The Remodeling Process
Optimizing the remodeling elements with the return on the investment is the key to intelligent remodeling. The goal is to enhance the current design to increase desirability and value. One must balance the requirements of the remodel with numerous factors such as:
1. The purpose of the remodel.
2. The limits of the property.
3. The design requirements of architects, designers, and engineers.
4. The regulations of City, County, and Sate agencies.
5. Budgets.
6. Schedules.
Remodeling for Lifestyle Purposes
The remodel designed to enhance the current owner’s lifestyle often takes on elements that are not required to increase the value of the property but instead are fitted to an individual’s particular needs. The key is to not include design elements that detract from the value of the property or make it difficult to sell, because someday the property will have to be sold.
Remodeling to Sell
This type of remodel is meant to increase the appeal to as many prospective buyers as possible. In today’s market, concentration should be focused on kitchens, bathrooms, and master bedroom suites. Closet space and landscaping are the next design concerns to include. Very often the amount of money spent on these remodeling projects is difficult to capture in the form of increased sales price, but it often leads to quicker sales and maximized value offset by lower carrying costs of the property. The carrying costs, including interest, real estate taxes, and lost opportunity, often eat up the property owners expected profit due to a lack of curb appeal that delays the sale.
Remodeling to Repair
Sometimes a remodeling project is done to repair defects in the original home design or to repair time related problems or structural pest damage. This type of repair may be required to repair in order to be able to sell the property. The key is to make sure the work is documented and performed by licensed contractors with the proper permits.
Remodeling to “Flip”
This type of remodel is selected by people who wish to purchase a property, fix it up quickly, and sell it for a profit. The property may be in a state of disrepair, or it has become outdated, or it is underutilized. Adding another bedroom and a bathroom is often done, along with kitchen replacements and bathroom upgrades. The main purpose is to purchase the property at a low price, remodel in the quickest way, and sell the property before the carrying costs eat up the profit.
Permit Analysis
Most remodeling work will require a permit. In general, any project that involves electrical, plumbing, ductwork, framing, sheetrocking, relocation of walls, siding, or roofing will require a permit. The permit may be able to be obtained “over the counter” at the Building Department, or it may require complicated drawings submitted by qualified and licensed architects and engineers, and then waiting months for the permit process to work. Taking these factors into consideration, the optimization of the remodeling elements may change considerably when deciding on which designs to include and which ones to exclude based on the schedule.
Permit Process
The permit process is different for each municipality but has some similarities such as the following:
- A permit application must be submitted.
- Existing property measurements and analysis must be performed.
- Drawings must be prepared.
- Engineering calculations must be performed.
- The drawings must be submitted to the Planning Department, Building Department, Fire Department, and Public Works Department.
- The Planning Department must decide if the project needs further approval, such as with the City Council and if Public Hearings may be required.
- Plan check comments must be answered and repaired.
- The drawings then get submitted for final approval.
- The permits are issued.
- Construction is performed with periodic inspections.
- The project is completed and a Final Approval is given.
Remodel for a Sale
I had one property in north Los Altos that sold for $1,510,000 after we spent $19,000 on the place for repainting, new landscaping, general cleanup, and staging. The identical property across the street sold one month later for only $1,390,000 because the agent and the seller simply dumped the place on the market without any presentation at all.
The decisions regarding remodeling are quite common: Does the seller list the property “as is” and let a buyer remodel or rebuild? Or does the seller spend some money to remodel hoping to capture the premium sales price? There is no set answer as each place has its own particular circumstances. I have spent the last 20 years fixing up places to sell and it comes down to optimizing the dollars spent versus the time required to remodel versus the timing of the market. And if you remodel in the wrong direction, then it is all for nothing.
One general rule of thumb is that you can sell a place for more if you sell it to someone who wants to live in the place versus tear it down. The key is to remodel smartly and cost effectively. Often this turns into only a $1.00 gain for every $1.00 spent, but it also ensures the speed of sale. Selling it as a "tear down" may get you a faster sale but often for $100,000 to $200,000 less.
The best places to spend money on a remodel are as follows:
1. Exterior painting ($4,000)
2. Landscaping and cleanup ($3,000)
3. Interior painting ($3,000)
4. Home inspection services ($450)
5. Repairs required by inspection ($2,000)
6. Replace floors ($8,000)
7. Bathrooms, replace toilets, sinks, tile, floors. ($4,000 each)
8. Kitchen. Often this can be a can of worms and depends on the situation. Spending money in the wrong direction can be expensive and wasteful. Kitchens can cost anywhere from $10,000 to $50,000, so this will have to be analyzed thoroughly.
9. Structural pest inspection ($350)
10. Repair work for termite work ($4,000)
In summary, we typically spend around $24,000 to bring a house up to sellable condition. I have spent as much as $240,000 to remodel, but that is very rare. The best plan is to thoroughly clean the place, empty it of all belongings, and have a structural pest report and a home inspection report done to see the level of repair work that will be required. Then the optimization process can occur to determine the feasibility of remodeling.
The Best Place to Invest Your Dollars in a Remodel
During the last two economic bubbles, homeowners sought the biggest, splashiest home improvements to boost resale value. Now they're doing smaller projects that deliver a similar result for far less money. Smaller projects like updating kitchens and baths are more popular, while two-story master suites and $100,000 kitchen blowouts often cost much more than the resulting increase in home value. Hidden improvements like insulation also are on the rise. The going “Green” movement is good for long term investment returns but barely increase the actual value of the sales price.
One of the most cost-effective improvements is to remove a wall to create an open kitchen-dining area. The project makes the kitchen feel bigger and can cost as little as a couple of thousand dollars. Remodeling the kitchen, putting in hardwood floors, new cabinets and stainless-steel appliances, ripping out a closet and expanding a doorway to improve the flow are also good ideas if you want to do a complete upgrade. Not making major structural changes can keep the cost to about $50,000. Keeping the footprint the same is a good idea to keep the costs low.
Home Office Remodel
Typical cost is $10K to $20K by adding cabinetry, lighting, audio/video wiring, and electrical outlets. Most people work all hours of the day and work a lot more at home while trying to raise their family. The home office can enrich that experience.
Bathroom Addition
Typical cost of $35K by adding a small addition, new plumbing and electrical, and plumbing fixtures. Bathrooms, especially the master bathroom, are expanding and fast becoming more luxurious. The bathroom is the oasis where people, including your visitors, can refresh and recompose themselves. You can remodel your bathroom with oversized rain shower heads having body sprays and steam bath, tiled shower walls, concrete flooring, free-standing cabinetry, and pastel-colored porcelain lavatory. That ultra-deep jacuzzi tub and custom Kohler 360-degree shower you want might make your mornings a blast. But to budget or eco-minded buyers, all that water use is going to be a serious drawback. As with your kitchen, keep your bathroom remodeling ideas modest to get the best return on your investment.
Major Kitchen Remodel
Typical cost of $40K to $60K for new cabinetry, new appliances, floors, and ceilings. The kitchen is the grand hub of the home. It is no longer limited to cooking and meal preparation, but a place where people spend a lot of time doing telephone calls, chatting, Internet surfing, reading, and other crafts. This new kitchen usage requires a much larger area where commercial-look stainless steel appliances, high capacity refrigerator and stove, accessible counter tops, computer desk, new cabinetry, matching table and chairs are the common items included in the remodeling project. The idea is to give the kitchen new functionality and distinctive look. You may love gourmet cooking, so a $30,000 kitchen upgrade might be just to your liking. But this could be a turnoff for potential buyers who aren't crazy about cooking. To them, the restaurant-sized stainless-steel stove, kitchen island and fridge just seem excessive, and they're not going to want to pay for them. Instead, they'll pass on your home and end up buying one with a regular kitchen. You can still enjoy an upgraded kitchen without going overboard and compromising the value of your home.
Family Room Addition
Typical cost of $40K to $80K to add a small addition, new electrical, floors, and ceilings. People now spend more time at home. Give your family room the space and amenities it deserves. You can put a wide-screen, high resolution home theater facility, remote-controlled high-end acoustic system, pair of comfortable sofas, computer, cordless telephone, and CD/DVD rack for sounds and movies. You can redo your cabinetry if it does not match your remodeling design. A fireplace or a heater is also advisable.
Master Suite Addition
Typical cost of $40K to $90K to add a small addition, new electrical, floors, and ceilings. The key is to make sure and have a master bathroom and walk-in closets. These are a must for people purchasing a home in this area