This is a very interesting issue. On the one hand, historically, people (and the media) would say that if you upgrade your kitchen, you might get 100% or higher return on your investment. On the other hand, people who would remodel their homes would tack on a premium of more like 125% or higher and buyers would pay it. In boom times, remodeled houses would get the best premiums, though even fixer uppers would sell well above asking. So fixing up your house was a good idea to make more money on it than you put in and compound builidng equity in it.
In this market, I think remodeling and fixing up your home is just as important, but for different reasons. It will help you sell it faster. From one perspective, it will not help you sell it for more, or above asking, but from another, it will help you “not” sell it for less.
In a falling market, every day your house stays on the market is $$ out the door, not just in carrying costs, but in price depreciation.
So if you put your nice but dated home on the market for $1M, it may stay on the market for 90 or 120 days before it sells. If you priced it to market to begin with (and that is a big if for most sellers) and your market is dropping 10% annually, and you sell it after 120 days you would expect no more than $965k or so. From that subtract your carrying costs during that time (including a 30 day escrow), say $6k/month, and your net before closing costs is $935k or so from your asking price using the listing date as a baseline. I ignore %sales/asking ratios for this point, which suggests an even lower sales price than this.
If you do a reasonable remodel, say $50k, to that $1M home (minor kitchen remodel, bathrooms, floors, etc) (yes it is a small $1M home), and you put it on the market for $1M, you are down $50k from day one. But if the house above is also on the market (and maybe lots like it), your house should attract more attention and maybe sit on the market 30 day or less. If you sell it in 30 days at market, using the data above, you should expect to get $980k or so (after market loss and carrying costs through escrow close, but before closing costs). Subtract the $50k and you get $930k.
The above example suggests that $50k was slightly too much, but you could perhaps start at a higher asking price, or only put $30k for a kitchen and floors. That might still be enough to sell it right away. There are many ways to play with these numbers.
I think remodeling just to sell is a bad idea. But if you know you want to sell in the next 2-5 years, remodeling and enjoying the fruits of your labor I think makes sense. Not to build equity so much as to help sell your house faster. My bias is that this is just what I did. I remodeled most of my home like this from 2005-2007. I did it for my own enjoyment, with an eye to helping my house sell faster in the follwing 5 yrs or so, not to increase its value.
At the very least, fixing broken things is a must. A $10k-$20k investment (the kind some flippers make) does make a difference, but not to get a higher price. It will help you sell it faster, which amounts to a higher price than you would get 120 or more days later when your house is a stale listing.
Updated, remodeled, fixed, homes are selling first in this market, just as they sell at a premium in up markets.
As a buyer, I am looking for the fixer upper or project home, for that very reason. I should be able to get a better bargain that way. Also, since I am in it for the long haul, I can remodel and that will build equity in the home and increase its value, for either of the above reasons.
