Contentment is not a common commodity among homeowners. A few months after moving into their “dream” home, owners often start to tick off a wish list: Wouldn’t it be nice to have a family room? Or a newer looking kitchen? Or a bay window in the living room?
Given some stretch in the monthly budget after the mortgage and bills are paid, the question of how to fulfill those wishes inevitably arises. Would it be better to improve or to move and start anew in a place that more exactly accommodates their wishes?
Determining the right answer involves a mix of subjective and objective issues.
On the subjective side, if you decide to improve you should love both your home and your neighborhood. “If the house is just wrong and you hate it, and you live in the suburbs and you really want to live in the city, then you should move,” explains Cynthia Robb, a construction manager for Robb + Monroe, a Chicago-based architectural and construction management firm. “But if you really like where you are, there is usually a way to take care of the problem you have.”
Lincolnwood resident Robert Motel says his family of four knew they wanted to stay put in the immediate location. “The parks are good, the schools are good, the location is good and the people are nice,” he says. “We just wanted more room.”
Comparison shopping
Initially, the Motels looked at other homes in the area, “but we didn’t find any that met our needs. We could have kept waiting to find a house in Lincolnwood, but we didn’t want to wait,” Motel says. So, they added on a bathroom, family room and expanded their kitchen. While going the improvement route was a quicker way to land the house they wanted in Lincolnwood, living through the construction was a test of patience in itself. “You have to have the temperament for it, and we don’t,” Motel says.
Although Motel points out “moving is a hassle too,” another subjective consideration is whether you can weather the improvement you are planning. Extensive remodeling that involves demolition of walls and typically lasts several weeks can leave you feeling like you’re camping out. “We had no use of a kitchen for four months,” Motel recalls.
If you’ve decided that love of your home or neighborhood is enough to give remodeling a try, you’ll then have to consider objective issues, namely whether the project is feasible and whether it makes financial sense.
For one thing, zoning laws or condo rules may prohibit you from making the changes on your wish list. Initially, when you decide you want to make your wishes a reality, stop by your city hall to check out the building codes that might affect your plans, along with any possible condo or association laws.
“Owners need an up-to-date survey of their property, which many people have because they recently refinanced,” explains Richard Preves of Richard Preves & Associates, a Vernon Hills architectural firm. (If your survey is several years old or more, you simply can order a new one for about $100 from the company listed on the existing survey.) “The zoning office of the municipality can tell you what kind of front, back and side setback restrictions there are on your property,” he continues. “You simply need to draw a square around your house on the survey to get an immediate idea of how much space is available for an addition.”
Stricter codes
In recent years, Preves says, many municipalities, especially along the North Shore, have enacted stricter codes for how far homeowners can build out toward the edges of their property. Called “bulk ordinances,” Preves says the aim is “to prevent people from tearing down small houses and building big houses on blocks without other big homes.”
Because of the flurry of recently enacted bulk ordinances, Preves says, “A lot of people can’t do what they want to do in terms of additions. They have to move.” But homeowners can ask for an exception to the building codes, Preves notes, by applying for relief from their local zoning board of appeals.
And if codes do not stand in your way, the structure and condition of your home may, Preves says. Owners of ranch homes, for instance, often want to add a second story, he notes, which is feasible if the foundation is large and strong enough.
Remodeling projects that involve the demolition of walls can sometimes reveal expensive surprises, especially if the house is more than 50 years old. Then, Preves says, the electrical and plumbing systems may need an upgrade.
On the other hand, costly surprises can also arise when homeowners move. Notes Jim Pall, who recently added on to his Deerfield home: “We have been here for about 10 years, and within the last few years we have put in a new furnace and air conditioner. If we bought another house we might have to do that all over again. And we probably would end up re-carpeting and re-wallpapering, too.”
Is it cost-effective?
Indeed, Pall figures it may have been more economical to add on a master suite to his three-bedroom ranch than to move to a four-bedroom home in the area. Whether or not it makes financial sense to remodel depends on how much the project costs versus how much value it adds to your home.
“If you know what your house is worth today and you have an idea of what it will be worth after the remodeling,” explains Scott Waxman, appraiser and president of Preferred Appraisal, based in Northbrook, “and the difference between the two is less than or equal to the cost of the project, then it probably makes sense.”
If you’re going to finance the improvement with a loan, the lender will probably want to make sure the project adds value. In fact, Jerry Armellino, vice president and manager of LaSalle Talman Home Mortgage Corp.’s branch at 5501 S. Kedzie Ave., says that lenders typically hire an appraiser to study the remodeling plans that homeowners receive from their builder or architect to determine the approximate value of the home after completion of the work.
The rule of thumb is that improving your home so much that it stands out as the best on the block means that the cost of the remodeling probably won’t be recaptured in the sale of the home, at least not in the near term.
Some homeowners hold enough equity in their home to qualify for a loan that’s large enough to finance the improvement and they may not care whether they’ll recoup their investment. “I’ve seen monster-sized homes in neighborhoods where all the other homes are small,” Preves observes. “These people probably had so much equity in their home that the lender was willing to lend on that and cared only about their ability to repay the loan, not about what they did to the house.”
But when an appraiser studies the plans for the remodeling, the value he attaches to the envisioned finished product takes into account how the home will compare to others on the block and in the area. Many lenders will now lend homeowners funds totaling 90 percent of the appraised value of the completed work, Armellino says. And if you’re depending on financing to pay for the bulk of the improvement, the appraised value and the actual cost of the project must be close enough for the loan to cover the builder’s tab.
Selective upgrades
John Prufrock of the American Homeowners Foundation, a consumer advocacy group based in Arlington, Va., says that some projects like a kitchen remodeling or a bathroom addition traditionally pay back 100 percent of their cost in increased value.
Often, the payback is even greater, with a bathroom that costs $20,000 boosting the home’s value by $25,000, for example. With more exotic improvements, like a swimming pool or a darkroom, the costs may never be recouped.
That’s just the rule of thumb, however, notes Rob Rosenberg, vice president of Midland Financial Mortgage, Schaumburg. “Some people make what I call the `$10,000 gold faucet mistake,’ ” he says. Unless you live in a pricey neighborhood, Rosenberg points out, equipping a kitchen or bath with fancy gold faucets, marble counters and the like probably won’t pay off.
Of course, even if the project does pay off in a boosted home value, you will have to qualify for the larger loan. Since the last recession, more homeowners are doing improvements in phases, says David Seglin, an architect with the Chicago firm, HSP-Ltd. You might want to remodel your kitchen now, and add on another bedroom five years from now.
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Next week: The anatomy of a remodeling project.
