Splurging to Impress Buyers
Renovations Help a Home Sell, but They Rarely Recoup Their Cost

By Elizabeth Festa
Special to The Washington Post
Saturday, December 1, 2007

Linda and Jose Rahona created a master bathroom with floor-to-ceiling tile, custom glass shower doors and sleek fixtures. It took three months of dust, tilers, electricians, plumbers and glaziers -- and $25,000 -- to finish.

Now it's "drop-dead gorgeous," Linda boasts. "It's a spa." And that's just the bathroom. The couple also put new appliances and lighting in their kitchen.

They love what they've done to their two-bedroom condominium in Cathedral Heights in Northwest Washington. But they don't want to keep living there. Rather, they renovated so they could improve their chances of selling the unit and moving to Vermont to be near their 3-year-old twin granddaughters.

To make a sale in this sluggish market, some real estate agents are urging their clients to make major -- and costly -- changes to their homes, in addition to the standard cosmetic touches of a fresh coat of neutral paint, removal of clutter and kitsch, and a top-to-bottom cleaning. There is debate, however, over how cost-effective such renovations are just before a sale.

The general rule is that it takes at least five years for a major renovation to amortize, or make the money back, appraisers say -- and even longer now, when values aren't increasing much.

Most renovations won't recoup the job cost, according to Remodeling magazine's annual Cost vs. Value Report. On average, a homeowner will get back about 70 percent of the cost of a project completed close to the time of sale. That's down from more than 80 percent earlier in the decade, when the resale market was booming.

The amount recouped varies by project and geography. For instance, an average minor kitchen-remodeling project in the D.C. area costs about $21,000, according to the study, and 81.9 percent of the cost is recouped.

"If you are going to be living there five to 10 years, you can be there to enjoy it," said Linda Braley, an appraiser in Northern Virginia. "If you are just doing it to sell, you may not get dollar for dollar back, but your property is more likely to sell."

And that's the reason people upgrade before marketing their homes. "If everyone else has [upgraded], then yes, you better hurry up and upgrade. . . . People are just going to walk in your house and walk back out again. You want to be typical for your neighborhood," said John Perry, an appraiser who works mainly in Prince George's and Anne Arundel counties.

"When doing upgrades, the thing you have to think about is this: You always want to be aware of other properties of the neighborhood," said John Bredemeyer, spokesman for the Appraisal Institute and an appraiser himself in Nebraska. If a seller has laminate countertops in the kitchen, Bredemeyer said, it would be wise to upgrade to granite if everyone else has granite. But that seller wouldn't get as much money back after installing granite countertops in a neighborhood where everyone else has laminate.

So, yes, it might be worth it to add that master bath just to sell the house, Braley said. "People are so used to having a master bath now -- something that people really expect, even if it is small."

In June, when the Rahonas decided they wanted to move, they began talking with Pam Kristof, an agent with Re/Max Allegiance in Northwest Washington. She confirmed what Linda already knew: The competition to sell is fierce, so to succeed, a home has to show better than the one down the block or down the hall.

And the Rahonas wanted to sell, so they updated the unit and put it on the market in early fall for $599,900, about the same as they paid in 2004. "I think that my primary goal was to sell the apartment, not make money back," Linda Rahona said. "There was no question that the sale price did not reflect what we put into it." The unit has not sold yet.

Agents say they look at a house differently than does the owner, who might be comfortable with that old kitchen floor, the basement paneling or, yes, the wallpaper -- all things that can turn off a potential buyer.

Jack Griffin, who owns the Re/Max Preferred Properties office in Vienna, tells clients with less than stellar homes, "I've seen all the competition -- inside -- and all the other houses have this, this and that, and in order for you to compete in the marketplace, you have to raise the standards in your house or lower the price."

He said, "If the seller won't put in granite countertops and the competition has them, I would lower the price by $10,000."

"The two biggest things are the kitchen and the bathroom -- mainly the master bathroom," said Cheryl Thomas of Re/Max Premier in Fairfax and Loudoun counties. "Then flooring and paint, then faucets and lighting. Dated linoleum, that has to go. In this day and age and a market like this, you can't have linoleum."

Agents get paid only when they sell a house, but they spend money upfront to market it, and some say they will turn down listings if the owners decline to renovate.

Thomas said she recently rejected the sellers of a Loudoun County house that was appraised at $2.5 million because they wouldn't get rid of some old wallpaper, among other things. The home was "very dated," with a lot of wallpaper, older tile and countertops, she said.

"I suggested it be changed," she said. "They were open to some things. They were not open to everything." The house had an indoor pool and racquetball court and a beautiful grand foyer, Thomas said, but "the wallpaper -- it was very overwhelming."

"I cannot sell a home in that price range if they do not go 'wow' when they walk in the door," she said.

In contrast, Becky and Norton Compton of Fairfax City asked Thomas for advice last year on remodeling and are following it, even though they say it is likely to be a while before they are ready to sell their place and retire.

They started with major backyard renovation. "Cheryl said something had to happen in the back yard where there was just dirt and weeds," Norton Compton said. They had the house painted blue, the lighting fixtures and door hardware replaced, and the balcony and garage door repaired. He said his wife would like to paint the kitchen and install new appliances, including a new double oven. Drywall in the kitchen needs fixing.

But the bill so far has been almost $30,000, and he said granite countertops, which Thomas also mentioned, could stretch his limits. The "seed has been planted" for a major bathroom renovation, too, he said, but he may start by just having the wallpaper removed.

Another thing on his to-do list is to replace the foyer's outdated faux slate with tile. "My nature is, once you get on a roll, it just continues," Compton said. "We are not going to move for a couple years, but I want to do the things we did do early on so we could enjoy it."

Spending big isn't always necessary, however. Jane Wilber, an agent with Re/Max Advantage in Silver Spring, said that a perky-looking bowl of fresh lemons on the kitchen counter is sometimes more cost-effective than a major redo.

"You can do gold-plated kitchen faucets -- it is not going to sell if it is not priced well for the neighborhood," Wilber said.

"I am not a big believer in redoing a house to put it on the market," she said. She recently sold a rowhouse that had last been updated in the 1970s. It was in Tenley Circle in Northwest Washington, a strong neighborhood for sales, she said.

She had the owner spend only $1,800, mostly for landscaping, and that didn't include replacing a fence that was falling down. There were "very, very few things that you are going to be able to do [in terms of renovations] to that house very quickly and recoup that cost." Still, the house sold for more than the asking price.

Braley said, "My feeling on the renovations and additions is that the seller has to be careful about how much they spend." She warns against expensive remodeling that features too individualized a look, whether with the granite or the tile.

"It needs to be proportional to the house price range. In other words, if you have a $500,000 house going on the market, you do not want to spend $100,000 on the kitchen and bathroom."

Wilber said, "You start with the lowest-cost things you can do to enhance value. You don't jump up to highest-cost things. It is worth new light bulbs. It is almost worth a new coat of paint."

As far as adding a second bathroom, she said: "If you do it cheaply, the value is worth more than the cost. If it is a third bathroom and you spend $15,000, then no."

Sometimes it doesn't take much to update the look. "You can get a very good, very presentable light fixture from Home Depot for less than $50," said Bette Gorman of Long & Foster in Old Town Alexandria.

Get rid of 1980s globe lighting, attach brushed-nickel fixtures, replace medicine cabinets and put in plate-glass mirrors to expand space in smaller rooms, Gorman advised. "It's amazing what some updated lighting will do to a space."