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How to Choose Home Improvements That Will Yield the Best Recoup Rate

Industry Observer with Spectrum Communications

One of the most vital aspects of any home improvement project—and one that you should consider closely—is its recoup rate, or the amount of investment capital that can be regained from the bump in home value spurred by a renovation. When homeowners and home service providers speak about remodeling, they apply common benchmarks, like aesthetic and functional improvements, but ultimately, what matters most is that your renovations can pay for themselves.

The recoup rate of your various home improvements will be subject to a host of external factors, including your neighborhood’s developmental outlook and whether the work done was properly permitted. Some of these factors, like project permitting, are within your control, but others, like the average price of neighboring homes and overall neighborhood perception, simply are not.

As such, it can be difficult to assess exactly which types of renovations will yield the highest increase in home value in spite of any ancillary housing market factors. To give you a better idea of which areas of your home to improve to bolster resale value, especially if your property has no obvious structural or functional vulnerabilities, we’ve compiled several project types and tips to consider.

Your Renovations Don’t Have to Be Massive, Just Impactful

When you hire home service contractors, the plus is that you’re (theoretically) dealing with experts—but at the same time, you’re also still dealing with a business. Ultimately, it’s in their best interest to sell you the most products and services they can. There are many scrupulous remodelers out there that balance their bottom line with the unique project needs of each customer, but you also can’t assume that every solution suggested to you is 100% perfect for your abode.

As you review product catalogs and customization options, keep in mind that modest functional updates, while not as striking upfront, can be just as big of a draw for potential home buyers deep into the home inspection and negotiation process. For example, replacing all your windows with Energy Star-rated units will not only create a more comfortable interior, but buyers will be further enticed by the potential utility savings. Another option could be a one-day bath remodel since it’s an update to one of the most frequented rooms in your home that offers a highly personalized, expedient, and cost-effective renovation experience.

To further illustrate the point, according to recent data from Remodeling Magazine, a relatively smaller kitchen renovation, one carrying a price point around $15,000, yields an average recoup rate of 87%. First-time remodelers may carry the perception that the most impactful remodels are the ones that floor you the second you enter the room, but a collection of expertly implemented alterations that make a home more functional and stylish will be just as alluring.

Focus on Your Kitchen and Bathroom

Anyone in the real estate, interior design, or construction will tell you that the kitchen and bathroom are a home’s most pivotal spaces. They’re so important, in fact, that buyers are often willing to spend a little more for an accommodating and up-to-date space, because the alternative of a kitchen or bathroom that constantly needs maintenance and repair work amounts to the world’s most expensive headache. If you want to optimize the value of each remodeling dollar you spend, keep the previous note about modest renovations in mind, but place a little more emphasis on your bathroom or kitchen. Remember, though, that just because you’re making changes to these rooms doesn’t automatically translate to a higher recoup rate, as this figure will also be conditioned by everything from the construction materials used to the scope of the project itself.

Resist Overspending

If your primary motivation for reselling your home is to improve its value, you should take heed of your property’s current value, then use that to assess how much to invest in renovating it. There isn’t an exact mathematical formula that will give you a precise remodeling budget figure, but generally, you should aim to spend no more than 25 percent of your home’s current value.

We all want to live in the most contemporary, feature-rich home in the neighborhood, but overspending and over-improving will quickly burn a hole through your wallet—and may even drive your home’s value so high that it becomes a cost-prohibitive investment for buyers. This is especially true if your property’s listing price is a stark outlier compared to the price points of neighboring homes.

Prioritize Functional Home Improvements to Improve Recoup Rate

No matter if you’re listing your home soon, or just organizing a series of small updates, every renovative choice you make should be informed by your pursuit to maximize recoup rate. Keep in mind that, while a striking decorative scheme is always a welcome amenity, it’s, essentially, a cosmetic change that is so closely tied to the homeowner’s taste that it won’t carry the same universal appeal as updates to a home’s foundation, appliances, or thermal efficiency.