Dollars and Sense

Why a house renovation is more than JUST looking at numbers

Kitchen renovation

Long before deciding on things like countertops and paint colors, homeowners considering major house renovations need to ask themselves more important and basic questions, including:

How long are we going to stay here? Can we afford it? What is the value of our house and how much would a renovated bathroom or kitchen add to it? What about curb appeal?

Most homeowners are well-versed in the pros and cons of major kitchen or bath remodels, namely the disruptions they cause to daily routines as well as their high price tags. In the pre-recession market, though, renovation decisions were usually fairly easy to make from a financial standpoint since most homes were rapidly appreciating far above their purchase prices. Renovations provided an instant return on investment. This made the disruption of a remodeling easier to swallow for many. But in the current market that may not be the case. So why even entertain the idea of a renovation?

One of my clients owns a charming 1900 two-story clapboard house with an abundance of windows in a very good neighborhood. But like many homes its age, it needs updates to the kitchen and baths and possibly a re-organization of the entry to create a mudroom and improvements to its energy efficiency.

My client loves her home, but she has considered selling or renting out her house so she can move closer to her daughter’s school. She consulted a local realtor, and to our surprise and delight, a new picture emerged of what is wise to do in this market.

Traditionally, homeowners have been told they should spend no more on their houses than they could expect to get in return when they sell, whether that be immediately or in the future. Value engineering, which looks at the prices of homes of similar size and age that have sold recently in the same neighborhood, provided a prudent measure of what the return on a renovation would be.

Because of the glut of houses for sale in today’s market, however, buyers have more power to negotiate. Many are asking sellers to lower prices on homes with old kitchens and baths. They argue that they will have to renovate after purchase anyway, and that the sellers should count themselves lucky to even have prospective buyers.

This leaves some homeowners wondering how much or how little to do in a renovation. Should they proceed with the renovation even if the increased value on a bathroom would be less than $5,000 or less than $15,000 on a kitchen? Should they spend only what they will recoup – or even less?

My client’s realtor believes it might be a good idea to improve a kitchen or bath even though the work may not earn a full return on the investment should the home be sold immediately or within a few years. If you are inclined to sell within the foreseeable future, make the renovation modest by all means. It could be new tile or a new vanity, new cabinet fronts or appliances, but the goal is to impress a potential buyer at first glance. Buyers want baths and kitchens that appear neat and functional, not grimy and outdated

But if you do not intend to sell in the near future and decide to renovate, we believe comfort comes first, followed by curb appeal. According to the equation of value engineering, you may spend too much dollar-for-dollar. But in the years to come, you will enjoy your new kitchen or bath, and when you are ready to put your house on the market, your cohesive and well thought out renovation could make all the difference for prospective buyers.

When it comes to dollars and sense, a renovation or remodel of your kitchen or bath could be the right investment even in this market.

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