How Much Remodeling is Too Much?

January 5, 2018

You want to remodel your home, but the cost is always a factor. It usually makes sense to make improvements that will result in a corresponding increase in the value of your home. For example, if a $10,000 renovation will add $10,000 to the value of the property, the project makes sense – at least financially. But how much remodeling is too much? There’s no easy answer the question since there are several factors to be considered.

Know the Market Value of Your Home

Before you even pick up a hammer or a paintbrush, first know the value of your home. You can do this by checking online sources, such as Zillow.com or Realtor.com. But please understand that this will only be a general estimate of value.

That value will be based on public records containing information about the basics of your home. For example, the valuation will take into account the neighborhood your home is located in, the size of the lot, square footage in the home, and room count. But it won’t account for the condition of the property. For example, if your house has a considerable amount of deferred maintenance, it may be worth many thousands of dollars less than the estimate that you get.

The best way to make an accurate valuation of your home is the either get a competitive market analysis from a real estate agent, or an appraisal. The appraisal costs between $300 and $500 but the competitive market analysis can be had for free. Either will value your home based on its actual condition.

Know How Much Each Project Will Add to Your Property Value

This is a very difficult projection to make. Exactly how much each project will add to your property value largely depends upon what’s customary in your area. For example, finishing the basement could add $30,000 to the property value in one neighborhood, but only $15,000 in another.

If you have an appraisal done, you can ask the appraiser to provide you with a list of the added value that will result from each remodeling project. An appraiser can give you the increase in value to your home that will result from adding a room, remodeling the kitchen, or finishing the basement. Since any of those projects is likely to be costly, you’ll want to know exactly how much each will add to your home’s value.

Know Property Values in Your Neighborhood

In addition to knowing the value of your property, before and after remodeling, you should also know the values in your neighborhood. This will help to establish an upper limit on what your home will be worth after all of the remodeling projects have been completed.

For example, if your home is worth $300,000, but the highest priced home in the neighborhood sold for $350,000, that will be the upper limit of your home’s value. In other words, no matter how many improvements you make your home, and how much money you spend, it’s unlikely that your home will be worth more than $350,000.

In this example, the maximum that you should want to spend on remodeling is $50,000. Since your home is already worth $300,000, improving it by any more than $50,000 is very likely to be lost money.

You can find the highest prices in your neighborhood by checking Realtor.com and Zillow. Both are more accurate in providing sale prices than property value estimates. That’s because sale prices are derived from actual sales.

Some Improvements Add More Value than Others

If you’re seriously concerned about value added with remodeling, you must be aware that certain improvements are more cost-effective than others.

One of the most effective improvements is painting the home. This gives the home a fresh look and hides a large number of small deficiencies. It’s practically a required job if you plan to sell your home. And it usually cost just a few thousand dollars if you hire a contractor. Updating the kitchen and bathrooms can also be cost-effective since both are primary rooms that “sell your home.”

But adding an extra bedroom to a four-bedroom home probably won’t add as much value as it will cost. That can also happen with finishing the basement. While the job may cost $30,000, it may only increase the value of your property by $15,000.

It may not be that cost alone determines how extensive your remodeling will be. If you decide that you need to finish the basement, recovering the cost on sale may not be that important.

But at the same time, you don’t want to get carried away either. You certainly don’t want to make $100,000 in improvements that will only yield a $25,000 increase in value. Not only will that result in a loss of money on the sale, but if you’re counting on financing to pay for improvements, you may not have sufficient equity to make all the renovations you want.

That brings us to another factor that shouldn’t be overlooked…

Too Much Remodeling May Mean it’s Time to Buy a New Home

When it comes to home remodeling, there’s always a point of diminishing returns. If you need to make $100,000 worth of renovations to a $250,000 house – that will only be worth $300,000 on completion – it may be time to take a more radical step.

If it will cost you that much money to turn your current home into your dream home, it’s probably time to look for a new home entirely. The large cost of remodeling may indicate that you’ve simply outgrown your current home.

When you consider the cost and disruption that large-scale remodeling will involve, it may be easier just to move. You could then look for a home that has at least most of the features that you would add to your current home.

Before you begin taking on a major home remodeling job, first crunch some numbers and decide if it’s worth doing. It may be, but it also may be time to move.

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