Don’t Renovate and Sell!

home renovationsHomeowners often consider making renovations before selling. They believe the increased value of their home will exceed the cost of renovation. Unfortunately, this is often not the case. For every dollar you spend on renovations, you generally recoup less than a dollar back.  See the annual report in Remodeling magazine, which compiles statistics on the cost recouped of most remodeling projects.

Based on surveys of thousands of real estate professionals, Remodeling magazine concludes that the highest return projects are around 70%, while the lowest are in the neighborhood of 40%. The magazine sends out surveys to thousands of real estate professionals across the country essentially asking for their experience and opinions. The conclusions can’t be scientifically proven, but as the costs of construction are fairly easy to determine there is no reason to doubt the survey’s construction figures. However, I wouldn’t rely too heavily on the specifics of cost recoupment figures. I have seen the surveys they send out and there is simply no way to compile figures in any truly scientific way. Who really knows how much a particular home would have sold for if the kitchen hadn’t been renovated?? Rather, the opinions of thousands of real estate agents, appraisers and other real estate professionals are probably fairly accurate in a general sense. They should be used as a general guide as to which projects result in higher or lower cost recoupment, and very approximately what to expect.

Interestingly, according to the study, renovated kitchens and baths recoup somewhere around 55-65% versus other projects that return more. Common real estate wisdom says that kitchens and bathrooms sell homes. So what’s going on? The answer to this conundrum is that nice kitchens and baths make homes appeal to more people and easier to sell, but are just not valuable enough to recoup the initial investment.

The value proposition of renovating your kitchen and baths looks much better when you do the renovations a few years before you sell your home. You also get the chance to actually enjoy the renovations. Most real estate agents consider kitchens and baths fairly new up to around 3 years after renovation. For example, you spend $50,000 on a new kitchen and enjoy it for 3 years. You then recoup 65% of the cost at sale, so the renovations cost you about $17,500 and help sell your home.

In real life, it may be difficult to plan ahead. However, if you are considering making improvements to your home, considering recoupment values may help you determine what renovations make the most sense in the long term. After making improvements, I often hear sellers say, “Wow, I should have done this earlier.”

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What is ENERGY STAR?

Energy-StarENERGY STAR is a joint program of the U.S. Environmental Protection Agency (EPA) and the U.S. Department of Energy designed to help consumers save money, and protect the environment through energy-efficient products and practices.

In 1992, the (EPA) introduced ENERGY STAR as a voluntary labeling program designed to identify and promote energy-efficient products to reduce greenhouse gas emissions. Computers and monitors were the first labeled products. By 1995, the EPA had expanded the label to residential heating and cooling equipment. The ENERGY STAR label is now on major appliances, lighting, home electronics, and has been expanded to cover new homes and commercial and industrial buildings.

Whole Home ENERGY STAR Rating

For an entire home to be labeled ENERGY STAR, it must be built by an ENERGY STAR builder-partner to meet strict guidelines for energy efficiency set by the U.S. Environmental Protection Agency. These homes are at least 15% more energy efficient than homes built to the 2004 International Residential Code (IRC), and include additional energy-saving features that typically make them 20–30% more efficient than standard homes.

The ENERGY STAR label is rapidly becoming more of a selling feature. Home buyers are now very conscious of a potential home’s energy efficiency. The Multiple Listing Service has specific sections where ENERGY STAR rated systems and appliances can be highlighted so that buyers can easily determine if there is ENERGY STAR rated equipment in the home they are considering. However, as the whole-house Energy Star rating is fairly new, it doesn’t yet appear often.  As more and more homes get the designation, you will see it more often and consumers will look for the whole home rating.

The ‘No Cost Energy Assessment’ & Benefits

Locally, the ENERGY STAR program is partnered with a program called Mass Save. This initiative is sponsored by several local energy companies and administered by a company called Conservation Services Group. Through Mass Save you can schedule a no-cost “Energy Assessment” on your home or even your rental property. Depending on the results, homeowners are then eligible for an instant rebate of up to $2,000 for 75% of the cost of installing insulation, and a zero percent interest loan on new heating equipment. The website also contains a wealth of information on saving energy as well as information like current tax credits available for energy efficient home improvements.

As energy costs continue to rise, taking advantage of the Mass Save program, and looking for ENERGY STAR rated appliances will not only benefit you in the short term, but add value to your home when it comes time to sell.

Resources:  www.masssave.com, www.energystar.gov

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A Different Type Of Tear-Down: Court Orders Million Dollar Marblehead Manse Demolished For Zoning Violation

One Very Expensive Lesson

This is a human interest story that contains a good reminder for those of us who often believe that when it comes to dealing with certain authorities, it is better to ask for forgiveness than permission. In this case, that strategy proved disasterous. I have posted it here courtesy of Attorney Marc Canner’s and Attorney Rich Vestein’s Massachusetts Real Estate Law Blog.

marblehead-home-teardownAfter a 16 year long saga, wealthy Marblehead mansion owner Wayne Johnson’s battle to save his house from a court-ordered wrecking ball has come to an end. The underlying legal saga is convoluted and complicated, but the end result was swift and destructive — the million dollar mansion is now rubble.

Johnson’s battle started in 1995 when he recorded a plan dividing his land into two lots. One lot contained an existing single-family dwelling. The second lot contained a garage.johnson-tear-down The house lot complied with all zoning dimensional requirements, but the garage lot didn’t comply with lot width requirements. The Building Inspector incorrectly determined that the garage lot complied with all applicable zoning requirements.

Johnson’s neighbors appealed the Building Inspector’s decision, arguing that the new house would greatly diminish their valuable ocean views. The local zoning board allowed the issuance of a building permit. After the building permit issued, the plaintiffs filed an appeal in Land Court and asked for an injunction to prevent construction on the garage lot. The Land Court judge warned Johnson that proceeding with construction was at his peril. In a decision by another judge in May, 2000, the court ordered the building permit to be revoked. However, the court ruled that the house could remain in place while Johnson attempted to obtain appropriate zoning relief.

Johnson, however, was unable to obtain zoning relief. After several unsuccessful appeals, the Land Court ordered Johnson to remove the house by October 4, 2010. Johnson failed to comply with that order, and the neighbors attempted to hold Johnson in contempt. With the threat of contempt and possible jail looming, Johnson finally threw in the towel.

The Land Court ruling can be read here:
Schey v. Johnson

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Is Your Painter Lead-Paint Certified?

Lead Paint RegulationsOn April 22, 2010 Massachusetts adopted a lead paint law that  likely affects you if you own a house built before 1978. Previously, you could hire anyone,  to paint anything  in your house. Not anymore.  The “Renovating, Repair and Painting Rule” (RRP) requires that for home improvement projects that will “disturb” more than 6 interior square feet of paint or 20 exterior square feet of paint, your painter must be certified by the EPA.  The only exceptions* to this rule are if:

  1. Your house was built after 1978
  2. The house or “components” of the house have been tested as lead free by a Certified Risk Assessor, Lead Inspector, or Certified Renovator
  3. You do the renovations yourself.

Fortunately, professional painters can become certified relatively easily by taking a one day course and paying a fee of $375. Painters who are not certified face fines of up to $5,000, license suspension and can be subject to a “cease work” order by any number of public health agencies, including  possibly, the local building inspector. The “cease work” order/penalty is the major risk to a homeowner. There is no provision in the law for any other type of penalty against a homeowner.

Initially, a Boston Globe article reported that there were concerns that the certification requirement would make hiring a painter more expensive.  However, almost 2 years after the law went into effect, I couldn’t find any evidence of increases in the cost of hiring a painter. Although the time and expense of obtaining certification are relatively minor, there are real expenses associated with properly managing work sites that contain lead dust. Costs will likely rise, but worksites should be safer and ultimately homes will be safer as well.

If you decide to undertake a do-it-yourself renovation or painting project where there is any possibility of creating dust and you might have lead paint, I highly recommend you  learn how to properly handle and contain the dust from your project. Most of it is common sense and merely requires a high level of preparation and care. A good resource is the Renovate Right pamphlet that lead-certified contractors are required to provide to consumers.

The laws around lead paint are extensive here in Massachusetts. If you have information or expertise you would like to share, please comment, or contact me.

Other helpful resources are:

*The question arises that if you hire a general contractor who is lead-paint certified, and he sub-contracts out the painting work, do those painters have to be certified? The answer is complicated. There are rules about who has to be certified on a job site, and when a “non-certified” painter can be on the job under the supervision of someone who is certified. As a general rule, if you are hiring a general contractor make sure he really understands the lead laws and fully intends to follow them.

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Please Don’t Make These Mistakes…

Someday, somewhere, you will probably have to do some work in your home.  If you remember just a few brief words of advice, your home will be just that much nicer for both you and anyone else who may ever live there.

Early in my real estate career, a very wise and experienced real estate professional told me that when you are doing a renovation you ought to spend as much as you can on the parts of the house you physically interact with the most. He was referring to the things you actually touch like door handles, faucets and railings. However, much to my chagrin, many builders seem to subscribe to the opposite philosophy – put in the cheapest and ugliest fixtures you can find.

My number one pet peeve here is the Symmons brand ‘shower exchanger’. This is the device that diverts the water in your tub/shower combination to either the tub or the shower. I am sure you have seen it a thousand times. If you own one, please don’t be offended. I am the proud owner of several of these in my rental properties, although I didn’t install them.

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It is actually fairly solid and reliable. If you are renovating a rental property and you really don’t want to have to worry about having to replace it for a long time, it might not be a crime to put it in. At about $112 for the whole set (valve and trim kit) it is inexpensive. It is also, in my humble opinion, just plain ugly. For only a little bit more (about $130 – $150) you can get a high quality Kohler fixture that looks pretty good, for example:

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and

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You can find these and others at http://www.faucetdirect.com/shower-valve-trim/c241

If you are only shopping for the shower valve, you can do even better for about the same money because you won’t need a tub spout and an exchanger. This leads to my next subject – the walk-in shower versus the shower/tub combination.  I am sure my opinion on this will lead to lots of controversy and contentiousness.  You will, however, have to check back in two weeks to see what all the fuss is about.

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