Spring Real Estate 2005

Publication Date: Wednesday, July 20, 2005

Remodel for resale?
Think twice before making expensive changes

by Kathy Schrenk

Every homeowner has remodeling dreams. It could be something small, like new fixtures for the bathroom. Or something bigger, such as new kitchen cabinets and appliances. Or a complete tear-down and rebuild.

But should homeowners renovate to appeal to a mass market in resale? Or should they make their remodeling decisions based on what works for them?

A study published last year in Realtor Magazine shows that the costs of some remodels increase a home's resale value, while others should be done based on a family's long-term needs.

One of the most popular types of revamps -- a kitchen remodel -- is a losing proposition when looked at strictly from a resale point of view. In the Bay Area, only 83.4 percent of remodel costs will be recouped if the house is sold right after the remodel, the study says. A master bedroom suite addition is better, but still a loss, with a 94.9 percent return rate.

The magazine calculates its cost versus value data for more than 30 cities across the country, and has performed the study for the past seven years.

Frank Hmelar puts some finishing touches on an Eichler that was remodeled for resale.

It's never a good idea to do a major remodel shortly before selling a house, said Kathy Krize, a real estate agent with Coldwell Banker in Menlo Park. Instead, make small, inexpensive changes, she said. "Don't put a lot of money into an expensive remodel. You can make a lot of improvements to your home that will improve the appeal of your house without spending a fortune."

Krize and her husband recently decided to remodel their kitchen. At first, they planned to gut the room and even remove a wall. But the bids they got were "ridiculous," she said. Instead of the total remodel, they painted the cabinets, put in new countertops, updated the backsplash and installed new windows.

"It changed the look completely," she said. "Everybody remarks about how great it looks, and instead of spending $100,000, we spent $20,000."

By replacing walls and floors -- and plunking down about $175,000 in fix-up costs -- this Eichlerís value went up by about $350,000,

Buyers tend to be most concerned with the kitchens and bathrooms in the houses they look at, Krize said. But the most involved change she recommends before sale is replacing outdated faucets or light fixtures.

Rather than a big structural change, a seller should make sure the house is clean and appears bright. "The things that are going to make the biggest difference are clean (or new) carpets, cleaned windows and fresh paint," she said.

As Krize experienced first hand, kitchen remodels can be incredibly expensive, and don't always pay for themselves in resale. Bathrooms are a different story. According to the Realtor's Magazine report, bathroom remodel costs will be recouped 100 percent at resale. But they can earn even more than that, according to Tim Hmelar. Hmelar owns the Kitchen and Bath Company of Palo Alto and teaches an adult education class on remodeling at Palo Alto High School. He said that adding a bathroom to a three-bedroom, one-bathroom house can mean double or triple the cost of the remodel at resale.

Similarly, the return on investment from a kitchen remodel can depend on the value of the house, he said. Kitchen remodels should typically be 5 to 25 percent of the value of a house. Bathrooms should be 3 to 8 percent, he said.

Other home remodels can also bring the homeowners a net gain when it's time to sell, according to the Realtors Magazine report. Adding a deck will earn 138.1 percent at resale. Replacing the roof brings 134.7 percent. Putting a bedroom in the attic brings 133.5 percent. Replacing windows means a 132.3 percent return, and the cost of adding a family room will be recouped by the seller to the tune of 124.9 percent.

But if one of those bigger remodels isn't in the cards, minor changes can make a difference. Experts like Kirze and agent Tim Foy of Midtown Realty in Palo Alto agree that small, inexpensive details can make a big difference when showing a home for sale. Stick with conservative, neutral colors, they say. If something is damaged or so out of date that it must be replaced before showing, don't spend a fortune. "A cheap countertop can be replaced" by the new owner, Foy said.

They also both cautioned against "over-remodeling" for your neighborhood, as Foy calls it. An expensive interior won't be worth the cost in an average neighborhood, Krize said. Don't let high-end details and furnishings "price your house out of its market," she said. "You don't want to be the most expensive house in the neighborhood."

Other things can hurt the resale value of your home, experts say. In the short term, make sure the house is free of clutter and the landscaping is neatly trimmed. A more long-term, but very important consideration, is the feel of the house, Foy said. He's seen people add a bedroom that can only be accessed through someone else's bedroom. "How does the house flow? Is it a logical sequence of where the rooms are? That's a really big factor when people buy a house."

If some of the bedrooms are on the first floor and the others are on the second, that might turn off some buyers, Foy said. "It separates the family."