You just upgraded the kitchen and the master bath in your 15 year old Luxury Home. With home prices on the rise they are sure to add value. Time to rack it up and place on the market. You’re convinced these items are the Crown Jewel and justify pricing your home above the norm.
Wait a second, not so fast…
Your home is 15 years old, not two. You replaced a bath and kitchen that had the abuse of 15 years of a growing family, toddlers to that recent college grad. Buyers as well as the IRS will look at these items with a different eye than you. For now we’ll leave the IRS implications to you and your accountant. The buyers are another story.
Surprise! That “Upgrade” value is what remains after subtracting today’s estimated replacement cost of the original items. Consider any needed maintenance as well as the improvement value of any project. Did you just catch up on needed maintenance or really upgrade?
Let’s think about this for a while but not to long. Replacing old used depreciated existing, fixtures, cabinets and appliances (mid ranged items 15 years ago), with current mid ranged items today, will add little or no direct value to your realized sale price. It will however tend to stop someone from depreciating your asking price due to needed replacements. Replace old mid ranged items with top of the line current items will add more value but never what they cost.
Maintaining your home will help it sell faster and there is value in selling your home faster. That’s an easy calculation to do. Consider the monthly cost of keeping your home on the market before making that decision to upgrade or maintain.
Take a look at this chart. You may or may not realize this return. You have to take into consideration quite a few factors including the expectation of the buyer and the condition of comparable properties to your specific home.
|2015 Cost/Resale Value|
|Deck Add (composite)||$37,582||$19,591||52.10%|
|Garage Door Replace||$2,996||$2,152||71.80%|
|Major Kitchen Remodel||$116,087||$60,194||51.90%|
|Master Suite Add||$242,326||$112,117||46.30%|
|Siding Replace (fiber-cement)||$14,634||$10,521||71.90%|
|Siding Replace (foam-backed vinyl)||$15,729||$10,759||68.40%|
|Window Replace (vinyl)||$14,140||$8,925||63.10%|
|Window Replace (wood)||$17,776||$10,805||60.80%|
Moral of the story, do the math and don’t harbor unrealistic expectations of significant return on your expense. Note: I did not call these projects investments. None of them have a positive return. Of course you must price your home accordingly. If a bath needs remodeled expect a $55k hit on your selling price. If you need a major kitchen remodel expect up to a $120k hit on your selling price. If you’re a buyer take these cost’s into consideration during the negotiation process.
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