What Are The Best Home Improvements That Add Value?
One of the first things you need to do when you decide to sell your house is to make decisions about repairs and improvements. Which ones should you do before showing the house? Which are necessary? Which will increase the likelihood of your home getting sold.
When homeowners make improvements to their home, they often wonder whether the improvement will be reflected in their asking price when it’s time to sell. Some improvements definitely increase a home’s value, while others are neutral, or even have a negative effect.
In general, the more “personal” a home improvement is (the more it’s made for your particular lifestyle), the less likely it is to help your resale value. For example, an in-home music studio may be your dream come true, but chances are the typical home buyer would rather have the space as an extra bedroom.
Before making home improvements with an eye toward increasing your property value, consider the following guidelines:
- Changes should harmonize with the neighborhood. For example, adding a huge two-story addition in a neighborhood of small houses probably won’t recoup the investment when the house is sold, because people buying larger houses will be looking elsewhere to begin with.
- With newer homes, upgrades probably won’t have as much impact as with an older home. Remodeling a 1950’s-era kitchen will generally have a better return on investment than remodeling a kitchen in a house that’s only a few years old.
- Upgrades should harmonize with the rest of the house. Creating a beautiful, modern master bathroom in a house that hasn’t been upgraded in decades will create a stark contrast in styles that can turn buyers off.
- High-end upgrades to moderately-priced homes won’t provide as great a return as they would on a more expensive home. In other words, a new $30,000 bathroom in a $150,000 home won’t give as great a return as it would on a $600,000 home.
With those points in mind, here are seven improvements that generally give the best return on investment.
Return on Investment
|Replacement Vinyl Siding||A $9,000 expenditure on vinyl siding typically adds $8,000 to a home’s asking price.||89%|
|Major Bathroom Remodel||A $13,000 bathroom remodel will generally add about $11,000 to your home’s asking price.||85%|
|Vinyl Replacement Windows||Spend $10,000 on vinyl replacement windows, and you can generally up your asking price by $8,500.||85%|
|Major Kitchen Remodel||Spending $54,000 on a major kitchen remodeling project will generally let you add $44,000 to your home’s asking price.||81%|
|Basement Remodel||A $57,000 basement remodeling job can increase your asking price by $45,000.||79%|
|Roof Replacement||Spending $14,000 on a new roof will generally let you raise your asking price by about $10,500.||75%|
|Deck Addition||A $15,000 deck will generally result in an increase in price of about $11,000.||73%|
Sometimes smaller projects can increase your home’s appeal without costing a lot. Some smaller projects that generally go over well with buyers include:
- Installing a steel replacement front door
- Adding native trees and greenery to landscaping
- Adding weather stripping around windows and doors
- Installing programmable thermostats
Which Home Improvements Don’t Add Value?
Some home improvements don’t affect resale value at all, and others can actually be detrimental when it’s time to sell your home. Here are some home improvements you should make if you want to, but which you shouldn’t expect to increase your home’s resale value.
- Luxury upgrades in a mid-range home. Buyers of mid-priced homes generally won’t pay proportionately more for upscale improvements like marble bathroom floors.
- Additions that don’t harmonize with the floor plan. Should you turn a patio into an extra room, causing your dining room window to have a view of the new room instead of the backyard, the extra space probably won’t impress buyers.
- Garage conversions. Extra space is great, but so are garages.
- Swimming pools in non-sunbelt locations. In Florida or southern California, adding a pool may not hurt resale value, but in the north or upper Midwest, many buyers may see it as a liability and a chore.
Minimizing the Tax Bite from Selling Your House
A house that’s in good repair and that has certain improvements done to it will generally sell faster than it would otherwise. But home improvements may also benefit you at tax time after you sell your house. Here’s how to ensure you maximize your dollars when it comes to home improvements.
Capital improvements to your house add to what is called the “basis” of your house. After you collect the proceeds from your sale, the capital gains that are taxable may be adjusted based on changes you have made to the house, including:
Improvements that add to your home’s value, adapt it to new uses, or prolong its useful life may increase your home’s basis, and thus lower the taxes you pay on the sale price.
Examples of Basis-Boosting Home Improvements
Improvements that add to your house’s basis (i.e., that increase the value of your home) include:
- Addition of bedroom(s), bathroom(s), deck, porch, garage, or patio
- Addition of a walkway, fence, retaining wall, sprinkler system, or landscaping
- Addition or replacement of storm windows and doors, roof, wiring upgrades, security system, or central vacuum system
- Replacement or installation of heating system, central air conditioning, duct work, furnace, filtration system, or central humidifier
- Replacement or upgrades to septic system, water heater, water filtration system, or soft water system
- Addition or update of built-in appliances, kitchen counters and cabinetry, flooring, or carpeting
The Importance of Keeping Good Records
Keep records of all home improvements that could possibly increase your home’s basis. This will make it easier to prove to the IRS that you made the changes you claim. Hang onto these records for at least 3 years after the filing deadline for the year in which you claim the adjusted basis on your taxes. Receipts, plans, drawings, and photographs should be a part of these records. You should also keep a document showing proof of the home’s purchase price when you bought it originally.
Are You Ready to Sell?
It’s a good idea to have copies documenting improvements you have made so you can have proof on hand of those upgrades. This could be in the form of dated receipts, or even before and after photos. Showing prospective buyers that you have been serious about upkeep and maintenance of your home is a big plus when you are selling.
About the Author: Kris Lippi is the owner of ISoldMyHouse.com and the broker of Get LISTED Realty. He actively writes about real estate related topics such as buying and selling homes, how-to guides for around the house and home product recommendations. He has been featured in Inman, Readers Digest, American Express, Fit Small Business, Policy Genius, Lending Tree, GoDaddy, Manta as well as other major websites. Read more about us here.