Welcome to this month’s installment of Dear Urbaneer, where I tackle real estate questions from my inquisitive clients and readers. This time, I am helping a prospective seller who is wondering if he should renovate before bringing his home to market.
Dear Urbaneer:
I’m getting ready to put the house I bought new from a developer 25 years ago on the market for sale. Over the years I’ve done the necessary maintenance and repairs, and eight years ago I replaced the furnace and central air conditioning system, but overall the fixtures and finishes are dated and tired. I always assumed that when the time came to sell, I would undertake a renovation in order to get a better price. However, once I started pricing out projects and getting quotes, I’m astonished at how expensive everything costs than they did even a year or two ago. Is it still worth sinking big bucks into pre-sale readiness? How will buyers react one way or the other?
Signed, Reno or Not? Here I Come.
Dear Reno:
First off, thank you for your question! Let’s dive in.
The rising cost of living is prominent in many conversations these days, but it usually centers on things like gas, groceries, housing, and even utilities- all of which are undeniably taking a big bite out of household income.
However, costs associated with maintaining, repairing, and improving a home have been climbing too, although somewhat more quietly, but steadily, as the price of labour and materials jumps. The real costs of these activities are creating a bit of a conundrum for homeowners- and for dwell hunters too.
For years, we have been conditioned (and honestly, somewhat desensitized) to the costs associated with home renovations, because renos are largely viewed as a path towards ROI- generally considered a solid bet, if not a sure thing, to generate a larger return on a home when selling. Reno expenses have generally been viewed as a calculated cost with significant upside. It’s simply the “cost” of doing business.
To be fair, there were many factors over the last couple of decades that made this feel true. For one, rates were ultra-low for a long time, and the costs of Reno and maintenance jobs were lower, so the outlay and expense were significantly lower.
Meanwhile, in the city of Toronto- particularly in the mid 2010s and in the pandemic-fuelled market a few years later, housing prices skyrocketed, and supply was low, while demand was high. So it was reasonable to expect to sell your home for a high ticket price, depending on location and other factors.
This created a comfy gap between the margins, making it easy to justify renovations, since costs and ROI could usually be built into the asking price.
Also, beyond the asset/cost math, the media has played a significant role in how we view home renovations and maintenance. For example, HGTV and other home-related shows follow formulaic plotlines, with ROI built right in as a guarantee. (Read: Behold The HGTV Effect On Toronto Real Estate.)
It’s a familiar experience: a home is presented to viewers, with its flaws emphasized. The homeowner (or flipper) invests X dollars, transforms the home for a dramatic reveal, and then sells the home for a tidy profit. While this may or may not always be true, we have to remember that these shows are formulaic for a reason- they are entertainment, as opposed to accounting, and these experiences have new context and consequences for buyers and settlers in today’s housing market in Toronto.
Costs are rising for sellers to renovate their homes before selling. Meanwhile, buyers’ perception of what move-in ready is (or what they are willing to pay) has shifted as market momentum has changed.
However, with the rising cost of everything, and a changing buyer perception, the math of renovations isn’t quite as straightforward as it used to be. For example, a renovated kitchen or spa-like bathroom may be beautiful, and a finished basement may add functional living space, but that does not automatically mean a buyer will pay enough of a premium to fully cover the cost of those improvements.
The reality is that buyers do not purchase renovations in isolation. They purchase homes within the context of broader market conditions, affordability pressures, and personal priorities.
As real estate values decrease and the costs of maintenance, repairs, and renovations increase, fixer-uppers may unexpectedly yield their sellers a better ROI. It almost seems counterintuitive, given how much HGTV has conditioned us to believe that home improvement means financial improvement, but it is creating a new reality in Toronto’s housing market.
Understanding The New Economics Of Home Improvement
One of the biggest shifts over the past several years is not simply that renovation costs have increased, but that they have increased faster than many homeowners realize.
A bathroom renovation that might have cost $15,000 several years ago can easily exceed that amount today. Window replacement, roofing projects, HVAC systems, electrical upgrades, and plumbing work have all become substantially more expensive.
This matters because every dollar invested in a property before a sale must ultimately justify itself.
It’s not “this is going to make my home look better, and be more appealing to buyers”- which would automatically translate into top dollar, but more “how will I realistically recoup this cost, or build the asset, when I sell.”
Today’s Buyer And Fixer-Uppers (& What A ‘Fixer-Upper’ Means Now)
One of the most interesting developments in today’s market is the growing importance of the price-sensitive buyer.
This does not mean buyers are looking for neglected properties or homes with significant maintenance issues. Far from it. Buyers still value well-maintained homes that demonstrate pride of ownership.
What is different, though, is how willing or not buyers are to pay premiums for renovations and upgrades.
Remember, the cost of borrowing affects buyers and sellers too. For sellers, it affects the cost of the home improvements.
- A buyer who is already stretching to qualify for a mortgage may prefer a lower purchase price, with an eye to updating and improving over time, to reduce expensive debt and upfront costs.
- Another buyer may look at a recently renovated home and appreciate the work, but wish they could have selected different finishes or made different design choices. This is more prevalent in today’s design trends, which have shifted away from the one-size-fits-all white and greys, which were minimalist, but versatile, to more personalized, colourful and patterned homes.
All that said, in some cases, buyers may view a home that needs cosmetic updating as an opportunity rather than a drawback.
For years, the term “fixer-upper” often carried negative connotations. Today, some buyers see potential where previous generations saw work, and the ability to control those costs is at the centre of that.
It’s also important to note that flexibility carries more weight with today’s buyers than turnkey, which is influencing whether they are willing to pay a premium for renovations.
What Improvements Will The Market Reward (And How)
For years, conventional wisdom suggested that sellers should renovate before listing, but today’s market and a shift in buyer sentiment have shifted that belief.
It doesn’t mean that renovations are done with, or that sellers should stop investing in their homes. It simply means the relationship between money spent and value gained deserves closer scrutiny than it once did. Plus, one should remember that renovations offer lifestyle value that is worth including in the decision-making process.
For sellers, the lesson may be to think carefully about where to spend renovation dollars before listing. In today’s market, buyers appear to be placing a greater emphasis on affordability than perfection, which means expensive upgrades do not always translate into proportionally higher sale prices.
Rather than automatically finishing the basement or undertaking major renovations, sellers may achieve a stronger return by focusing on presentation, maintenance, and strategic refreshes.
The thinking needs to be reframed from maximizing sale price to maximizing net proceeds after the sale.
There are a few ways to approach this, starting with what will protect the asset of your investment and then building from there if, after consideration, it is warranted or desired.
The reality is that the costs of some of these tasks have risen substantially, so many sellers may end up spending the bulk of their budget on the first group of tasks: repairs.
*Repair
It’s a good idea to start with repairs. Repairing issues like leaks, safety issues, broken systems, or minor maintenance that may have been missed or deferred protects your home asset.
Broken or weakened items make your home more vulnerable to damage, which is costly. Additionally, paying attention to these maintenance and repair details can go a long way to communicate value. Your home looks and feels loved and cared for, even if finishes aren’t totally on trend, or floor plans aren’t reflective of today’s tastes.
Communicating value is intangible, but it has a real-world impact on buyers and on what they are willing to pay for a home.
After repairs are completed, you may want to consider a refresh.
*Refresh
Offering a property a refresh before it comes to market is an area of expertise for Urbaneer. In fact, I wrote in detail about conducting a refresh in the challenging condo market as part of a selling strategy in this recent post: Dear Urbaneer: How Does The Urbaneer Refresh Guide Help Toronto Condo Owners Maximize Their Asset Value?
The idea behind a refresh is to present your home in its best form without the substantial costs of renovations. So, high-impact tasks have lower costs. It’s within the refresh approach that often the best ROI is generated.
In my previous post, I described the refresh as:
“Our Urbaneer Refresh Guide identifies solutions that improve the property’s utility and appeal, and when implemented, are included with the sale. Think of it as a sprinkling of sweeteners integrated into the promotional material and property to differentiate it from competing listings.”
It’s different from staging, where rented pieces are used to communicate and elevate the function of particular spaces, and from renovation, where structural work is undertaken, often at a higher cost and over a longer period to complete.
Examples of refresh tasks might include:
- Paint
- Wallpaper (peel & stick tiles are very effective!)
- Fresh carpet
- Lighting
- Hardware
- Landscaping
*Renovate
You may decide that renovating before selling is the right strategy, and in some cases, it absolutely is. If your home has significant functional deficiencies or your target buyer expects a move-in-ready property, a renovation may help position your home more competitively. However, before committing to a major project, ask yourself whether the market is likely to reward the investment. For example, spending $75,000 to finish a basement may only increase your sale price by a fraction of that amount, while also pushing your home into a higher price bracket with fewer buyers.
Typically, kitchens and bathrooms drive the highest ROIs, but they are also the most expensive, and in today’s costly market, that ROI is often diminished. This circles back to maximizing net proceeds from your sale, so weigh the costs before deciding on projects, and research comparables in your area to really determine whether the costs are worth it.
*Leave It Alone
This raises an obvious question: how do you decide whether to renovate or leave well enough alone? Start by understanding your local market and your likely buyer. Is your home competing against fully renovated properties, or are buyers primarily looking for value and an opportunity to personalize?
Then weigh the cost of the project against the premium it is realistically likely to generate. Your realtor should be able to help you evaluate whether a renovation is likely to expand your buyer pool, justify a higher asking price, or simply add expense without a meaningful return. The goal isn’t to spend as little as possible or as much as possible. It’s to spend strategically.
Thank you so much for your question – I hope this helped!
At Urbaneer, we are here not just to help you sell your home, but to help you strategize to sell your home to help you to maximize net proceeds after your sale.
For more insights and information, check out these helpful posts:
Dear Urbaneer: Go New – Or – Go Old Condo & Renovate?
Property Primping: Urbaneer’s Style Enhancement Service
Dear Urbaneer: When Selling Toronto Real Estate, Is Staging Worth It?
How Urbaneer’s Custom Marketing Program Sold This Authentic Broadview Loft In Riverside
Dear Urbaneer: Five Reasons Owners Are Selling Their Toronto Real Estate At A Loss
Since 1989, I’ve steered my career through a real estate market crash and burn; survived a slow painful cross-country recession; completed an M.E.S. graduate degree from York University called ‘Planning Housing Environments’; executed the concept, sales & marketing of multiple new condo and vintage loft conversions; and guided hundreds of clients through the purchase and sale of hundreds of freehold and condominium dwellings across the original City of Toronto. From a gritty port industrial city into a glittering post-industrial global centre, I’ve navigated the ebbs and flows of a property market as a consistent Top Producer. And I remain as passionate about it today as when I started.
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Steven Fudge, Sales Representative
& The Innovative Urbaneer Team
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