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Renovating for Resale

value of homeWhen it comes to home renovations, one plus one does not necessarily equal two.  The money invested in improving your home will not always translate into an equivalent return in the selling price of your home.  However, with good planning it is possible to both increase the salability of your home and even benefit financially from your home renovations.

Energy efficient upgrades are at the top of the list of home improvements that add value to the resale price of a home. This, according to the results of the 2008 RENOVA survey.

AIC'’s RENOVA survey is conducted biannually and asks members of the Institute who are experts in residential appraisal which improvements add value to the sale price of a home.

Respondents were asked to rank the three renovations currently being done in the marketplace which in their opinion, have the highest recovery rate.

The recovery rate is the likely increase in a home resale value which could be attributed to a renovation as a proportion of the cost of the renovation.  For example, if a $10,000 renovation increases the home value by $6,000, over the home’s previous value, then the ‘recovery rate’ is 60%.

This year, energy efficient upgrades were cited most frequently by respondents as having an average recovery rate of 61%.

Several other renovations were identified as having higher recovery rates including: use of non-neutral interior paint colours (67%), addition of a cooking island in kitchen (65%), and installing Jacuzzi or whirlpool bath separate from shower stall (64%). However, these were not mentioned by as many respondents as energy efficient upgrades.

Another popular upgrade, according to the survey respondents, is Spa style shower systems.  While stylish, their recovery rate is a relatively low -- 36%.

Among the list of perennial home improvements, bathroom and kitchen renovations continue to be the most popular with a recovery rate of between 75 and 100 percent according to the respondents.

On the other end of the scale are whirlpool tubs, swimming pools, and skylight which according to the survey responses contribute very little to the resale price of a home and in some cases may even have a negative impact.

The respondents were also asked to rate five energy efficient upgrades in terms of their impact on the resale value of a home.  The type of heating system, heating system efficiency, window efficiency, and insulation were considered to have ‘significant’ positive impact on the resale price of a home.  Efficient hot water heaters were judged to have a minimal impact on home values.  High efficiency windows received the highest level of agreement among respondents as the energy-saving home improvement that would have a ‘significant’ positive impact on the appraised value of a home.

Home owners thinking about making improvements to their home should consider the following tips which are drawn from the survey:

  • Renovations that add features to a home that other homes in the neighbourhood already have such as a second bathroom for example, have a higher recovery rate than features not shared by neighbouring properties.
  • Renovations done on a home with a lower market value than the others in the neighbourhood provide a higher recovery rate than renovations done on a home which is worth more than neighbouring properties.
  • Poorly done renovations may have no positive impact or worse, actually reduce the value of a home.
  • Ensuring that a home is in good repair and well maintained is essential. However, renovations done on a home which has maintenance problems will have a much lower impact on its resale price.
  • While most renovations will not increase the market value of a home by more than the amount spent, it is hard to put a price on the enjoyment owners get from home improvement.

 Data from the Appraisal Institute of Canada-August 2008