Should I upgrade before selling?
21 Feb 2022
I often get asked by sellers which renovations are worthwhile. And as with anything, the answer is usually ‘that depends’. It depends on how long you plan to live in your home, the type of neighborhood the house is situated in, and how well the house has been maintained over the years.
Thinking of upgrades?
The Appraisal Institute of Canada lists these 5 areas as generating the highest return on investment:
- Kitchen
- Bathroom
- Painting (both interior and exterior)
- Updating Décor
- Decluttering
When performing upgrades in the home with the goal of selling in the near future, it is critical to not over renovate. For example, it is suggested that a kitchen renovation not exceed 15% of the total property value. Using the median price of $675,000 for a single-family home in January 2022 this would represent $101,250, which is considerable. The recoverable amount at resale is about 75%. However, this amount is relative to the house and its neighbourhood. If the kitchen isn’t in bad shape then an expensive upgrade may not be valued by the buyer. And if the house is a starter home, in a starter neighborhood, I’d aim for a smaller kitchen renovation budget than 15%.
As far as the bathroom goes, the recoverable amount tends to be about 85% and the renovation budget should not exceed 5% of current market value; so $33,750 on a $675,000 house. Again, evaluate the neighbourhood and buyer expectations before setting your budget.
Have you addressed maintenance issues?
With that said, buyers expect homes to be sound and in good repair. It is important to maintain the home over the years and a rough estimate is to invest 1% to 5% of the price of a home in yearly maintenance issues such as roof, windows, HVAC, drainage, home efficiency, etc. If your home isn’t well maintained, expect it to sell below market value. So if the there is damage caused by water infiltration, don’t expect buyers to be swayed by a new kitchen backsplash and showy fixtures. Instead focus on the repairs and bringing the house up to par in order to receive its full value.
For example, buying a house with a wet basement represents an additional cost and a headache to potential buyers and so these homes frequently sell at a discount. The value of a home with a wet basement can decrease as much as 10-25%. While the expense is not insignificant, basement waterproofing can immediately increase the value of the home by 300%-400% or more of the cost of the work.
Sample:
| Value of home with wet basement | $500,000 |
| Value of home with dry basement | $545,000 |
| Cost of repair | $15,000 |
| Value gained on cost of the work | 300% |
The top 5 renovations to maintain worth listed by The Appraisal Institute of Canada include:
- Replacing the roofing
- Updating the heating / cooling system
- Replacing windows & doors
- Updating electrical (panel, wiring, sockets, fixtures)
- Repairing structural defects
Whatever improvements you decide:
- Document the work with before and after photos, drawings, and/or permits.
- Use quality materials that are in line with the area and the buyer’s expectations.
- Hire trusted licensed professionals and keep receipts.
On a budget?
With the prevalence of home renovation shows, buyers want to feel like the house is bright, modern, and up to date. This flavour can easily be achieved with a fresh coat of paint, updating lighting, replacing fixtures, improving curb appeal, decluttering, and renewed décor. These smaller and less expensive improvements may be your best solutions when on a budget and with a short timeline for moving.
Resources:
Tips to make your renovation a success (Appraisal Institute of Canada)
Best home renovations to increase your property value (National Bank of Canada)
