How Much Does Adding a Bedroom Increase Home Value?

How does an extra bedroom affect my home’s value?

There are three ways of looking at the value that an additional bedroom adds to your home: increase in list price, higher appraisal, and how much of the cost you recoup.

Most sellers think of adding value in terms of how much a bedroom addition might increase the listing price of their home. But when it comes time for your home sale to close, what matters most is the market value that’s determined by the appraisal.

However, the appraisal value isn’t necessarily the amount you get out of a future sale. In the long run, how much your bedroom addition adds value depends on the amount you spend and the final purchase price.

1. List price

When determining how much to list a house for, sellers may want to roll the construction costs into their asking price. In truth, how much of those expenses a seller can add to the list price depends largely on what’s going on in the local real estate market, and what the buyer demand is for properties with a similar number of bedrooms.

“In the Dallas market, two-bedroom, one-bath homes aren’t popular. Most buyers are looking for three or four bedrooms now that so many people are working from home,” explains Moore.

In Moore’s Dallas market, the average price per square foot is about $196. The average bedroom size is 132 square feet. This means that adding a bedroom that increases the size of the home in the Dallas market could help a home fetch an additional $25,872.

But that’s not the case for every area. You’ll need to account for your local housing market before you can make that calculation.

2. Appraisal

According to Benson,  if you increase a home’s area and bedroom count, it will add desirability — and increase your home value — in a location where you are one of the smaller homes. This is especially true if you only have one or two bedrooms.

Both agents and appraisers are going to start their valuation process with recent sale prices of similar homes in the neighborhood. They’ll look at square footage and bedroom counts.

For appraisers, it’s not the number of bedrooms that matters but the amount of square footage that impacts a home’s value. While this does vary from market to market, typically a bedroom addition adds appraisal value only if it increases the square footage.

3. Return on investment (ROI)

ROI is the amount you can anticipate recouping from an investment. A homeowner almost never recoups 100% of the cost of a bedroom addition. ROI on a bedroom addition is 53% to 75%, depending on the location of the addition, construction costs, and the quality of materials that go into the remodel.

How much you recoup when you sell your home depends on how the square footage and layout of the home were changed and the recent sale prices of similar-sized homes in your area. Your actual ROI depends on the final purchase price.

For example, if you spend $50,000 to add a fourth bedroom to your $250,000 home, a 53% ROI means you might be able to get $276,000 for your home, recouping $26,500 of the construction costs. However, if similar 4-bedroom homes in your neighborhood are selling for $265,000, you can plan to recoup $15,000 of the $50,000 you spent, a 30% ROI.

How to maximize the value of a bedroom addition

To get the best return from your construction investment, plan your addition to ensure:

Your bedroom has adequate space. A bedroom must have enough space to add desirability to your home. “I’ve seen people add bedrooms in very small places that barely have room for a bed and no space for a closet. Those spaces may technically be usable as a bedroom, but they cannot be listed as a bedroom and they won’t be counted as a bedroom by the appraiser,” states Moore.

Renovation doesn’t affect valuable space. One of the fastest ways to diminish the return on your renovation is to eliminate a parking space, a garage, a covered patio, or an area of the yard, especially if the yard is already small.

The location makes sense. To get the best return from your renovation, your new bedroom must be in a location that makes sense. Inconvenient access can detract from the appeal of your addition. If the only available spot for your bedroom addition is right off the kitchen, or if it can only be accessed through another bedroom, the amount you’ll be able to recoup will be diminished.

Keep the aesthetics consistent. The look and feel of your added space should be in keeping with the rest of the home, both inside and out. “When an addition has a different feel to the rest of the home, the market reacts with a smaller amount paid for the added space,” says Benson.

Avoid over improving. If you’re hoping to increase your home value with another bedroom, you need to take care that you don’t over improve your home in comparison to other local homes. Sometimes, a bedroom addition doesn’t make sense. For example, you might not recoup any of the cost if you tack a bedroom onto a home that’s already large for the market. “Any time you go above and beyond what is typical for a neighborhood, there is the risk of over improving the home. Most buyers are unwilling to pay for over improvements,” explains Spurgeon.