Setting a remodeling budget is challenging. You're excited having gotten past the big decision and you're busy researching the features you want in your new kitchen. At some point you may decide to expand your kitchen remodeling project to take down some walls to create an open concept kitchen – dining- family room.
Without a remodeling budget, you'll spend more than expected regardless of project scope. Drawing from Home and Garden Television (HGTV) shows, you know most home remodeling projects run into problems that eat into your budget, to cover the cost of unplanned repairs. In my handyman business, a bathroom remodel grew to replace a window and exterior wall where there had been a leak for years.
All remodeling projects need 10 to 20% contingency.
You also run the risk of improving your home beyond the price range of comparable homes in your neighborhood, and then you won't recover your investment when you sell your house. If you're absolutely certain you'll remain in your house for more than 10 years, go ahead and spend what you can afford as other houses will catch up with you. Don't be surprised if your plans change, as we put on a 4-story addition, thinking we'd retire in this home … and then moved 4 years later.
Keep remodeling projects within the neighborhood price range.
So let's look at a real example, to illustrate how you can determine how much to spend on a kitchen remodeling project. CNNMoney had an article today, Inside a $140,000 renovation in Sherwood, OR. What caught my attention was size of the remodeling budget for a 1970s ranch house with 3,004 sq ft. While I agree that one of the best remodeling investments today is creating an open concept kitchen, my fear was the cost was excessive for a neighborhood of ranch houses.
Here are the features listed for this remodeling budget.
- Removed walls between the kitchen, dining and family rooms.
- Used tall, mostly open-shelf kitchen cabinets for the peninsula separating the kitchen from the living room.
- Replaced the fireplace with a wood-burning stove which is easier to use.
- Added more storage with kitchen cabinetry wrapping around to the family room.
Remodeling Budget & Neighborhood Home Values
There are several ways to monitor what homes in your neighborhood are selling for, and that's always a good idea.
- Visit open houses within 1 mile of your home, and keep copies of the listings as houses are compared based on square feet of living space, bedrooms, bathrooms, garages, etc.
- When you've committed to remodeling your house, get professional opinions from several realtors and/or a home appraiser. With one house, an appraiser knew immediately that my house needed a deck, did not need a family room and adding a downstairs half bath would add value.
Here's how you can calculate the price range of houses in your neighborhood, without leaving your home. The owner of the CNNMoney article was identified so I googled his name, to learn his address. With the address, you can search multiple real estate listing sites to get their estimates for the house.
Trulia projected the home value at $415,000, for this single family home “… 31900 NE Canter Ln has 3 beds, 2 baths, and approximately 3,004 square feet; lot size of 0.98 acres and built in 1981.” Prices were confusing with the “… average listing price for similar homes for sale is $582,290 and the average sales price for similar recently sold homes is $363,095.”
- Zillow projected a home value of $385,000, with similar descriptive data so we know the 2 estimates are for the same property.
One approach is averaging these home values, to get $400,000. Comparing this value to the average sales price of $363,000 for similar homes, means you want to be cautious with remodeling projects as the odds of recovering your investment are low.
Don't despare as it does appear home values on this street vary quite a bit. These three homes have significantly more square footage so you want to look at the average price per square foot, and Trulia's estimate is $156/sq ft for current listings.
Remodeling budgets are key to investing wisely, so we wish you luck and if you want help, you may find the Savvy Homeowner Club a great resource to help you make better decisions.