It occurs to me that many remodel contractors don’t know much about the real estate market that they make their living from. I know also that some of you aren’t old enough, or haven’t lived in enough different places, to know anything but the “pre-burst bubble” of your expanding market.
I don’t care where you live, markets fluctuate. I also know that some of the markets that some of you work in may not burst their bubbles for quite some time and maybe you just don’t care about this topic. It’s the rest of you that I’m addressing.
Since I also made my living from remodeling at one time, I imagine that many of you have read magazine articles showing something about what percentage of the customer’s remodeling dollar actually winds up in their future appraisal. Since I am now in the real estate biz and, though remodelers don’t like this approach, often it’s cleaning and painting that sell the best. That’s what’s at the heart of the “flip ’em” strategy that lots of investors try for.
That said, it’s wise for anyone to build the place they want the way they want. I did it myself, but I also see many people lose many dollars by “customizing” their place, only to move before they’ve seen much use of their redone place. I’ve seen a number of DIYers and contractors do the same thing. For those who stay put, remodeling can be great.
For you remodel contractors, I bring this up because I believe that a well informed and accurate salesperson makes more money and builds both better homes (more suited to their customer’s actual needs) and better customer relationships… relationships that make you future income. Most small business owner/contractors are their own salespeople, right?
How well do you know your market? Could you give a reasonable guess of value to a customer who asks, “If I sign your proposal, about how much will the value of my property increase by the time you are done?”
Would you encourage a home owner to spend $60k on a renovation/remodel if the completed value of the property would then be under $100k? Would you just assume the owner was getting a loan and an appraisal so it’s not your business? Just curious what you know and what you do.
Thanks to all who contribute.
I’m thankful for the loyal opposition! It’s hard to learn much from those who simply agree with you.
Replies
We had our last house for 7 years. During the first 2 or 3 we put more into it than we could sell it for, but in the next 4 or 5 it rose in value plenty and we sold with room to spare. Doing the same thing to this one... owned it about 2 years and have spent more than we could sell it for right now. It will appreciate, though, and in a few years we'll be using it for leverage to do something else. Of course, there are plenty of good arguments that the best financial strategy would be to do nothing, invest nothing, just prevent it from decaying and let the next guy be the remodeling fool. But we gotta live in this shack, so we're doing it over.
I wouldn't enter into much discussion with a client about the financial wisdom of their remodeling choices. It's their house. It's their money. It's their life. I might have suspicions, and I might be right or wrong about them. No one has ever asked me questions about future value anyway.
good topic...........
I rely on "experts" such as the buyer's guide put out by Remodeling Magazine.
All I can do is relay the printed information to a client. I would never attempt to represent a returned value for work performed. Most folks do their own research, so all I can do add to it.
I also try to appeal to my client's definition of value vs. return.
In other words, why do they drive a Lexus? Are they counting on a return? Or do they drive a car that is depreciating as we speak because they enjoy driving it?
So why not apply the same thinking to a space where they spend more time.........like a luxury bathroom.......a killer kitchen?
Frankly, I think the realitor "brainwashing" condition people have is a misnomer <sp>.........good remodeling........from good design is always a good investment for all things considered. Aside from what your "return" may be......
Good points.
Not all investments expect a monetary return... or nobody would ever have a child! ; )I'm thankful for the loyal opposition! It's hard to learn much from those who simply agree with you.
Interesting points. I once worked on a huge remodel for a show-biz agent, that started as a small kitchen remodel. Probably spent well over a million dollars, over a period of like 2 years. It just went on and on. (I was the lead man, not the contractor). Nit-picked everything to death, changed his mind countless times, and when it was finally finished to his satisfaction, he sold the place, I don't think he even lived in it a year after the work was done.
I've lived in my house almost 15 years. Constantly remodeling. But my problem is, when I have steady work I have no time, when work slows down I have no money, so I have too many unfinished projects all over the place. This year I'm realllly gonna try and tie up some of these loose ends.
Another interesting point: I once read an article on the divorce rate for homeowners who spend big bucks remodeling. It was very high.
I've talked myself out of work by warning people that they may not recoup their investment if they get too carried away. They thanked me, but that didn't pay my bills. Anyway, I was really just testing to see how committed they were to the project. Now equity is up (after stagnating for umpteen years) and suddenly everyone is remodeling. Wonder how long it will last?
Good point about divorces. I've read that the rate of divorce is extreme for owner/builder couples.I'm thankful for the loyal opposition! It's hard to learn much from those who simply agree with you.
My fiancee is a realtor so i have a good idea about what's going on in the market, and it does come up most of the time when i'm talking to potential clients. Honestly, i get about 3/4 of my clients from realtor referrals.
We keep putting off an addition to our house for various reasons, but the value has doubled (at least) in four years without it. If i was oblivious to market conditions, i would have had another bath, larger master, etc. for the last three years. The ROI wouldn't be as high, though.
DCS Inc.
"He who xxxxs nuns will later join the church." -The Clash