"This Is How Much I Spent Renovating My Home."

I’ve heard these words uttered by countless prospective sellers with a somewhat threatening tone that implies: "You know what we paid for this property, this is what we spent on it to upgrade and renovate it, so don't you dare quote me a price below that number!" While what an owner may have spent on a home does matter, when it comes to valuation, the market will not be interested in the specific accounting. When it comes to valuation, what markets perceive as value is simply the value.

A $250,000 kitchen added to a $1 million home does not necessarily make that home worth $1.25 million or more. It could be worth much more.....or less. The consumer attaches value to different things at different times, and sometimes they attach zero value to that which may have cost an absolute fortune.  There is no doubt that a mint, fully renovated home has greater value than one requiring lots of work, and yes, many buyers are willing to pay a premium for that.  But what you paid for these improvements is secondary to how the consumer values those improvements. It almost does not matter what the seller paid.

Very few buyers actually know what renovations cost. Many perceive them to be either much higher or lower than they actually are. Worse, when compared to brand new buildings that are buying and installing kitchens and bathrooms at wholesale cost, individuals who renovate paying 'retail cost' often spend much, much more for the exact same - or inferior - look or quality. Many un-educated buyers don't know - or care - about the difference between a $500 faucet and one that costs $5,000.00. Only really savvy renovators know how to renovate at a cost that is certain to deliver profit upon re-sale.  The cost of an individual renovation includes materials, labor, design, permitting, engineering and architectural fees, and the cost to live elsewhere during the work. Most individual custom renovations do no have the luxury of scale, so most are done at a much higher cost. Their perceived value will often be different to their cost.

The smartest sellers always consult their trusted real estate advisor BEFORE renovating to fully understand the value of renovation and what adds real value and that which may be worth the spend purely as a self indulgence.

jonathan fox