Portland Metro regularly lands on top 10 lists – for home price gains, creativity, livability, job growth, public health, green-ness, bike-friendliness, gentrification, and more. Did you know it’s also #8 for residential remodeling?
Meanwhile, the inventory of homes for sale stands at 1.9 months – about half the national average – and has not broken 3 months in over 3 years. Our lopsided seller’s market limits choices all around. Buyers can’t be too picky and would-be sellers may decide to stay put because they can’t find – or can’t afford – replacement homes.
But every challenge is also an opportunity. If you’re willing to remodel, you can add priceless character and comfort to your home as well as dollar value. This post offers advice from experts – 8 questions and 2 tips, to be exact – for the planning and decision making phase of remodeling. That’s when realtors can be of most help.
Q 1: How long do you expect to stay in your home?
As a rule of thumb, you should plan to stay in your home at least 5 years after a significant remodel – say 15 percent of your home’s “before” value. Since home improvements never offer a 100 percent return at resale, you should give yourself plenty of time to enjoy their other benefits.
Of course, if you plan to sell in the near term, modest improvements will boost the price and speed of sale. De-cluttering, deep cleaning and yard work can cost no more than your time and offer some of the very best returns. Ask a realtor to walk through your home and make suggestions.
Q 2: Can your biggest pain points be soothed? Can your pride and joy be matched?
In deciding whether to move or remodel, review the best and worst features of your home. If the best can’t be replaced, you’ll likely want to stay put. If the worst features can’t be changed or call for major structural work (big ticket items like moving walls or expanding the footprint), a move is probably the thing.
Q 3: What’s the ballpark cost of your remodel wish list?
Your review of your home’s best and worst features will guide you in creating a wish list. Magazines and books can help too. If you’re leaning toward remodeling, you may also want to invest in a 1-off design consultation for a modest set fee. Many interior designers offer this service.
Next you’ll want a rough cost estimate of your wish list. Here are three good resources for this exercise:
- Each year, Remodel magazine publishes the Cost vs. Value Report. It compiles average costs for 21 common projects in 149 markets around the country and compares them to project value at resale. You can access the 2018 report for Portland Metro here.
- The National Association of Realtors has published a similar report. It features some projects not included in the Cost vs. Value Report (a plus), but the data isn’t broken down by locality (a minus).
- Home Advisor’s True Cost Guide doesn’t provide information on resale value (a minus), but can help you track down local contractors and costs (a plus).
Remember to add a contingency fund of 10-20% to your estimate for unexpected costs.
Q 4: Can you afford your wish list?
With a rough cost estimate in hand, you can decide whether your wish list is affordable. How much do you have in savings or can you access in credit and what do you feel comfortable spending? Click here for a good overview of ways to fund a remodel and the pros and cons of each.
If you find that your wish list is beyond your means, you can pare it down, crossing off items that will have the least impact on how you experience your home. For example, if your kitchen is 50 years old and functionally obsolete, a major remodel is money well spent. But if changes made 20 years ago are good quality but not to your taste, then a minor remodel is best. Rather than replacing cabinetry, for example, you can replace or repaint cabinet doors and pulls.
Q 5: How does the cost of remodeling a given room compare to its value as a percent of your home’s overall value?
Answering this question can also help you to trim your wish list. The bullets below show the values of specific rooms or areas as percentages of a home’s total value according to an appraisers trade association. Suppose you’re thinking of a mid-range major kitchen remodel as defined in the latest Cost vs. Value Report for Portland (see Item a under Q3). Since the average cost for the project is $66K, your current home value should be at least $440K to justify the expenditure. ($66K is 15 percent of $440K.)
- Kitchen: 10-15% of a house’s value
- Master bedroom suite: 10% of a house’s value
- Powder room/bathroom: 5% of a house’s value
- Finished attic or basement: 10-15% of a house’s value
- Other rooms: 1-3% of a house’s value
- Patios, decks, paths and plantings: 2-5% of a house’s value
Q 6: How does the total estimated cost of your wish list compare to the current value of your home?
Unless money is no object, you’ll want to weigh the total cost of your wish list against the current value of your home. Assuming you’ll stay put for at least 8-10 years, your list should not exceed 30 percent of its value. Spend more and you’re unlikely to recoup your investment.
Q 7: How does the estimated value of your improved home compare with the rest of your neighborhood?
No home is an island, so in addition to answering Q6, you’ll want to weigh the value of your remodel against upper price limits in your neighborhood.
Add estimated costs to the current value of your home. If the total is more than around 20 percent over the highest recent sale prices for nearby homes that resemble yours after planned improvements, you run the risk of overspending and getting a disappointing return at resale – even if you intend to stay for 8-10 years.
Q 8: With the cost of moving?
Answers to Q5-7 will help you set a cost ceiling for each room or area and for the remodel as a whole. But they won’t tell you how staying put compares to the cost of moving into a new home. Click here for an online calculator designed for this second task.
A little market research is needed before you use it. You’ll want to search active listings with the features and locations you must have to motivate you to leave your current home. Average list prices for your top 3 choices and you’re ready to fill in the “Home Price” blank on the “New Mortgage” side of the calculator. Your realtor can also help you with transaction costs, property taxes and other blanks on the right – in addition to providing an estimate of your home’s current value on the left.
If, having answered these 8 questions, you decide to remodel, consider these two pieces of advice.
Tip 1: Invest in good design
I’m never surprised when homeowners on HGTV’s Love It or List It choose Hillary’s artful remodels over moving to houses that may be bigger but lack personality and charm. Good or great design provides daily pleasure, ease and well-being to you and your family, and can attract multiple offers when you’re ready to sell.
Design services come in 3 main forms. The traditional model is a full-service architect or designer who crafts the entire plan, solicits bids, and oversees the work of a contractor or contractors. You can also hire design services a la carte for key aspects of the overall plan. A third and increasingly popular option is a design-and-build firm. For example, local success story Neil Kelly is #3 on Remodeling magazine’s list of the biggest firms in the country. Click here for a good overview of the 3 options and the pros and cons of each.
Tip 2: Remodel for spaciousness (not necessarily space), more natural light and a better connection to the outdoors
Even a small house can feel spacious – and provide pleasure, comfort and well-being – with an open plan layout, lots of natural light, and a strong connection to a well-tended garden or view. In fact, realtor.com has assembled a trove of national data on home features linked to the highest rates of appreciation. Homes with open plan layouts and patios top the list, with average annual appreciation of 7.4 and 6.8 percent respectively.
Not surprisingly – since they typically have open plan layouts, large windows or glass walls, and strong connections to the outdoors – modern or contemporary style homes appreciate the fastest at 7.7 percent.
And supporting the idea that spaciousness rather than space is key, realtor.com’s research shows that smaller homes with fewer bedrooms appreciate faster than larger homes with more bedrooms – by a factor of 2 at opposite ends of the spectrum.