REMODELING: Can you renovate your way to the house you want?
During the boom many people threw the old "don't over-renovate" rule out the window, assuming they could make their home bigger and fancier than those of their neighbors and still make a profit when they sold.
Now, agents say, buyers are focused on features that fall within local norms. "If you're thinking of doing a gourmet kitchen but you live in a modest neighborhood, you're unlikely to recoup your investment," says Jessica Riffle Edwards, an agent with Coldwell Banker Sea Coast Advantage in Wilmington, N.C. To see what features work best in your area, ask an agent for a market analysis. A good pro will do this for free, knowing it could mean future business.
You'll also need to determine what changes your house can practically accommodate. A contractor should evaluate your home in person, says Judy Mozen, president of Atlanta-area remodeling firm Handcrafted Homes, to be sure you have the necessary structural support for the project. Keep in mind that certain changes, like adding a story or digging into bedrock, often rack up unexpected costs.
Whatever your house can handle, remember that if your goal is attracting future buyers and boosting your home's value, the bigger projects are less likely to pay off. Adding a high-end master suite, for example, costs an average of $220,000 and recoups just 52%, according to Remodeling magazine.
So what adds value? Simpler, more practical projects, like finishing attics and basements, says Mozen. On the other hand, if you are planning to stay in the home long-term and are less focused on recouping your investment, a large project that allows the home to better fit your needs may be worth the money, says Abbe Will, an analyst at the Joint Center for Housing Studies.
BUYING: Is the house you want for sale?
Another factor to consider is whether the kind of house you want, in the neighborhood you want it, is even out there. Housing inventory is tighter than it's been in eight years, according to the National Association of Realtors. In some cities, such as Sacramento, there's just a one-month supply of homes for sale. (Nationwide, there's a four-month supply. A healthy market typically has a six-month supply.)
To find out what's available, devote a few weekends to hitting the open-house circuit. Even if you don't end up buying, you may come away with renovation ideas, says broker Wilkie.
The search is likely to be particularly difficult if you're looking for a type of home that's unusual in your market.
Bao Bui and Mike White discovered how frustrating this can be when they started looking for a small but well-appointed house in Fayetteville, Ark. They'd lived in their 1,600-square-foot home there for years, but after making countless little upgrades, the couple realized that no amount of tinkering would make up for the nonexistent garage, closed-in kitchen, and tiny closets and bathrooms.
When they looked into moving, though, all the houses that fit their criteria were too big and selling for more than double the $225,000 they could get for their place. "The house we wanted basically didn't exist," says Bui. Determined to stay in their beloved neighborhood, near White's job as a controller at the University of Arkansas, they're now in the process of gutting their house, adding nearly 400 square feet and turning it into something "very modern," with a garage, a more open floor plan, and an expanded master bedroom.
All told, the $250,000 project will cost as much as moving, "but we'll have exactly the house we want," says Bui, adding that they plan to stay in the home for the foreseeable future.
A RENOVATION BALANCE SHEET
What Bui and White will gain from their remodel:
Estimated value of home pre-renovation: $225,000
Square footage added: 377
What it's costing them:
Architectural fees: $22,350
Six-month apartment rental: $5,220
Estimated project duration: 180 days
PRICING: What are the hidden costs?
It's no secret that many remodeling jobs end up coming in overbudget.
To get the most accurate estimate, do your own research on the types of materials and finishings you want to use. You may pick very different items -- with very different prices -- than your contractor would otherwise include in the bid. Shrink that number further by negotiating. Indeed, a recent Angie's List poll found that 80% of contractors said they were willing to drop prices to get a job. Offering to pay subcontractors directly or being flexible on timing may help bring down the bids, says the site's founder, Angie Hicks. And once you've settled on an estimate, build in an extra 10% to 20% to cover any unexpected expenses.
One big cost that would-be renovators may forget: temporary housing. For the Hildebrandts, that became a big factor in opting out of a renovation. Not only would a second-floor addition have cost more than $200,000, but the family would have been forced to move out of their house for close to a year. "That seemed like an incredible hassle on top of the money we'd be spending for renovations," says Jonathan.
When they totaled the full renovation cost and compared it with the price of buying a new home that was only $100,000 more than what they got for their old house, moving started looking like a bargain.
Of course, people also tend to underestimate the price of relocating. If you're planning to sell one home and buy another, plan to pay real estate commissions (generally 6% of the sale price) and closing costs (an average of $3,754 on a $200,000 mortgage, says Bankrate.com). Even relocating nearby can be pricey; hiring pros to move the contents of a four-bedroom home a few miles away typically costs between $1,000 and $2,500.
Will your new home need sprucing up? Buyers spend an average of $3,300 on small improvements during their first two years in the home, according to the Joint Center for Housing Studies. And that doesn't include immediate expenses, like new blinds, cleaning supplies, even replacements for the fridge and pantry items that got tossed in the move.
WAITING: What does your gut say?
Finally, don't force yourself into a decision that really doesn't feel right. The housing market is still in a state of flux, and you could find yourself in a very different position in, say, six months or a year, when prices may be higher and more homes will likely be sporting FOR SALE signs. Indeed, for some the answer to the renovate or relocate question might be "sit tight."
Aaron Rozeboom and his wife, Lina Walker, recently came to that very conclusion. When the couple had a son last year, they considered selling their three-bedroom in the Washington, D.C., Capitol Hill area and looking for a bigger place. After realizing just how much they would have to pay for the extra space and how competitive the local market is, they started leaning toward renovating their basement.
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