How to Renovate Your Home to Make the Sale

In September 1998, Dr. Kim L. Thornton purchased a home in Newton, Massachusetts, for $490,000. She spent the next decade renovating it. In the kitchen she added a center island, changed the countertops from laminate to granite, installed a hardwood floor and new appliances, and painted the existing cabinets and polished their hardware.

“I wanted an updated kitchen that had greater functionality,” says Thornton. “I love to cook and entertain, and the kitchen is always the center of any party. Also, I knew I would be selling the home so I chose renovations that would increase its value. I chose neutral colors for the cabinets, and remodeled the basement to prevent flooding. To enhance the home’s curb appeal, I repaved the driveway, replaced the retaining wall, painted the home’s exterior, and replaced the roof.”

In June 2009, Thornton sold the property for $710,500. With the housing market on the rebound–according to the S&P/Case-Shiller Home Price Indices, which sample 20 U.S. cities, average home prices increased by 8.1% as of January–this may be a good time for you to sell your home. But before you do, renovations can often increase its value.

“Start by knowing what you want. Then look at Hanley Wood’s Remodeling Cost vs. Value Report . It will give you the information you need,” advises David Lupberger, president of Remodel Force. “It will show you the investments and the returns on those investments.”

“The simplest advice is to correct deficiencies and avoid over-improving your home,” says Walter Molony, spokesman for the National Association of Realtors. “You’ll get the best return by bringing a substandard home up to neighborhood norms. It’s important to see your home from the viewpoint of prospective buyers. They’re visiting other homes in your neighborhood and making comparisons based on condition and amenities. You want buyers to be able to visualize your house as their home.”

Experts share more about which renovations are most profitable:

Update the bathroom and kitchen.

These two key areas are often the selling points of a home.

“In residential remodeling, we say renovate where there is water. Bathrooms and kitchens usually capture 75% to 80% of the renovation cost in increased house value,” says Stephen Clark, general contractor for RFC of San Francisco. “These two areas of the house drive the most profit because people are emotionally tied to the kitchen and bathroom. I encourage people to spend money in these areas for profit.” According to Hanley Wood, 75.4% of costs are recouped with a minor kitchen remodel, and 65.2% with a bathroom remodel.

Make small but smart changes.

Thornton made inexpensive upgrades that yielded beautiful results. She painted rooms, put in recessed lighting, and installed new light fixtures above the island.

“Paint changes the appearance of a room and home immediately,” says Jenice V. Brinkley, Realtor and CEO at Brinkley Realty Group L.L.C. “Replace kitchen faucets, update old lighting, reface cabinet doors, add new cabinet handles, and update bathrooms with new fixtures, mirrors, and vanities. Basically give a custom look without the custom price tag. No more than 10% to 30% of the value of your home should be spent on renovations.”

Focus on the exterior.

“A freshly painted house exterior enhances the property,” says Clark. “So does fresh landscaping. It does not cost much to remove weeds, trim bushes and trees, mow the lawn, add fresh flowers, and enliven the property with mulch.”

Thornton planted perennials and annuals in her garden, placed flowerpots on her deck, and kept her lawn mowed and flower beds neat. Hanley Wood’s report lists other exterior upgrades: a steel entry-door replacement recouped 85.6% of its cost, siding replacement came in at 79.3%, and garage door replacement at 75.7%.

Do’s & Don’ts of Home Renovations

DO take advantage of tax incentives. With the purchase of certain energy-efficient products for homes that are owner-occupied, you may be eligible for special local, state, and federal tax credits. The federal Residential Renewable Energy Tax Credit offers purchasers a 30% rebate. The Residential Energy Efficiency Tax Credit provides up to a total $500 credit for 2011, 2012, and 2013 collectively. Go to www.energy.gov for details.

“This includes certain appliances, windows, doors, low-flow toilets, insulations, and even heating and air conditioning,” says Brinkley. “Also, there are tax credits on solar panels, solar water pumps, solar water heaters, and small wind-energy systems.”

DON’T just accept the lowest bid you’re offered. Get at least three bids from certified contractors; also, verify credentials with your state’s licensing board. The Contractor’s License Reference Site provides links to licensing boards in every state. Make sure the contractor has vehicle coverage as well as liability insurance, which covers damage to you and your home. Workers’ compensation will cover the contractor’s employees if they are injured while working on your property.

DON’T make personal renovations if you intend to sell. Be as neutral as possible. “Your choice may not be the desire of the buyer,” says Brinkley.

DON’T overdo it. “You’ll want to avoid any renovation that will exceed the market value of the neighborhood,” says Brinkley. “Check values on websites such as Zillow.com.”