Go big or go home. The fact that your back yard is small and basically sounds unusable for recreation, a backyard patio/living space would be a good use which will make the home more marketable.
We had kind of a crappy back yard. And then we put in a paver patio. Did a fountain with led lighting – awesome. But the best part is we did a fire pit. Don’t mess around with the portable ones. Don’t mess around with the wood ones. We did a natural gas fire pit. Hooked to the house line. It is the greatest thing since sliced bread. You have all kinds of design options – can do a traditional round pit, rectangles, squares, etc. You can top it with ceramic logs, lava rock, or fire pit glass for different looks. Easy to turn on, easy to turn off. No propane tanks to haul around and replace. Cost us about $800 to have the gas line run and few bucks for the burner and valve. Got some nice furniture to go around it. It get’s more use than just about any space in the house.
Thanks all – we’re going to go for it! And I think will get a least a stone fire pit – it’s a good point @yourmomma that if we’re going to all the effort having a portable one sitting there doesn’t make sense. Not sure about the gas feature – will look into that.
I’m getting excited !!
Re: firepit. At the very least, get the propane tank-fueled one. You will not regret. Dealing with real firewood is a pain, and at least where we are, there are frequent burn bans (do not apply to gas firepits and BBQs).
@AlmostThere2018 Great. Just remember what one person wants the other person might not. In our first home with its 5,500 SQ FT lot, a hardscape aspect that wasn’t kid friendly would have been a deal killer. If it was a patio fine, but a fire pit with attached gas yikes.
Guess you are talking about an area where it’s warmer so you’ll get the use and those are popular. They aren’t in our area at all. Once in a while someone has an outdoor kitchen with all the bells and whistles and there will be a fire pit area that matches. Nice. Like a jacuzzi, it’s really personal preference.
Enjoy your new space.
It sounds like for some folks, bubble wrap and foam would be perfect landscaping materials. 
Good point brought up by other posters: if your weather doesn’t allow you to enjoy the backyard much (snow in winter, bugs in summer), then don’t invest too much in building out a firepit area. A patio is a must for backyard grilling, but the rest of the area can be spruced up with plants and beauty bark before sale. Plant a willow where the water tends to collect. It will drink up a lot of water. Even a small, weeping one can improve drainage.
@AlmostThere2018 Absolutely consider it. Best thing we ever did. Here’s where I got my kit
https://www.firepitsdirect.com/fire-pit-kits.html
We’re in mid-Atlantic so nice 3 season outdoor weather!! 
Excellent! Go for it then (says BB while sitting with a glass of Rombauer zin on her deck in a comfy chair next to the firetable).
Lol, no sitting outside now, here in New England.
Yea, @AlmostThere2018 ! Glad you are doing it! You are getting an extra room for half the year - (we do most of our entertaining outdoors when the weather is nice). It sounds like a small investment for a great return. And you can enjoy it while you still have the house and not worry that it’ll be a turnoff when you go to sell.
I would recommend that you do it. $5000 is a small backyard project and I would imagine that anyone interested in purchasing your home would expect at least a small patio and not have to have their bbq sit on the grass. I second having a professional do it, especially if you have erosion issue.
$5k sounds very reasonable to have an area graded and a patio installed, at least in my neck of the woods.
Unless you really know what you are doing, DIY patios look like you did it yourself, IMO. I’ve seen many bad installation jobs. Prepping a patio properly - leveling, preparing and compacting the sub-base for proper drainage and to withstand temp changes (frost heaves in my area), cutting pavers if needed, edging, etc. - needs to be done correctly to still look good after a few years. We had a large patio put in 20 years ago and the guy did an excellent job. One cracked paver. Everything else is in tip top shape and has held up remarkably well. Some stuff is worth spending $ on.
We are “be outside” people. Outdoor space that is nice without needing to be extravagant would be very important to us. A main reason for buying our current house was the back yard space.
If you space is small, that’s even more reason to finish it and show it as a completed space. If they can SEE how usable the small space is (with space for seating and a firepit and grill perhaps then they won’t have to imagine how they will use that tiny space.
You definitely need to turn the backyard into an attractive space instead of an eyesore. For a house that is worth half a million dollars, $5000 is worthwhile to spend on the backyard. especially if it will resolve drainage issues.
A $500k house in my neck of the woods means a dilapidated outhouse on a 3,000 sft lot covered with weeds! Just kidding. There are NO $500k houses in Seattle. Just studio condos.
That said, if OP’s home is on the mid-higher end, buyers will definitely expect to see a nicer backyard. We have a large chunk of swamp as our backyard, but the patch of dirt that is usable is utilized well!
At that price level, do it. It will only be a plus.
Sitting out back right now. In shade. Nice breeze. Music playing. Just chilling the most. Do it.
In my area, outdoor living is a huge selling point. Buyers want outdoor seating area, bbq and fire pit with seating. It would be a great selling point. And, for less money, do it in January for a lower cost
My backyard is full of mosquitoes. We live on our screened porch except it’s been so muggy we’ve only been eating breakfast out there lately. That said the grill is on a small slate patio, and that paved area does help keep the basement dry. All that is a round about way of saying again, that I’m still for a patio even if you don’t use it much. We thought we’d use ours more, and I still think it makes the yard look more finished.
Do it. I wouldn’t purchase a home without good outdoor living space. I have a very large wrap around deck, a firepit surrounded by beach sand, tiki torches and chairs for 6 and a horseshoe pit. I’ll be moving into a small in law in just a few months and trying to decide on patio vs. deck. Check out the stamped concrete patios, they are showing up everywhere in my neck of the woods and much less expensive than Azec decking or the like.