Profitable Renovations

In a plunging housing market, renovations can make the difference between getting a great sale price or no offers at all

By doing things right, you may be as successful as Donald and Christine Harvey. The Fairfax, Virginia, couple — she’s a stay-at-home mom to 6-year-old Michael, and he’s a vice president with a large staffing firm — loved their location but weren’t crazy about the builder’s grade fixtures in the home they bought for $525,000 in 1999. So at the end of 2005, they gutted the place and created their dream home. Today, the Harveys live in a five-bedroom, 6,500-square-foot French country-inspired manse complete with a saltwater aquarium and top-of-the-line kitchen.

The national housing market is still a risky business and will probably stay that way for a while. But the Harveys proved that through proper planning you can renovate your home to your specifications and increase its value. They created a luxurious villa that they plan to enjoy for another 10 to 15 years. “Every time we come back to the house, we go ‘Aaahh,’ ” says Christine, smiling. “We just never tire of it.”

In economics, it’s called the law of diminishing returns: The more you put into a project, the less you get back. While every home and community are unique, it’s a sound principle to keep in mind when it comes to home improvement. “The important thing is for the consumer to make sure they don’t over-improve for their area,” says NAR’s Foreman, because buyers compare sales of other homes in the neighborhood to determine a property’s fair value.

It’s usually a better investment to own the least expensive home in a great community than the priciest. “You never want to have the most expensive house around, a $2 million home in a $1 million neighborhood,” says Foreman.

So what should you do? Target your renovations to meet local expectations. Some buyers might expect hardwood floors, but you don’t need to buy wide-plank Brazilian cherrywood. Imported Italian granite in the kitchen is lovely, but it might be overkill if a decent acrylic surface countertop would do the trick.

Spending no more than 25% to 30% of your home’s value on renovations is a rule of thumb, according to John Frazier Sr., owner of John F. Design and Remodel in Portland, Oregon. That means that a tricked-out, $250,000 kitchen may make sense in a $900,000-plus home since it would likely push the selling price into the million-dollar range. But “you never want to put a $250,000 kitchen in a $100,000 house,” advises Tamara Ruffin-Walker, a senior associate vice president with Bethesda, Maryland-based Case Design/Remodeling Inc., the nation’s largest full-service remodeling firm with franchises nationwide. “You should keep with the style and scale of other homes in the neighborhood.”

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  • Laurent

    Nice to know that when Christine Harvey’s bakery went bankrupt and stole my money with goods paid for and not delivered, that my stolen money in her LLC paid for her fancy kitchen. Maybe you should do a follow-up story.