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Want to get the highest price for your home? Renovate 2 rooms before you list, real estate agents say

"Buyers want HGTV homes like they've been watching on TV."

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It's still very much a seller's market when it comes to real estate: Sustained demand has kept prices high, and bidding wars have become commonplace, pushing those prices up still more.

Overall, home prices are up more than 22% since March 2020, according to Zillow's most recent market report, and prices for new construction homes have increased more than 25% during the same period, according to the Census Bureau.

The fierce competition among buyers might encourage some sellers to sit back and let market conditions do all the work, but those sellers might be better served if they still did some updates to their houses, says Marshall Malone, a real estate agent in Birmingham, Alabama.

He's pretty unequivocal about where the bulk of those renovation budgets should go. "You want to start generally in the kitchen or in the bathroom," Malone says. Even when the market is so skewed in the seller's favor, investing money in refreshing those two spaces can net the homeowner serious return when it comes time to list.

Case in point: Malone and his wife recently updated their own kitchen and bathroom. "We increased the size of our kitchen. We took down walls and made it a more open concept," Malone says. "And we've upgraded the master bath."

They're also adding a bedroom in their basement to make up for the bedroom they lost upstairs when they expanded the kitchen. "I'm putting my money where my mouth is," he says.

'Buyers want HGTV homes'

Robert Erickson, a real estate agent in Los Angeles, also thinks that bathrooms and kitchens are the best places to spend your renovation dollars. Even modest renovation projects in areas that have high visual impact will both make pictures online pop more to would-be buyers and make the home feel more turnkey when they take an in-person tour, he says: "Buyers want HGTV homes like they've been watching on TV."

There's another, more practical reason that your potential buyer might want to walk into an already-done kitchen, Erickson points out. "Buyers don't have a lot of money left over once they buy," he says. "It's easier to buy somebody else's redo and then finance a higher price than it is to purchase something and then start gutting and moving walls and then put [renovation expenses] on your credit card."

How much money to spend on renovations

If you decide to renovate your home before you put it on the market, your next decision will likely be how much you should spend. If you want a figure to start with, however, Erickson has a suggestion. "I would say, take $20,000, whether it's a $150,000 house or a $2.8 million house," he says. That "guesstimate" should be enough to at least give your kitchen a refresh and maybe spruce up a bathroom, too.

Marshall Malone, a real estate agent in Birmingham, Alabama, sees it differently. There is no one magic number or percentage that will work for every project, he says. Instead, that amount you spend on renovations should be determined by three factors: the equity you've built, the price of your neighborhood, and the amount that you owe on your mortgage.

"Make sure you're aware of the top-end selling price of your style of home. Run your comps," he says. "If the home's maxed out at $400,000 in your market, you don't want to have a spend of $420,000, because you're not going to recoup your money."

If the budget for your project falls within those parameters, then go for it, he says. The right amount will be unique to every house, every neighborhood, and every seller. The key is staying within that budget, he adds. Be brutally honest with yourself during this process when you're calculating the potential value of the renovation.

"Don't be optimistic; be realistic," Malone says. "You just don't want to overspend, so that you can sell it" later on and make a profit.

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Warning: The labor shortage might make it tough to 'get somebody out to do' the work

It will likely be a challenge to hire contractors to take on your project, Erickson says. The ongoing labor shortage across industries means that finding workers is tough. "It's not even price. It's more, can you get somebody out to do it," he says. "That's why buyers are willing to pay more for a house, because they see the back end."

That back end includes building materials that are in scarce supply, and thus, more expensive, and long wait times, Erickson says. Buyers are sick of waiting. "I actually sold a house this year where they just bought everything in it, like the furniture, he says. "They didn't want to wait six months for a couch."

Luckily, not every home refresh needs to include gutting your kitchen, he says. Sometimes, a simple can of paint can go a long way. For example, painting dark kitchen cabinets white can make a big impact in photos. On a recent sale, Erickson even asked his client, despite the client's misgivings, to paint the fireplace surround orange.

"I literally just brought in orange pillows that I had in my trunk and put them in every photo and popped the house," Erickson says. "It sold in three days."

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