Thinking about buying your first home, or perhaps upgrading from your current place? Thanks to the current economic climate and game-changing technology in the housing market, now is the perfect time to take the plunge. Low interest rates Lenders are giving buyers mortgage rates that are extremely enticing—you can get a mortgage below 4.0%. There’s a good chance these are the lowest mortgage rates we’ll see in a long time, which means affordability is at a high. Prices are on their way up Mortgage rates may be low, but housing prices are getting higher and higher because of demand—prices increased 5.1% year-over-year in November 2015. If you’re thinking about buying, delaying a few years could lead to a higher purchase price, or getting less home for your money. A great job market The United States added 2.65 million jobs in the last year. There’s increasing job security and available work, leading to high consumer confidence. Technology makes buying simpler and less expensive Along with listing websites like Zillow and Trulia, there are an increasing number of websites and apps that simplify the process, make it easier to shop around for homes and mortgages, and save you money. Cheap fuel Lower gas and energy prices mean more money in your pocket and more purchasing power. The money you’re not putting into your gas tank or toward your utilities can instead go toward saving for a down payment or affording a bigger monthly mortgage payment.
8 Ways Your Kitchen Renovations Could Break Your Budget
When you begin planning a kitchen renovation project, you may have no idea how much your ideal vision might cost. The answer will likely depend on several factors, including the size of your space, what you will do to it, and your budget. In the end, the price of a renovation should largely be driven by your own choices.
That said, there are some common reasons kitchen renovations go over the original budget. We asked three kitchen designersto tell us what they most commonly see.
Kitchen Reno 1: Original chart on Houzz
The No. 1 reason that renovation projects (all projects, not just kitchens) go over budget is owners choosing more upscale products and finishes, according to a recent survey of 120,000 registered Houzz users, including 70,000 who renovated in 2015. Nearly half of those who went over their budget cited this as a reason.
About 40 percent of those who busted their budgets said finding out that products or services were more expensive than anticipated was the culprit, according to the survey. Given that this was a such common experience, we’d like to flag some areas where costs can rack up quickly.
Kitchen Reno 2: Santarossa Mosaic & Tile Co Inc, original photo on Houzz
1. Custom cabinetry. Cabinet costs range widely, largely depending on whether they come from a big-box store or are semi-custom or custom-made. Stock cabinets typically cost $50 per linear foot, while custom cabinetry can run up to $2,000 per linear foot.
The key is to know how much the designs you want might cost before you actually start to renovate. Keep in mind that specialty and custom items usually cost more. For example, it may look beautiful to stretch your upper cabinets to 12 feet to balance out high ceilings. But with this design, “you’ve almost quadrupled the cost because your standard cabinet doesn’t go to 12 feet. Now you’re doing super-custom cabinets,” says Tanner Luster, owner of Luster Custom Homes & Remodeling in Scottsdale, Arizona. Ask your architect, designer or general contractor to advise you on the costs of various options early. If you’re acting as your own general contractor and hiring individual tradespeople directly, you can discuss cost upfront with them before you finalize your plan.
2. Special features. In addition to the external features of cabinets, the innards can increase the cost. Examples of nice-to-have but pricey cabinetry add-ons include a magic corner, where pullout shelves provide access to a hidden portion of a cabinet that you otherwise couldn’t reach, a knife drawer, or spice or wine racks. “There are so many things you can add to cabinetry. You can add $10,000 or $15,000,” says Matthew Ferrarini of Ferrarini Kitchens, Baths & Interiors in Philadelphia. “Before you know it, your cabinetry costs significantly higher than you want.”
Before committing to a special feature, you may want to consider how much you’ll really use it. That way, you can determine if the added functionality is worth the cost to you.
Kitchen Reno 3: Echelon Custom Homes, original photo on Houzz
3. Countertops. The cost for countertops ranges widely. Plastic laminate countertops are relatively affordable at $8 to $20 per square foot. Quartz and granite typically run much higher, anywhere from $50 to $120 per square foot. “If you haven’t purchased a countertop in 20 years and you go from a laminate to a Cambria or a quartz or a granite,” be sure you look into the cost of the various options, advises Judy Kimble, marketing manager at Gerhard’s Kitchen & Bath Store in Madison, Wisconsin.
4. Appliances. Appliances also range widely in cost, from under $1,000 to several thousand, depending on the make, model and features. Luxury appliances like Wolf and Sub-Zero are priced on the higher end of the range, and brands like GE are more budget. A Sub-Zero refrigerator could cost upward of $7,500, while a basic GE model from Sears could cost under $500. A Miele gas range could run $7,000, and a premium 60-inch model from La Cornue more than twice that. An Asko dishwashercould cost more than $1,000, whereas some LG models sell at just $450.
These prices are examples and not meant to be all-encompassing; the point is that appliances have a huge range. “A Viking range versus a GE Profile could be a $10,000 to $15,000 difference,” Ferrarini says. Kimble, the Wisconsin kitchen store manager who appreciates luxury appliances, says she was once quoted $38,000 for an entire kitchen suite. Do your research and find out what you get for the various cost ranges so that you can determine if the price of the features is worth the expense for your family.
Kitchen Reno 4: Before Photo, original photo on Houzz
Hidden Costs That Can’t Be Avoided
Beyond the costs that the owner controls by selecting finishes and materials are the costs resulting from structural problems that simply must be resolved.
5. Unforeseen structural issues. You might open a wall and find that termites have eaten half the studs. Perhaps once the kitchen flooring is removed, you find that an undetected water leak has rotted the subfloor and floor joists. Or, as shown in this picture from a real Houzzer’s kitchen renovation project, you might discover a faulty ceiling. “Our only unexpected expense was when the kitchen ceiling partially collapsed while our contractor was cutting holes for the can lights,” writes Houzzer Susan Hofer. “Bought the house new 37 years ago and the collapse exposed some very poor construction.”
Such unforeseen issues are good incentives to do pre-project due diligence. Even so, not every problem can be caught ahead of time. Many designers recommend reserving a 20 percent contingency in your kitchen renovation budget for unexpected surprises.
6. Code compliance. Pete Gersdorf, owner of Aim Kitchen and Bath in Des Moines, Iowa, has faced code issues on some kitchen remodels. For example, when a new gas range is a high-BTU unit, a larger gas pipe may need to be installed — which entails opening up the wall and replacing the pipe. He has seen plumbing vent issues when the original sink plumbing was not correctly installed. “We [have] also found ceiling joists or floor joists not built correctly and had to replace them to meet current standards and or codes,” Gersdorf says.
Kitchen Reno 5: Studio William Hefner, original photo on Houzz
Let’s Just Call It ‘Bloat’
The final category of reasons that kitchen renovations go over budget is basically entirely within your control.
7. Changing your mind. For your contractor to accurately predict the project cost, it’s a good idea to select all your finishes before the construction work starts. “If you haven’t picked them out, invariably it will be more money. Two, it will take more time. And three, it will mess up the schedule — which will also cost more money,” says Anne Higuera, co-owner of Ventana Construction in Seattle, which has worked with more than 250 clients since 2003.
Changing finishes or materials mid-project typically results in a change order, which can slow the timeline and increase the cost. “It might be a configuration of an island countertop we have decided on; they may not like it and want to change it,” says Gersdorf, the kitchen builder in Iowa. “Those things will definitely add to the cost.”
Even when they know making a change will add to the cost, some homeowners will still want to change the plans midway. In fact, this was the third most common reason kitchen budgets got blown, according to the survey of registered Houzzers.
8. Mission creep. This is the term for what happens when your kitchen renovation is looking amazing … and suddenly you decide you want to also redo the trim on the living room and dining room, and put in all new doors. “Suddenly your mission has expanded a little bit,” Gersdorf says. “That’s probably the No. 1 place where we see their budget get blown out more.”
Kitchen Reno 6: Original chart on Houzz
What Does a Typical Kitchen Renovation Cost, Anyway?
While it’s helpful to know some common reasons why kitchen renovation budgets expand, it could also be useful to know how much kitchen renovations typically cost. According to a Houzz survey of nearly 2,500 homeowners who were renovating or had recently renovated their kitchens, about one-third of owners spent between $25,000 and $50,000. Another one-third spent more than $50,000. These are national averages. The cost for you will depend on costs in your area. Typically costs on the coasts are more expensive than in the middle part of the country.
Costs also depend on the type of project, as well as the size of the room. A major kitchen overhaul, which includes at least replacing all the cabinets and appliances, costs about three times as much as a minor, or more superficial, kitchen renovation.
Kitchen Reno 7: Original chart on Houzz
How Often Do Renovation Budgets Get Blown?
Finally, a note about renovation budgeting. If you stay on budget, you will fall among the approximately one-third of Houzzers surveyed who renovated last year (all projects, not just kitchens) who also did. A little less than one-third exceeded their budget. Just 3 percent came in under budget.
Pricing a home for sale is not nearly as simple as most people think. You can’t base the price on what the house down the street sold for. You can’t depend on tax assessments. Even automatic valuation methods (AVMs), while useful for a rough estimate of value, are unreliable for purposes of pricing a home for sale.
AVMs, like those used by Zillow and Eppraisal, have been used for many years by banks for appraisal purposes. They are derived from algorithms based on past sales. But producers of AVMs agree that they are not accurate indicators of home value. For example, Zillow.com states, “Our data sources may be incomplete or incorrect; also, we have not physically inspected a specific home. Remember, the Zestimate is a starting point and does not consider all the market intricacies that can determine the actual price a house will sell for. It is not an appraisal.”
So what does Zillow recommend sellers do instead? The same thing the real estate industry has been advising for decades: Ask a real estate agent who knows your neighborhood to provide you with a comparative market analysis. To accomplish that, I typically consider the following factors—plus others, depending on the house:
The location of your home will have the biggest impact on how much it can sell for. Identical homes located just blocks apart can fetch significantly different prices based on location-specific conditions unique to each, including: traffic, freeway-access, noise, crime, sun exposure, views, parking, neighboring homes, vacant lots, foreclosures, the number of surrounding rentals, access to quality schools, parks, shops, restaurants and more.
Recommendation: Be willing to price your house for less if it’s located in a less desirable area or near a neighborhood nuisance.
Another major factor that also can’t be controlled is your local housing market (which could be quite different from the national, state or city housing markets). If there are few other homes on the market in your local area (a situation known as a “sellers market”), you may be able to set a higher price. However, if there’s a surplus of homes like yours for sale (a “buyer’s market”), your pricing will also reflect that.
Recommendation: If it’s a buyer’s market and you can delay selling your home until things change, you should consider doing so. If you can’t wait, be willing to price your home extremely competitively, especially if you are in a hurry to sell.
The majority of buyers are not looking to purchase fixer-uppers, which is why any deferred maintenance and repair issues can also significantly impact the selling price of your home. When your home’s condition is different than the average condition of homes in your location, AVMs tend to produce the widest range of error.
Recommendation: Hire a professional home inspector to provide you with a full, written report of everything that needs upgrading, maintenance or repair, then work with your real estate agent to prioritize the list and decide what items are worth completing before the property is listed for sale, and what should be addressed through a lower list price. Also, some defects are best addressed during negotiations with buyers.
If you want to sell your home quickly and for the most money, you have to make it as appealing as possible to the largest pool of prospective buyers. The more universally attractive it is, the greater the interest and the faster competing offers will come.
Hire a professional home stager (not a decorator) to temporarily stage the interior of your home. Also spend time making the exterior look its best: address any peeling paint, make sure the front door/ door hardware is attractive, prune bushes and trees, remove old play equipment and outdoor structures, etc.
The only neighboring homes that should be used to estimate the value of your home are those that have been carefully selected by a real estate professional with special training, access to all sales records, and in-depth knowledge of the neighborhood.
Recommendation: If you’re considering selling your home, ask your real estate agent to recommend a professional appraiser.
When working with a prospective buyer, most real estate agents will search the available inventory only for the homes priced at (or less than) their client’s maximum, which is typically a round number. If you home is priced slightly above or below that amount (e.g., $510,000 or $495,000), it will appear in fewer buyer searches.
Recommendation: Be willing to adjust your selling price to maximize visibility.
Periodic price adjustments
Pricing a home isn’t a set-it-and-forget-it proposal. As with any strategy, you need to be prepared to adapt to fast-changing market conditions, new competition, a lack of offers and other outside factors.
Recommendation: After listing your house, be ready to adjust your asking price, if necessary.
According to two recent surveys that took industry watchers by surprise, many family homeowners are putting frugality aside and upsizing to new houses that average as large as 2,480 square feet (an increase of as much as 13 percent from the year before), and sometimes exceed 3,500 square feet in size.
Meanwhile, millions of baby boomer homeowners are rushing to downsize—with some 40 percent of Americans between the ages of 50 and 64 saying they’re planning to make a move within the next five years.
It’s a tale of two very different segments of the population making dramatic shifts in their living accommodations to find the housing solutions that best suit their needs: one upsizing while the other downsizes.
With so many baby boomers now nearing retirement age (8,000 Americans turn 65 every day), it should come as no surprise that the number of prospective “downsizers” exceed the number of “upsizers” by three to one. With their children gone, these aging homeowners are interested in reducing the amount of house they need to care for, and are eager to bulk up their retirement savings with any home-sale profits.
As for why many families are choosing to upsize so substantially after years of downsizing or staying put, experts point to the extremely low interest rates and discounted home prices available today, and theorize that many families now feel confident enough about the economy to move out of homes they outgrew years ago.
If you’re considering upsizing or downsizing, here are some facts to consider:
How such a move can impact your life
The most common benefits of downsizing:
- Lower mortgage payments
- Lower tax bills
- Lower utility bills
- Less maintenance (and lower maintenance expenses)
- More time/money for travel, hobbies, etc.
- More money to put toward retirement, debts, etc. (the profits from selling your current home)
The most common benefits of upsizing
- More living space
- More storage space
- More yard/garden space
- More room for entertaining/hosting friends and family
- Upsizing will likely increase your living expenses, so it’s important to factor into any financial forecasts
- Downsizing will require that you make some hard choices about what belongings will need to be stored or sold
Other impacts to consider:
- The loss of good neighbors
- Lifestyle changes (walking, neighborhood shopping, etc.)
- The effect on your work commute
- Public transit options
Buy first, or sell first?
Homeowners considering this transition almost always have the same initial question: “Should I buy the new home now, or wait and sell my current place first?” The answer is dependent on your personal circumstances. However, experts generally recommend selling first.
Selling your current home before buying a new one could mean you have to move to temporary quarters for some period of time—or rush to buy a new home. That could prove stressful and upsetting. However, if you instead buy first, you could be stuck with two mortgages, plus double property tax and insurance payments, which could quickly add up to lasting financial troubles.
If you need to sell in order to qualify for a loan, there’s no choice: You’ll have to sell first.
You could make the purchase of the new house contingent on selling your current home. However, this approach can put you in a weak bargaining position with the seller (if you can even find a seller willing to seriously consider a contingency offer). Plus, you may be forced to accept a low-ball offer for your current house in order to sell it in time to meet the contingency agreement timing.
The truth is, most home sales tend to take longer than the owners imagine, so it’s almost always best to finalize the sale, and do whatever is necessary to reap the biggest profit, before embarking on the purchase of your new home.
When to make the transition
Ideally, when you’re selling your home, you want to wait until the demand from potential buyers is high (to maximize your selling price). But in this case, because you’re also buying, you’ll also want to take advantage of any discounted interest rates and reduced home prices (both of which will fade away as the demand for homes grows).
How will you know when the timing is right to both sell and buy? Ask an industry expert: your real estate agent. As someone who has their finger on the pulse of the housing market every day, they can help you evaluate the current market and try to predict what changes could be coming in the near future.
Even if you’ve been through it before, the act of upsizing or downsizing can be complex. For tips, as well as answers to any questions, contact a Windermere agent any time.