How Renovation ROI Relates to Price Per Square Foot

Homeowners often hope a renovation will pay for itself when they sell. Some come close; most don't. Looking at the local price per square foot helps explain why, and helps you decide what's worth doing.

Two ways renovations add value

• Adding space: an addition or finished basement increases the square footage.
• Improving existing space: a new kitchen or bathroom can raise what buyers will pay per square foot, without adding any.

Adding space: compare costs

If building an addition costs more per square foot than homes in your area sell for per square foot, the extra space is unlikely to return its cost. For example, if building costs $300 a square foot and homes nearby sell for $200 a square foot, a 400-square-foot addition costs about $120,000 but might add closer to $80,000 in value. Buyers also tend to pay less per square foot for each extra square foot in a large home.

Improving space: what the data shows

The annual Cost vs. Value report, which estimates how much of a project's cost is recouped at resale, has found for years that smaller exterior projects, such as replacing a garage door or entry door, recoup the largest share of their cost. Large upscale projects, such as major kitchen remodels and additions, tend to recoup much less. Results vary by region.

The risk of over-improving

Appraisers and buyers compare a home with similar sales nearby. If a renovation pushes your home's value well above the neighborhood's typical price per square foot, buyers may not pay for it. The most expensive house on the street is often the hardest to sell at full value.

How to check before you spend

1. Look up recent sales nearby and work out their price per square foot.
2. Compare renovated and unrenovated homes of a similar size; the gap shows what buyers pay for updates.
3. Get contractor quotes and work out the cost per square foot of the project.
4. Ask a local agent which updates buyers in your area expect.

When ROI isn't the point

If you're staying for years, the value of enjoying a renovated kitchen counts too. Just know what you're likely to get back if you sell.

Compare homes quickly

Zillow Price/SqFt shows each listing's price per square foot on Zillow's search results, making it quicker to compare renovated and original homes. See investment property analysis.