Small Renovations, Big Payoff
Before you give your contractor the green light to install that spare-no-expense kitchen you’ve always dreamed of, consider this: A high-end kitchen with top-of-the-line finishes might not be worth as much as you think when it comes time to sell.
Smaller projects, though, like replacing cabinet fronts in the kitchen or refinishing hardwood floors can increase your sales price significantly. Several real estate organizations have warned homeowners in recent months that not all renovations are created equal, and you can’t always count on recouping what you spend, especially if you decide to splurge.
The National Association of Realtors issued a statement at the beginning of the year saying that small and exterior-focused improvements offer better value than more ambitious renovations. Then last month, the Appraisal Institute, an association of real estate appraisers, urged homeowners to “choose upgrades instead of major remodeling projects to see the greatest potential return on investment.”
Both groups cited findings from Remodeling magazine’s 2015 Cost vs. Value Report, an annual survey comparing the cost and resale value of remodeling projects, ranging from window replacement to major additions. Top performers in this national survey included a steel replacement entry door, estimated to recoup nearly 102 percent of its cost; replacing exterior siding with stone veneer, a 92 percent return on investment; and minor kitchen remodeling that includes new cabinet fronts, laminate countertops and appliances, with a 79 percent return.
The survey also found that the more you spend on a project, the more you stand to lose. In the New York metropolitan area, the report found that a minor kitchen remodel recouped 84.2 percent of its cost, on average. But a major kitchen remodel, including new semicustom cabinets and an island, recouped only 75.8 percent. And a more upscale major kitchen remodel with custom cabinets, stone countertops and a commercial range did even worse, returning just 69.1 percent.
“The point is that the more expensive the work you do on a property, the higher the risk is that the buyer is not going to be willing to pay for it,” said Jonathan J. Miller, the president of Miller Samuel, a New York appraisal company. “If your kitchen is old and dated and you completely renovate it, you’re gambling that the buyer is going to like your taste.”
Faye Cone, an interior designer who is selling her duplex penthouse condominium at 157 East 74th Street, had gut renovated her home when she bought it in 2001. But, over time, a few problems had developed. The wood floors on the main living level had buckled. And, after she temporarily rented the place out while she was in Italy, the granite countertops had become chipped.
So she spent about $75,000 replacing the buckled wood floors with honed black granite flooring in a herringbone pattern, and installing new granite countertops with a leathered texture.“Nothing was in terrible disrepair, but my standards are really high,” Ms. Cone said. “When I was thinking about selling it, I wanted it to be perfect.”
The apartment is now on the market with an asking price of $5.3 million. Ms. Cone’s changes “helped tremendously,” said her agent, Chris Kann of Brown Harris Stevens, who shares the listing with Robby Browne. Mr. Kann estimates the improvements give the home “a 10 percent bump in pricing,” or an increase of about $500,000, compared with selling it as it was.
“Everything is perception, and people start to discount when they see something needs renovation,” he said. “When you see floors that need to be replaced or re-sanded, you start to look for other things as well.”
Nationally, projects that improve a home’s curb appeal tend to score high as well. Even though apartment owners probably won’t be doing work on the exterior of their homes, Mr. Miller suggested this is similar to thinking about an apartment’s most visible elements.
“These are just the visceral things people see,” like floors, paint, and countertops, he said. “Refinishing hardwood floors — that’s huge,” he noted, for increasing value.
Considering the short period of time buyers have to tour a property, Mr. Miller added, “it makes sense that the best returns are on things that are very visible.”
By comparison, projects involving expensive plumbing and electrical work might not do as well, because these changes remain largely hidden from view.
“A lot of these minor upgrades relate to appearance, and the first impression a buyer might get for a property,” said Michael Vargas, a principal of the Vanderbilt Appraisal Company in Manhattan. “They’re not necessarily concerned about what’s behind the wall; they’re just concerned about how the property looks.”
Using these basic principles, many New Yorkers have had success in significantly raising the resale value of their apartments.
Rakesh Raju and Mona Mehta faced a different kind of problem. Almost immediately after closing on a 695-square-foot, one-bedroom condo at 225 Rector Place for $645,000 in May 2013, they discovered they would soon be the proud parents of twins.
“At that point, we couldn’t think of it as a long-term investment anymore,” said Mr. Raju, noting that they figured their family would outgrow the apartment within a couple of years.
To help, the couple hired the designer Lenna Anna Harris, who created a custom wall storage unit that extends across the living and dining area. It includes oversize drawers along the bottom, shelving and space for a television in the center, and closed cabinetry along the top.They also had some more immediate concerns. “We needed more storage,” Mr. Raju said. “The problem we were trying to solve was how to add storage without eating up space. We wanted to do something that would be comfortable for us, but that would also be appealing to buyers — we designed for that.”
Built for about $17,000, the storage wall “is a lifesaver,” Mr. Raju said, noting that he and Ms. Mehta also added grass-cloth wall covering, which in addition to new furniture brought their total investment to about $30,000.
Their agent, Rachel Altschuler of Douglas Elliman Real Estate, said that was money well spent. “It’s hard to create storage and not make a room feel smaller,” she said, “but their designer managed to do it.” And in a space-challenged city like New York, more storage is almost universally appealing.
Ms. Altschuler plans to list the property for sale in the coming weeks, priced 5 to 10 percent higher than comparable apartments in the neighborhood.
Charles Corcoran, the president of the co-op board at 140 East 40th Street (and no relation to the Corcoran Group brokerage), has seen firsthand how relatively small improvements can generate higher profits.
When a rent-stabilized tenant in his building died, and the board began thinking about selling the studio apartment last year, it was initially unsure what to do. “It was in very poor condition,” Mr. Corcoran said. “The floors were in terrible shape. There was an open kitchen that someone had purchased in the ’60s or ’70s, and it was all broken and a mess.”
The board’s agent, Royce Berler of Citi Habitats, said she could sell the apartment as-is for about $315,000, but suggested the building could do much better by bringing it up to move-in condition. The board agreed, and spent about $13,500 to have a contractor install an Ikea kitchen, refinish the floors, restore an original casement window and bleach and re-grout the subway tiles in the bathroom.
“We turned something that had been a wreck into something quite elegant,” Mr. Corcoran said.
Ms. Berler listed the apartment last July for $349,000. “We got 10 offers within three weeks,” Mr. Corcoran said, and the unit sold in November for the full asking price.
Initially, the unit looked rundown, and “on some level, I wanted to sell it as-is, nice and simple,” Mr. Katz said.Marc Katz, an investor who owns numerous apartments with tenants in place, has had similar experiences. Last December, he sold a co-op at 9 East 96th Street after the person who had been living there died.
But he knew that a fully renovated unit in the same line of the building had recently commanded a price premium of several hundred thousand dollars, compared with un-renovated apartments.
Hoping to find some middle ground, “I figured out what a nominal renovation would cost,” Mr. Katz said. “That means making things easy on the eyes, and functional. I’m not going to do a renovation that requires knocking walls down.” He did so with guidance from his agent, Deanna Kory of the Corcoran Group, who frequently helps her clients undertake selective improvements to prepare their homes for sale.
Mr. Katz spent about $45,000 on the renovation job, which included refinishing the wood floors, re-grouting and replacing some of the bathroom tiles, painting the walls and installing new light fixtures. In the kitchen, he modified many of the existing cabinets, added a few new ones, and installed new countertops and appliances.
When the unit was listed in November for $2.1 million, it sold “in a heartbeat, after the first open house,” Mr. Katz said, for the full asking price.
If the work hadn’t been done, Ms. Kory said, the apartment probably would have been listed for about $1.8 million, or $300,000 less.
Despite the findings of Remodeling’s Cost vs. Value Report and the advice of industry professionals, undertaking a major remodeling project doesn’t necessarily mean you’ll lose, rather than make, money.
The report doesn’t account for the value of design, or the transformative power a skillful renovation can have on a home. It also doesn’t consider the original condition of the home — whether it was truly dilapidated, or just slightly outdated.
When Scott and Kelly Trahan of Dallas were looking for a New York pied-à-terre in 2013, they bought a tired prewar condo at 21 East 66th Street for $3.9 million.
“To me, it wasn’t in the type of condition you would expect an apartment to be in when sitting on the corner of Madison and East 66th,” said Mr. Trahan, citing haphazard light fixtures made from paper and staples, uneven walls and ugly floors and moldings.
Seeing potential, Mr. Trahan and his wife spent about $700,000 on a complete overhaul, including a new kitchen, three new bathrooms, a redesigned air-conditioning system, skim-coated ceilings and walls, silk and horsehair wall covering and refinished herringbone hardwood floors.
Two years after they bought the property, it is now in contract to sell for $5.6 million, resulting in a profit of about $1 million.
“People will pay, gladly, for someone else to have done all that work,” said the Trahans’ listing agent, Paul Gavriani of Corcoran.
For such major remodeling projects, the message isn’t that “in all scenarios, it shouldn’t be done,” Mr. Miller said. It’s just more of a gamble: “There’s an inherent risk that the increased cost will not be covered.”