October 18th - 2008

Energy efficient renovations offer good return on investment

REALTORS® are often asked to suggest improvements that will make their clients’ homes more saleable and provide the biggest return on investment (ROI).

REALTORS® are often asked to suggest improvements that will make their clients’ homes more saleable and provide the biggest return on investment (ROI). Kitchen and bathroom upgrades still offer some of the best ROI. But now, according to the 2008 Appraisal Institute of Canada (AIC) RENOVA survey, energy-efficiency upgrades are high on the list of top paybacks.
 
Every other year, AIC surveys its members and compiles a list of renovations that, in the opinion of professional appraisers, yield the highest recovery rate. The recovery rate is defined as the likely increase in a home’s resale value which could be attributed to a renovation as a proportion of the cost of the renovation. For example, if a $10,000 renovation increases the home’s value by $6,000 then the recovery rate is 60 per cent.
 
Refurbished kitchens and bathrooms can typically bring in around 75 to 100 per cent of the investment at resale, provided the renovations are professional and tasteful. “If renovating in order to sell, homeowners must plan for changes that will meet the needs of a majority of potential buyers,” says Joanne Charlebois, AIC’s Director, Marketing and Communications. “They also need to ensure any modifications reflect current market trends.”
 
Since energy savings are on the minds of most consumers, this year’s survey asked respondents to rate five energy-efficient upgrades in terms of their influence on the resale value of a home. Green renovations were cited most frequently by respondents as having an average recovery rate of 61 per cent. High efficiency windows received the highest level of agreement among respondents as the energy-saving home improvement that would have a significant positive impact on the appraised value of a home. The type of heating system, heating system efficiency and insulation were also considered to make a significant difference. Efficient hot water heaters, on the other hand, were judged to have only minimal influence on a home’s resale value.
 
Several other improvements were identified as having higher recovery rates including using neutral paint colours (67 per cent), the addition of a cooking island in the kitchen (65 per cent), and installing a Jacuzzi or whirlpool bath separate from the shower stall (64 per cent). Spa-style shower systems were cited as being very popular upgrades. However, while stylish and trendy, their recovery rate is a relatively low 36 per cent. Not surprisingly, adding a swimming pool also scored very low in terms of ROI. In fact, the addition of a pool, hot tub or skylights were not only considered to contribute very little to the resale price of a home, in some cases they could even have a negative effect.
 
According to AIC, homeowners who are thinking about making home improvements should consider the following tips taken from the 2008 survey responses:

  • Renovations that add features to a home that other homes in the neighbourhood already have such as a second bathroom have a higher recovery rate than features not shared by neighbouring properties.
  • Renovations done on a home with a lower market value than the others in the neighbourhood provide a higher recovery rate than renovations done on a home which is worth more than neighbouring properties.
  • Poorly done renovations may have no positive effect, or worse, actually reduce the value of a home.
  • Ensuring that a home is in good repair and well maintained is essential. However, renovations done on a home which has maintenance problems will have a much less bearing on its resale price.

The Resource Center page of AIC’s RENOVA Web site, www.aicanada.ca, offers a calculator to help home renovators get a better idea of the ROI they can expect for a variety of home improvement projects. The site shows a payback range in dollars and as a percentage of what you plan to pay for the upgrade. Homeowners can choose from among the 20 most popular home improvements.
 
Get out what you put in
Here’s what homeowners can expect to get back at resale for the most common home improvements, according to AIC:

Home upgrade   ROI (%)
Kitchen upgrade      75-100
Bathroom upgrade      75-100
Interior painting  50-100
Roof replacement  50-80
Replacement of furnace ore heating system      50-80
Expansion (addition of family room)  50-75
Doors and windows     50-75
Adding a deck     50-75
Install hardwood floor  50-75
Adding a garage      50-75
 

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