Consider Resale Value and ROI When Remodeling Your Kitchen

When remodeling your kitchen consider your home's resale value and your ROI

Consider Resale Value and ROI When Remodeling Your Kitchen

Two questions to consider when thinking about remodeling your kitchen:

  1. will it improve my quality of life?
  2. will it increase the value of my home if and when I decide to sell?

If you plan to sell your home in the next five years, having a great kitchen is important for re-sale values. HGTV reports that the kitchen is the room that can make or break the sale.

Something to keep in mind, however, is that few home improvement projects – including a kitchen remodel — recoup their full cost.

In an ideal scenario, your kitchen renovation should earn a 70% return on investment (ROI) when you sell your home. To get that kind of return, it depends on the features in your kitchen, how much you spent remodeling and whether your priority is to create a dream kitchen for yourself or a kitchen that will appeal to potential buyers.

One of the resources used by realtors to determine the value of your home is the neighborhood you live in and the homes in it – the “comps”.

Take a good look at “comps” in your neighborhood

A “comp,” otherwise known as a comparable sale, is a tool used in real estate to determine a home’s value and list price. A comp is a home that is comparable to yours in size, condition and location. Comps give both buyers and sellers a good idea of the market value of a home, as well as the market outlook for their specific neighborhood.

When thinking about improving your home, you’ll want to take a look at nearby comps to see how much a home like yours is really worth – in other words: how much a buyer is actually willing to pay for a similar home in your area.

Zillow offers a good rule of thumb: Don’t raise your home’s value any higher than 10% of the average cost of homes in your neighborhood if you want a decent return.

There is such a thing as over-improving your kitchen, and homeowners who remodel their kitchen for the ROI only tend to over-improve. A completely remodeled kitchen may sound like the right thing to do, but you don’t want your costs to exceed your profits.

If you improve your home too much, you may price your home out of the neighborhood you live in.

What Does Over-Improving Mean?

To over-improve a home means to put more money into a home than you can get out.

For example, a home may never be worth more than a certain amount of money – no matter how many nice finishes and upgrades are added to the home. The reason? The location of your home, square footage and nearby comparable sales all dictate how much a home is worth.

While high-end finishes and top-of-the-line appliances can certainly improve a home’s value, they can only improve it so much. If the home is located in a not-so-great part of town and has undergone a no-expenses-spared renovation, it may have been improved to the point where the owner won’t be able to fully recuperate the cost.

How can I avoid over-improving my home?

Consider how long you plan to stay in the home. If you only plan to stay a few years before putting your home on the market, then don’t over-improve. On the other hand, if you plan to stay in a home for a long time – possibly forever – then do what you want. After all, you’ll be improving the home for you and you alone — not for potential buyers.

If you’re going to list the home in a few years, then there’s no point in investing money on improvements that (1) you won’t be able to enjoy yourself, and (2) you won’t be able to recuperate financially.

To avoid over-improving, your kitchen renovation budget should not exceed 10% – 15% of your home’s value. For budgeting purposes, figure about:

  • 30% on cabinets
  • 14% on appliances
  • 10% on countertops
  • 5% on lighting
  • 4% on plumbing fixtures
  • 2% to 3% on paint
  • 1% to 2% on tiles
  • 35% on construction costs, such as windows, flooring, and labor

(The sources we consulted – Zillow.com, Spruce.com and Remodeling.net — use different percentages for calculating kitchen renovation costs. Zillow recommends capping kitchen renovation costs at 15% of home value, while Remodeling.net uses 10%. We’re using 10% because Remodeling.net provides more information. Our take-away is that if you keep your reno costs between 10% and 15% of your home’s value, you will not be over-improving.)

Choose Finishes that Are Less Expensive

To see the highest return on your investment, don’t think like a homeowner, think like a potential buyer. Not every upgrade and improvement needs to be high-end. To keep costs down, use less expensive materials. 

Good advice from the experts when you’re remodeling for increasing home value and ROI: keep the style and colors simple; keep the basics in mind and avoid trends. Choose neutral colors for countertops, cabinets, floors, back-splashes and appliances. And neutral doesn’t mean white only. Choose surfaces and fixtures that blend in with any style. 

For instance, instead of choosing marble or granite countertops, a less expensive, man-made quartz countertop is on-trend while also being more affordable than custom options. 

If you’re remodeling your kitchen with re-sale and ROI in mind, the upgrades you choose should appeal to a wide array of buyers. Not everyone is going to like your taste in wallpaper – even if the paper is top-of-the-line and expensive

What Kitchen Upgrades are Good for ROI?

A kitchen backsplash is a good element to add or upgrade in terms of investment since initial cost is low while visual impact is high. The low price of adding a backsplash is that many backsplashes can be do-it-yourself. 

A kitchen lighting package will add value to your new space, as well as light up your new kitchen beautifully. Pendant lights will catch the eye of potential buyers and they won’t break your budget. 

Changing up the wall color can inexpensively return great value. For little more than the cost of paint and a few tools, you can majorly improve the impact of your kitchen if you’re looking to sell.

Major Kitchen Remodel

A kitchen remodel is considered “major” when it includes 

  • cabinets
  • appliances
  • flooring
  • custom lighting
  • countertops
  • backsplash
  • an island

But these features are expensive. In 2019 the average major kitchen remodel costs close to $131,000, and homeowners usually recoup only about 59% of that in added home value.

Minor Kitchen Remodel

To get an attractive and functional remodeled kitchen, you don’t have to gut the entire room. According to Remodeling Magazine, you’ll get a better return on your investment with a minor kitchen remodel. A minor kitchen remodel costs on average $21,000 and recoups about 81% of its cost in increased home value. (These are values from their 2018 report.)

A kitchen remodel is considered “minor” when it includes 

  • refinished cabinets
  • new flooring
  • modern appliances 

With these figures in mind, decide whether you need a lower cost refresh or a full remodel to achieve the results you want. You can be too thrifty and overlook items that buyers look for in your price range.

With these figures in mind, decide whether you need a lower cost refresh or a full remodel to achieve the results you want. You can be too thrifty and overlook items that buyers look for in your price range.

Conclusion

Remember that high-cost kitchen remodels don’t automatically translate to high returns. Even though buyers may love your remodeled kitchen, it doesn’t mean your investment will pay off.

An updated kitchen does bring value, but the key is not going over the top when you renovate. When a homeowner over-renovates with top-of-the-line appliances, granite, marble, and other luxury items, it doesn’t bring in the value they expect. 

Though there are certain updates that will always be a worthwhile investment that appeals to just about anyone interested in buying your home (i.e., hardwood floors), some projects aren’t worth the money if your goal is to maximize your home’s value.

Sources used in this article


KDP exists to offer insight and advice about all things related to kitchen remodeling. Our goal is to connect homeowners with talented, experienced kitchen designers who live and work in their communities. We are a serious resource for anyone preparing to remodel their kitchen so they can make the best possible choices about designers, contractors and products.