How do you determine if a renovation will increase your house value?

[Healthie]

My situation is I’m in the process of finding a contractor to reseal my foundation. This will also involve rebuilding the basement concrete entryway and side entrance. It’ll likely cost $20k+.

My house is 1600sq feet and I paid 201.4k 2 years ago. No garage or car port. The house across from me has a detached garage, 1700sq feet, and sold for 317k this summer. A house kitty-corner, similar size, has two suites, Nicely renovated, no garage/car port, sold for $309k last summer.

My question is, is it economical to spend the money doing the foundation, or would I be better off selling? I have done a number of renos: both bathrooms, kitchen, basement flooring, paint. This is my first home.

[LifeHappens]

My question is, is it economical to spend the money doing the foundation, or would I be better off selling?

The foundation project reads like deferred maintenance, not a renovation. If you bought your house for so much less than neighboring houses, I can't help but assume there is lots of deferred maintenance. To some extent, that's just the cost of home ownership, pay now or pay later.

[Metalcat]

Well, where would you live if you sold?

I'm not quite understanding why selling is on the table.

[Fishindude]

As stated above, the work you describe is not "renovations", it is maintenance / repair type stuff that simply needs to be done.   I doubt it will increase your house value much, but it may be a red flag to prevent a sale if you don't take care of it.    Generally, kitchen and bath remodels and exterior clean up / landscaping do the most to boost the sale price.

[MissPeach]

I bought an old house that needed foundation reinforcement. A lot of houses in my area are WW2 era houses so this isn't uncommon if you're looking in those neighborhoods.

While I didn't see it impacting property listing prices when I bought or sold and it didn't impact my house sale, when I bought it I got a few second opinions on it. It was the most concerning thing that came up in the house inspection. It could potentially impact the sale if that's not the norm in your area or the buyers don't want to take it on.

[Michael in ABQ]

Former real estate appraiser here, albeit commercial, not residential.

Renovations that will increase value generally consist of increasing the size or quality of the home, or decreasing the effective age. Correcting an issue like a single bathroom in a 3-4 bedroom house, or reconfiguring the house to match what buyers want (i.e. open floor plan or walk-in closets) can return more than the cost of the renovation. Homes consist of short-lived components (flooring, water heaters, mechanical systems, etc.) and long-lived components (electrical wiring, frame, foundation). New flooring, new kitchen or bathroom fixtures, etc. are visible signs of better quality or newer components. Fixing issues with the foundation, plumbing, electrical, etc. are usually deferred maintenance and will rarely return dollar for dollar what you spent.

Buyers expect the roof to not leak, the foundation to be in good condition, etc. Having a new roof might add a bit of value, but most buyers won't distinguish between a 3-year old roof and a 13-year old roof as long as they both look to be in good condition with no leaks.

What you're describing sounds like it will not result in much of an increase in value. However, if this is deferred maintenance it might significantly reduce your buyer pool. Most people looking in that price range do not want to worry about a $20,000 repair. Either they'll want a deduction in the price for the estimated cost of that deferred maintenance, or they'll just skip over your property and look for something without any obvious problems. This could be something that wouldn't be revealed until a home inspection but that that point you've now invested time, and probably money, into the process.

[Chris Pascale]

If you'll be in the house another 2 years and this change makes your life better, it's worth it.

[Abe]

I second Michael's take on this. Buyers will expect some credit towards closing, or a lower asking price that accounts for the repairs, especially if they know you're going to make a profit. You'll be paying for it either way, question is how much of that can you shift onto the buyer. Unless it's a spectacular house otherwise and a tight market, I predict very little.

[vand]

It might be different in the US, but here in the UK where our houses are typically smaller, any money spent that increases usable square footage usually pays for itself by x1.5 - x2 times; hence loft conversions and kitchen extensions are a very common feature.

[Metalcat]

OP hasn't come back to comment, so still hasn't answered the question as to where they would live if they were to sell, because as long as they're staying in the same market and not downsizing, then the gains in market *and* the value of the repair are baked in to sale price and the next property purchase price.

What matters is whether or not they want to stay in this house. There's nothing to be gained by selling, even if the property value has risen substantially, because unless they're looking to downsize, there's no way to capture that gain. They only lose money on transaction and moving costs.

Ex: my property has gone up by over 35% in value since I bought it last year. However, there's no way for me to capture that value by selling, because the entire market of places I would want to live have seen the same jump.