Worried Sellers Splurge on Home Renovations
By June Fletcher
From The Wall Street Journal Online
Christina Lee just spent $150,000 to remodel her house -- for a stranger.
Ms. Lee has lived in her 19th century New York City brownstone for nearly three decades and in that time did just one major upgrade -- a $25,000 makeover of a kitchen 13 years ago. Now, the attorney wants to relocate her law practice to Seattle and sell her place -- which she bought in the Hamilton Heights neighborhood of northern Manhattan back in 1979 for $70,000. So for the past few months, the 4,400-square-foot house has been a frenzy of contractors, who have refinished floors and woodwork, overhauled her second kitchen, changed two bedrooms into sunrooms and redone a bath, complete with vessel sink, new shower and recessed lighting.
The modernistic redo doesn't quite match her own taste. But it did mimic the décor in newspaper real-estate sections. Ms. Lee says she hopes it will cement a quick sale when she puts her house on the market at "something north" of $2 million. "If I didn't do this, I wouldn't get my best price," she says.
Add another hassle to the headache of home selling: the last-minute renovation. With the housing market continuing to weaken, many sellers are going beyond the usual cleaning, painting and "staging" with flowers and pillows, by taking on big-ticket projects.
Payback Time
Selected remodeling projects with average estimated percentage of costs recovered when home is sold.
Some experts warn that sellers are unlikely to get their money back from extensive renovations. But owners often feel they have no choice if they want to sell, especially when builders of newly constructed homes are throwing in hardwood floors, finished basements and other free upgrades.
"There's so much competition, you need to stand out," says Brian Goe, a waterproofing-company owner. He spent $28,000 to upgrade a Bedminster, N.J., house that he bought in 1987 for $187,000. Before it hit the market a couple of weeks ago, Mr. Goe had contractors add pickled oak flooring to the dining room and new carpeting. They installed skylights in the living room, new stainless-steel kitchen appliances and separate sinks in the master bath. He had the interior walls painted in faux finishes.
Such are the decisions homeowners make in a market where the news, for sellers, goes from bad to worse. According to the National Association of Realtors, the pace of sales of existing homes fell 22% in December compared with a year earlier. The median price fell 6% to $208,400.
The depressed market is hurting remodeling overall. Homeowner spending is expected to fall at an annual rate of 2.6% through the third quarter this year, according to Harvard University's Joint Center for Housing Studies. The center doesn't break out separate home-improvement spending by owners preparing to sell. But Kermit Baker, director of the center's Remodeling Futures Program, says, "I suspect that there is a fair amount of this happening, given the softness in the housing market."
An online poll of 445 contractors conducted last week for The Wall Street Journal by ServiceMagic, a national contractor-referral service in Golden, Colo., indicates last-minute renovating is propping up a sizable chunk of the remodeling industry. According to the poll, 26% of contractors said they had been contacted in the past year by prospective home sellers looking to do substantial work. Of those contractors, 48% said such work had boosted their business by 20% or more.
Extensive presale remodeling is often fraught with conflicted decisions, because homeowners are making aesthetic choices they hope will please people they don't know. Tracey Born Fitzgerald, a marketing consultant, recently spent weeks visiting 20 open houses, buttonholing real-estate agents and watching makeover shows on TV to figure out what to do to the 1930s Los Angeles house that she and her two sisters inherited from their mother. She discovered that it wasn't important to install top-of-the line appliances. Instead, she put in good-quality, matching appliances and new countertops -- she had them tiled in seafoam green -- and replaced cabinet fronts, carpeting, doors, faucets, fixtures and lighting in a traditional style that didn't clash with the English Tudor home. All these upgrades cost her $55,000.
Ms. Fitzgerald says it was essential to let go of her personal preferences for the house, which she is planning to list "in the upper $3 million range." "I had to think, if I were a buyer, what would I want?" she says.
No matter what the upgrade, homeowners aren't likely to recoup all the money spent when they sell. According to Remodeling magazine's annual Cost Versus Value Survey, the overall return for remodeling projects is on the decline, falling to an average of 70% in 2007 from 86.7% at the market peak in 2005.
For a project using midrange products, the best returns come from putting on a new deck, replacing the siding and sprucing up the kitchen; the lowest returns come from remodeling a home office, adding a sunroom or putting in a backup power generator.
Tricia Sinn, a Ladue, Mo., remodeler who recently oversaw a seller's $24,000 last-minute redo, says rather than splurge on major upgrades, it is often better to remove aging window treatments and other dated features and to selectively replace worn and "icky" items, such as countertops, shower doors and hardware. "A comprehensive, clean look is better than one newly renovated area," she says. The house she worked on sold at the first open house for $645,000 -- $4,900 less than the asking price.
Some sellers aren't worried about recouping what they've spent. Carl Frederick, a landscape-lighting company executive, spent $23,000 preparing to sell his four-bedroom Boston Heights, Ohio, home. It was only nine years old, but Mr. Frederick replaced laminated countertops with granite, installed new sinks with brushed-nickel faucets, replaced light fixtures -- and put the house on the market in April for $879,000.
Several contracts fell through before it finally sold for $775,000. Mr. Frederick paid $700,000 for the house five years ago -- leaving him with little profit after the agent's fees and closing costs. But he has no regrets. "At the end of the day, I sold the house," he says.
Payback Time
Selected remodeling projects with average estimated percentage of costs recovered when home is sold.
PROJECT ...............COST.........AMOUNT .......................................................................RECOUPED
Deck addition (wood)
Build a 16-by-20-foot
deck, including a built-in
bench, planter, stairs
and rail system...............$10,347........85.4%
Siding replacement
Replace 1,250 square
feet with new vinyl
siding, including trim.......$9,910.........83.2%
Minor kitchen
remodel Includes new
laminated countertops
and fronts for 30 linear
feet of cabinetry, oven,
cooktop, sink and
faucet, flooring................$21,185..........83%
Window replacement
-- wood Replace 10
3-by-5-foot double-hung
windows with new
insulated windows............$11,384..........81.2%
Bathroom remodel
Includes new tub and
tiling, solid-surface
counter and sink,
recessed medicine
cabinet, vinyl wallpaper....$15,789.........78.3%
Basement remodel
Includes a 5-by-8-foot
bathroom and a wet bar
with under-counter
refrigerator........................$59,435.........75.1%
Two-story addition
A 24-by-16-foot wing
including family room
with prefabricated
fireplace and a bedroom
with full bath......................$139,297.........73.9%
Master suite addition
A 24-by-16-foot
bedroom with walk-in
closet and bathroom
with shower and raised
whirlpool tub......................$98,863............69%
Sunroom addition
Build a 200-square-foot
room with 10 large
skylights, casement
windows with movable
shades and quarry tile
floor...................................$69,817.............59.1%
Home office remodel
Convert a 12-by-12-foot
room with custom
cabinetry including 20
linear feet of laminated
desktop, computer
workstation, wall
storage and rewiring for
computer, telephone
and other electronics...........$27,193............57%
Source: Remodeling 2007 Cost vs. Value Report. Cost data from HomeTech Information Systems; includes labor. Recoup values are based on a 2007 survey of 2,700 members of the National Association of Realtors. Data for 60 cities can be downloaded free from www.costvsvalue.com
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