With the decline of the US housing market, we’re getting far fewer calls from speculators looking to make easy money by flipping houses. Instead, the phone calls we receive tend to be from desperate sellers eager to unload their property through upgrades. In fact, a cottage industry has developed around real estate ‘staging’ (and TV shows of the same), where realtors and decorators offer their opinions on how to best display one’s house to maximize resale potential.

I’ve been discussing remodeling for resale with clients for over a decade. Here’s my Cliffs Notes version: I generally recommend that people avoid remodeling prior to selling. Do the minimum amount of work required to get your home decently presentable for resale (e.g. eliminate clutter, or touch up paint).

How can someone in the contracting business take this view? Isn’t your home also your ‘biggest investment’? How can a builder sell services that leave a trail of red ink all the way to the mortgage broker’s office?

If one accepts that free markets are generally efficient (and most people probably do), the person claiming that certain jobs disproportionately affect resale has an obligation to demonstrate the truth of the claim. However, most of the resale information coming from these folks is nothing more then rumors and wishful thinking, perhaps mixed with a smattering of ideas they made up on the spot.

For instance, one of the most common myths we hear is that granite counter-tops (or hardwood floors, or crown molding, etc, etc, etc.) really enhance a home’s value. Like many myths, it contains an element of truth. That is, homes with granite tops probably sell for a bit more then homes without granite tops (all else being equal). However, will installing granite tops increase the value of the home beyond the cost of installing them? Probably not.

The most comprehensive evaluation of how remodeling affects resale of which I’m aware comes from Remodeling Magazine. Here’s their most recent report.

The data collection techniques used by the survey company are poor. They ask individuals how much past jobs cost, how much their homes sold for, rely on a non-randomized sample of respondents (many with a vested interest in seeing high resale values), and seemingly fail to adequately account for rising/falling property values.

But heck, let’s put aside these reservations for an moment. In evaluating several years of the national report a few things stand out. The first is that it’s been historically uncommon for remodeling projects to recoup more then they cost. This isn’t really that surprising when one considers it in the context of a free market. If you remodel your own home, chances are that you’ll customize it exactly as you want it. Buyers may assign a value to the work you performed, but it won’t be as valuable to them as it was to you.

The second point is that it’s only with hindsight that we know which upgrade we should have performed or if we should have performed the project at all. For instance, the reports for 2006 and 2007 show that recouped investment for many jobs fell by up to 10%. However, some projects fell by less then 1%. But it’s only with hindsight that a trend emerges. We’d like to know the upgrades that will yield the best result in the future, not the past. And one of the problems with the future is that it’s really hard to predict.

Another complication is balancing the perceived resale value against the necessity or desirability of certain projects relative to others. For instance, I’ve never had a client install a new roof before the old one leaked. But in 2007 a midrange roofing replacement returned 10% less then the addition of a composite deck. Should homeowners delay installing their new roof and enjoy outdoor living for the summer? Not if they don’t want to pay for water damage inside the house. So to what extent are the results of the study actionable? Does believing there’s a 10% resale variation between replacing windows or a bathroom addition help one choose between the two jobs?

Having recently purchased a home, the final, and perhaps most ubiquitous problem I see is the tendency for sellers or speculators to overestimate their intelligence and underestimate the intelligence of prospective buyers. How does this work? A seller might hear that crown molding increases the value of a home. But molding is so expensive! So the DIY house flipper goes to the big box store, buys the cheapest crown molding available, shoddily installs it, then waits for the idiot buyer who doesn’t know the difference between a poorly installed piece of garbage molding and the good stuff. But there’s a problem. Even though many folks aren’t sophisticated enough to know why they don’t like something, almost everyone knows ugly when they see it. Our DIY’er may even alienate prospective buyers if they grow suspicious that he or she has improperly installed cheap junk throughout the entire house.

So what approach should you take when evaluating how a remodeling project will effect your home’s resale value? First, answer 2 preliminary questions:

1. Is your taste so utterly horrendous that you’ll offend the sensibilities of prospective buyers? Be honest with yourself. If necessary consult with someone you know who will give you their honest opinion.

2. Are you a demographic anomaly for the region in which you live? That is, do you live in an area where many of your neighbors, and hence future buyers, are entirely unlike you?

If you answered ‘No’ to both questions, stop worrying about your project. Chances are good that a prospective buyer will have similar tastes, and find your home at least somewhat desirable.

Regardless of whether you stay or sell, your two main objectives in homeownership should be:

1. To get the highest amount of enjoyment possible out of your home and your remodeling (for the least amount of money).

2. To keep your home’s maintenance costs to a minimum. This generally means spending a bit more up front to prevent catastrophic future problems – think tire pressure and oil change.

Make these your guiding principles for any work on your home. And when your friends and neighbors tell you what you should be doing to maximize profit on your investment, tell them to prove it!

Thanks for reading,


1 Comment

  1. Jesse, thank you for your insightful blog. I have marked you in my favs. I live in the New Orleans area (relocating to Tacoma, WA) but if I lived in PA -I would surely look at TayRiver Builders.

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