Remodeling your home can pay off

STEAMBOAT PILOT & TODAY

National surveys suggest major remodeling isn't always a great investment for people on the verge of selling their homes. But for most people, remodeling is a complex decision based as much on their own enjoyment as it is on sound economics.

"The rule of thumb I give my clients is don't do the remodel if you're not going to make a profit back," Realtor Steve Downs said. "Why spend $5,000 to re-do the bathroom if you're only going to get $5,000 back?"

Downs is careful to say that advice applies to clients who are trying to make their home more competitive for a quick sale. He might give different advice to clients who are planning to keep their home another 5 years.

Over the long haul, local real estate appraiser Megan Richard said people need to stand back and look at how their home fits into the neighborhood. If they fail to live up to their neighbors' standards, they could come to rue the day.

"If you decide not to spend money on the upkeep of your home, you're going to be sorry 10 years later," Richard said. "Pretty soon, you have a kind of functionally obsolete house. In this market, it just makes sense to keep your home up."

Downs, who is with Steamboat Village Brokers, has been focusing on finding single family homes for people in the Steamboat area for more than two decades. He said everyone who contemplates remodeling a home must begin by answering a fairly basic question - "Is the remodel being considered to make the home more livable over the next three to five years? Or is it being undertaken to prepare the home for quick sale in a competitive market?"

The answer to that question will go a long way to defining whether or not a remodeling project is right. But even after that decision is reached, there are complications.

National statistics suggest meeting Downs' criteria of profiting from a remodel will be difficult to realize.

Downs said people whose homes are in obvious need of repair may have to bite the bullet and pay to have their home re-sided if the old siding is rotten. But they also have the option of leaving the rotten siding as is, and discounting the price of the house, letting it appear to be a bargain for its size and neighborhood. The assumption is that the buyer will be willing to undertake the remodel.

Richard owns her own business, Yampa Valley Appraisal. In her personal case, she said she purchased a home that was badly in need of new windows. She would have gladly paid more for the home had the former owner replaced the windows. That would have allowed her to absorb that cost into her mortgage, rather than facing the need to take out a secondary loan to get the necessary work done.

But other major remodels and additions might not work out, she said. Adding on to a single-car garage to provide a desirable two-car garage, probably wouldn't work out as a way to enhance a home for sale.

"You'll probably end up spending more than somebody wants to pay you," Richard said. "As long as you already have one (garage bay) you need to make it worth" it for your personal needs. That would probably mean you intend to stay in the home for another five years.

For a typical Steamboat starter home, which means between $300,000 and $400,000, Richard would make a downward adjustment of only $5,000 to $10,000 on a house that did not have a garage.

The job of an appraiser is to look at a home and value it the same way a buyer would, Richard said.

"I should be reflecting how a buyer looks at your home," Richard said. Nice touches like a vinyl floor that has been converted to ceramic tile factor into her assessment of the overall condition of the home, she added.

Appraisers work off comparables - similar homes sold in the same neighborhood - and homeowners contemplating a sale and/or remodel should try to do the same, she suggested.

Downs said people who intend to stay in their homes should broaden their horizons before taking on a remodel and look at how cost effective the remodel is compared to buying a newer home.

The National Homebuilders Association reports that it's generally less expensive to renovate one's current home than it is to move to another resale house in the same neighborhood.

Tim Perry, a California general contractor, said that people buying resale homes in today's market are apt to pay the same price for a "crummy" house as they will for a well-maintained home.

Assuming you are moving from one resale home to another, "if you are going to move across town or across the street, you are going to pay a premium," he said.

Of course, Steamboat represents anything but a typical real estate market.

Downs said people must also consider the desirability of their neighborhood when gauging whether to fix up their homes for sale.