Cost Vs. Value: The Real Story

There’s a very common report that gets passed around in real estate circles, known as the “Cost Vs. Value” report. This metric weighs the price of a home renovation or update against the value that it adds to a home, and it’s largely taken for gospel by many, including homeowners, real estate professionals, and even contractors.

One big thing that the Cost Vs. Value report tends to show, year to year, is that there aren’t really any projects that generate an average positive return on investment. Is this really true? Are home improvements actually far more likely to cost more than they’re worth? If that’s the case, why would anyone undertake any home improvement projects, knowing that they’re just throwing money down the drain? Is there any way to add value to your home?

While the Cost Vs. Value report is thoroughly reported and a great benchmark for professionals – drawn as it is from National Association of Realtors and RemodelMax data – it isn’t immune from criticism. One exceptional article on this matter comes to us from the blog at Kayu Connection. In it, the author points to a number of ways in which the Cost Vs. Value report can be misleading, and how home improvement projects actually can improve the resale process in the long run.

The blogger’s points, in fact, reinforce a lot of the views that we’ve held here at Real Group. It’s time for the real story on home improvement projects and resale value:

1.) What’s the Motivation Behind the Project?

What are the assumptions and motivations behind a homeowner’s choice to renovate or update? This is a strange metric, and it’s one that silently influences the results of the Cost Vs. Value report. As Kayu Connection points out, many property owners don’t factor an increase in home value into their decision making process at all.

It’s important to remember that there are all sorts of home improvements. Many can improve the feel or function of a home for one set of owners, without ever creating any resale value down the line. A kitchen that is redone with modern appliances and a design scheme in-line with current trends will add substantially more value, for instance, than a kitchen redesign that features weirder or more eclectic design choices.

One way to get gain ROI from your redesign or renovation? Plan your redesign or renovation with ROI in mind. Research market trends, shop around, and figure out what will lead to a more lucrative sale. With that said, there’s nothing wrong with updating just for your own personal satisfaction and quality of life; it’s simply important to remember that not everyone will share your unique taste, and you may have to spend a little bit of time (and money) depersonalizing your property when it does come time to sell.

2.) Home Improvement Projects Can Save You on Carrying Costs

Carrying costs, also known as holding costs, are how we refer to the cost of unsold inventory; in other words, they’re the mortgage payments, upkeep costs, and taxes you can expect to pay on a house that hasn’t sold, even if you’re not living in it.

One perk of home improvement projects that isn’t reflected by Cost Vs. Value? They may not necessarily add a ton of monetary value to your home, but they can make it significantly more appealing to a buyer and, by extension, speed up your sale.

The faster your home sells, the less it will run you in carrying costs. So while that may not mean a 100% ROI on your home improvement projects, it does equal more money in your pocket in the long run – which you can, in turn, invest into your next property.

3.) Is It a DIY Or Professional Job?

House flippers in Illinois and around the country make their money by repairing or updating old homes and turning them around for profit; however, they are only able to make money by keeping their costs extremely low, which typically means acting as their own general contractor and taking on the bulk of the necessary labor.

Can you undertake your own home improvement projects as a do it yourselfer? It could save you a lot on costs, and increase your ROI as a result. And the value added by DIY isn’t reflected in the Cost Vs. Value report, which gathers its averages based around labor estimates from third parties.

And always remember that a small project can go a long way; never underestimate what a simple staging job or a spruced up walkway can do to woo prospective buyers. You don’t have to shell out huge bucks to get a huge result.

Want to talk strategy for your Chicago property? The Real Group team would love to help you win your home sale! Drop us a line below to get started.

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