Renovating to Add Value
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In today’s market many people I speak to wonder about staying in their home and renovating opposed to moving. Renovating to add value increases the appeal of your property and also for yourself to enjoy are often two separate things, let me explain why depending on how much you spend for example renovating a bathroom will add less value than adding a second floor extension. Swimming pool prices vary considerably as does landscaping which can be significant. It is too simplistic to say that a renovation will add 10 percent to the value of the property because no two renovations are the same.
The second challenge is that it is difficult to establish value once a renovation is finished due to current market conditions in a declining market, although we hope we have seen the last of this unless we have a crystal ball its impossible to know for sure.
The one thing we do know is If you bought a house anywhere in Australia over the past two years, you would have seen its value increase without doing anything to it at all. A renovation would likely have added value but it is also difficult to work out how much of the increase would be the renovation itself.
The third reason is that there is potential for over capitalisation. Spending $1,000,000 on a renovation in a street where the median house price is $1,000,000 is unlikely to lead to a doubling of the house price as there is a cap as to how much people are prepared to pay for that street or suburb.We have all heard the advantages of the worst house in the best street analogy.
The value add also depends on how well the renovation is perceived by others. When renovating, it generally pays to stick to what is on trend but not so fashionable that it either dates too quickly or alternatively has narrow appeal. Similarly, adding a pool in a warm climate would generally be better received than in a location that is cool for most of the year. Furthermore, more people are likely to see a swimming pool as a better backyard option than a similarly priced tennis court.
Right now, there is a fifth challenge in that finding a builder is difficult and renovation costs are becoming a lot more expensive. A renovation that was done last year would have cost 10 per cent on average less than what it would cost now. This is likely to make a recent renovation more valuable than it otherwise would have been if we hadn’t seen such a surge in building prices. This is certainly showing up in property demand where renovated properties are frequently still seeing rising prices despite prices softening overall.
Finally, people value their time in different ways, especially after covid and lockdowns made us slow down and look around. Renovating a home takes time and while some people enjoy it, others don’t. If you are someone who shudders at the disruption that a renovation generally entails then you may value a renovated property more highly than someone who sees it as an enjoyable endeavour.
Having said all that, provided you have renovated your home in a way that increases the appeal to the general buyer, the value add from doing a renovation would be at least the amount you spent doing the renovation. So if you spend $200,000 renovating a $1million home you would make $200,000 on the sale price at least, anything more is hard to say, however as you increase the appeal you increase the interest from buyers and we hope that competition creates a better result. Hope is not a strategy, merely a bonus if you’re able to achieve a better result on top of any renovation costs.
