When we say that we’re often asked what renovation has the best return on investment, we mean it. It might not be the most common question we get, as that award goes to the near constant “So, how’s the market doing?”, but it is definitely one we get all the time.
We originally wrote an article about it back in 2011, then again in 2016, so it seems like time to update our answer once again. We say, “update our answer”, but the fundamentals of what is worth doing don’t really change. Yes, there are design trends that come and go, but we don’t focus on what’s in this year or featured in celebrity home profiles. After all, carpeted bathrooms and textured walls were once considered the height of design in homes and neither have aged very well.
Instead of looking at design trends, we look for what’s always of value to buyers, based on our daily and ongoing interactions with buyers. Let’s review what we’ve said in our past articles and what we say now and see if we’re in fact as consistent as we think.
It’s 2011!
This article was short and sweet and our first attempt at answering the question of whether a renovation a homeowner is thinking of doing will pay for itself in the form of a higher sale price when they look to sell the home.
This is a crucial question, made even more relevant by the fact that many homeowners don’t do the renovations until right before they sell. At that point, they’re very much focused on whether it will add value as they may still have the balance sitting on a credit card!
We began the article by pointing out that certain renovations add features to a home that mean you can attract interest from a buyer who would not have even considered your house before it was done. Many buyers don’t want to see houses without central air conditioning, and a master bathroom with a shower instead of a bath is not appealing to buyers with babies or young children. Renovations that address such issues as these may cause offers to show up that may not have otherwise happened.
We finished the article with a list of payback ranges of typical renovations, provided by the Appraisal Institute of Canada. Even back in 2011 it was hard to find Canadian stats and the below payback ranges were actually from a study done in 2006.
Payback Range of Typical Renovations
- Bathroom renovation (75 – 100%)
- Kitchen renovation (75 – 100%)
- Interior painting (50 – 100%)
- Exterior painting (50 – 100%)
- Roof shingle replacement (50 – 80%)
- Furnace/heating system (50 – 80%)
- Basement renovation (50 – 75%)
- Recreation room addition (50 – 75%)
- Installing a fireplace (50 – 75%)
- Flooring (50 – 75%)
- Constructing a garage (50 – 75%)
- Window/door replacement (50 – 75%)
- Building a deck (50 – 75%)
- Central air conditioning (25 – 75%)
You’ll note that none of the above payback ranges exceed 100% and a fair number of them start at 50% payback. The highest range was for bathroom and kitchen renovations and we think that this is a function of how disruptive such renovations are for homeowners. If you renovate a kitchen, get used to ordering takeout and cooking in microwaves for a number of months! If you choose a bathroom reno, here’s hoping you have a spare full bathroom in the home, otherwise you better have (close) friends or family nearby who don’t mind your family using their shower!
Five..years…later.
This article was an update on the one we wrote in 2011, and given that original article used statistics from the Appraisal Institute of Canada from 2006, it was time for an update! After all, in 2016 it was a decade since the Appraisal Institute of Canada’s rates of return on common renovations as listed above.
We weren’t able to update with more recent stats from the Appraisal Institute of Canada, as it appeared that they had gotten out of the Return On Renovations game. While we could find lots of reference to a 2012 report by the AIC about the “best” renovations, they stopped referencing percentage returns anymore. A tool they created called RENOVA that did those calculations was also no longer present in any form on their website. It is so completely gone from the internet that we fear the good folks at AIC might have become embarrassed by it.
In the absence of any stats, this article was more focused on how the renovations that give you the best bang for your buck are where you turn a negative into a positive (or at least a neutral).
- Have a kitchen that was redone in 2005 that looks a little passe but is otherwise functional? Don’t renovate it and expect to recover those big dollars.
- Have a bathroom that has a tub with rust stains, a floor with cracked tiles and water stains on the ceiling? Renovate it and take it to at least a basic Home Depot style of new appearance and functionality and that is money very well spent.
The advice we gave back then that is still what we recommend to clients to this day.
If a space or attribute is safe and functional but not the most attractive or modern style, we generally recommend not renovating it.
There is nothing as frustrating as spending money on a renovation, only to have your renovation not be to the taste of the potential home buyer. We have seen many kitchen backsplashes and countertops that were installed just before a sale being ripped out by new buyers.
Welcome to now.
Given we’ve been answering this question for 14 years now, we’re pleased to tell you that we’ve continued to refine our answer.
First off, we previously wrote a whole separate article on the logic and theory behind what to renovate and what to leave and you can read it here.
We promised some actual rates of return and not just philosophical musings, so let’s give you the goods. It remains challenging to find Canadian specific stats that we deem reliable, whereas there are some very good US-based sites that have rates of return for various projects.
Our favourite comes from an organization called Zonda, that focuses on critical insights to move the housing industry forward. They have a slogan of “Better data, better communities” and we’re fully on board!
You can find the 2024 Cost Vs Value report here.
Let’s cherry pick a few of the projects and give you our thoughts. They are saying that the three best renovations are:
- Garage Door Replacement, which has a 193% return
- Steel Entry Door Replacement, which has a 188% return
- Manufactured Stone Veneer, which has a 153% return
We wonder if the first two have such high returns due to combining both increased visual appeal as well as higher security. With climate change impacting many parts of the US, a secure garage and front door may be attractive both in terms of looks as well as to keep your home safe and secure. Even the adding of a stone veneer, while primarily cosmetic, could feel like it would help keep the home safe from water and wind.
Rounding out the top five (but not getting all of the cost back) are two largely cosmetic projects.
- Fibreglass Grand Entrance, which has a 97% return
- Minor Kitchen Remodel (Midrange), which has a 96% return
The grand entrance addition adds curb appeal and certainly makes sense as to us in that it would appeal to more buyers. The kitchen remodel is also a popular project, and we appreciate that they specified minor and midrange. If you look much further down on the list, a major kitchen remodel (again, midrange) only has a 49.5% return. The upscale version is even lower, at 38%.
This holds true for many other common projects, where a minor version gives you a better return than a major renovation, and midrange is consistently a better return than upscale or luxury versions.
A similar logic is in place for the quality of materials for other projects. Adding in a wood deck addition gets you a 83% return, whereas a composite material (typically considered more durable and requiring less maintenance) gets you only a 68%, despite costing considerably more.
The bottom three renovations in terms of return on investment are:
- Midrange Bathroom Addition, with a return of just 34%
- Upscale Bathroom Addition, with a return of just 32%
- Upscale Primary Suite Addition, with a return of just 23%
We would argue that a midrange bathroom addition which takes your home from a one bathroom home to a two bathroom home would have a better return, but we can see how adding a 3rd or 4th bathroom would not be something that buyers would necessarily pay a significant premium for in their purchase.
The lessons from this latest review are pretty clear. Fix what is broken or terrible, but don’t make it the newest, luxury version of it. If you hot water tank is broken, replace it with a similar one. If you decide to splurge on a tankless hot water system that is then installed beside your 35 year old furnace, don’t expect to get the cost back from a buyer. Make sure the renovation is at least to a similar standard as to the rest of the home, but don’t spend money on a standout attribute right before you sell. Such gleaming, fancy new aspects can often make the rest of the home look shabby in comparison.
If you’re thinking about moving and want to know what buyers in your area and price range love to see in a home, get in touch with us. We’d love to help advice you on the smartest renovation with the best return!