And most buyers aren't aware of the price tag that comes with a high-end kitchen remodel or high-end appliances. Others are devoted microwavers with no plans for coq au vin or bœuf bourguignon. This is why high-end kitchen remodels often deliver a disappointing ROI.
  • Garage conversions may work for homeowners with growing families, but many buyers don’t see the value. Here’s why: In addition to secure parking, they’re also looking forward to more storage space.

If you’ve always dreamed of an in-ground swimming pool, don’t let this article stop you—but now you know what you can expect when it comes time to sell your home. The reality is that buyers’ needs and wants change with the times, so there are no guarantees when it comes to home renovations. And if you want to play it safe, you can consider smaller home improvement projects  that can add big value, like an exterior paint job, new roof, or landscaping.

We want to leave you with one final thought on this topic from our very own Gerry Allard of Kairos Appraisal: “Among these larger remodeling ideas, there are smaller undertakings that can bring surprising results. Interior and exterior paint can significantly improve the look and appeal of your home. Updated trim accents and fixtures can provide a more contemporary look—and fresh appearance—at minimal expense. These can go a long way toward bringing greater value and appeal.”

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