Re-printed from Ontario Industrial Magazine

As each new season arrives so it seems do friends and family, causing many homeowners to wonder what it would be like to have a larger kitchen, an extra bathroom, a finished basement or a main floor family room.

This often leads to the dilemma: “Should I renovate or just move?”

It is a major change to uproot the family and move to a new home, especially if one has settled in and become comfortable with the neighborhood. This is why we are often tempted to “over improve” our homes instead of moving to something that really meets our changing needs. While it is difficult to separate emotions and memories from financial considerations it is important to at least step back and take an objective look at what sort of return you get when investing in a major renovation.

The Appraisal Institute of Canada conducts a Renovation and Home Value survey, identifying the renovations which give the greatest financial return at the time of resale. In a nationwide poll Appraisers were asked to rank renovations by the recovery of investment. The results are summarized as a percentage of the money spent that homeowners can expect to recoup when they finally move. The "Recovery" is of course not an annual return but a "one-time" recovery.

Average Recovery of Investment

Kitchen Renovation ……….68%

Bathroom Renovation……64%

Painting………………………….64%

Finish Basement…………….50%

New Furnace………………….50%

Family Room Addition……49%

Landscaping…………………..45%

Basement Apartment……42%

New Windows & Doors….39%

Add Central Air……………….38%

While it may be surprising to see that there is not one single major renovation that consistently ‘pays for itself’ it is important to emphasize that these are purely averages and that individual results can be very different.

For example a neutral interior paint job or flooring replacement on a property that really needs it will often bring a recovery that is well above the capital cost because otherwise buyers will form a poor first impression and expect a deeper discounr from market value than the work really warrants. 

Similarly, a total re-fit of a Kitchen or Bathroom is seldom fully recovered but a partial re-fit such as replacing old vinyl floors with neutral ceramics or replacing ‘dated’ appliances with inexpensive modern ones will upgrade overall appearance and if carefully planned can give a recovery of over 100%.

These items are particularly worth considering on moderately priced properties where the new buyer may not have much cash to do their own renovations but can pay for them by having them effectively built into the mortgage.

While ‘decorative’ landscaping is a poor financial investment ‘camouflage’ landscaping such as a water feature to cut traffic noise or cedar hedging to distract from a nearby eyesore will give a better return.

Naturally, Appraisers are looking only at the increase in Resale value. As a homeowner you would also weigh in the enjoyment that you will get from each item for the period that you continue to own the home.

In the case of a New Furnace or New Windows and Doors you would also consider the energy costs which, over a 3 or 4 year period, may bring the total recovery up to what you pay for the improvement.

In looking at the financial aspects the key is to not simply assume that you’ll automatically recover what you spend. In the end it is your land which increases in value, so in the same way that you won’t be able to re-sell a car in 3 years time for what it cost today, any home improvement will depreciate over time and some will simply be viewed by the new buyer as being a ‘normal maintenance’ item which they would expect to find in most  homes of similar age.

In particular bear in mind that your tastes may not be the same as the typical new buyer so the more ‘decorative’ the item the lower your chances of getting a good return.  Always remember that before anyone buys your home they must first visualize themselves living there .Your friends may love your very expensive green broadloom and your silk wallpaper but if it doesn’t go with the buyer’s red furniture their first thought is not “Hey this is quality material, I’ll have to pay more for this home” but “How much will I knock off the price for the cost of ripping this out and replacing it with Hardwood and neutral paint ?”

Conversely, the more’ neutral’ the appearance and the more ‘functional’ the renovation, the more value the eventual buyer will attribute to them.

Paul Graham is the owner and Broker of Record for BUYERS REALTY INC.  Please direct your questions to paul@buyerscall.com or to his direct line, 905-607-4400