CHAPTER ONE: TO MOVE OR IMPROVE -- THAT IS THE QUESTION!
As both an interior designer and a real estate agent, I have the advantage of being able to consider home improvement from two different perspectives. As a designer, I want to be a problem solver as well as to aesthetically improve the appearance of a home. But as a real estate agent, I want to do what makes the most sense from an investment standpoint. As a result, I often find myself trying to resolve conflicts resulting from these two perspectives. So I have compiled a list of questions to ask yourself in order to determine what is the best solution for your specific situation. The answers will obviously be determined by you, your family, your lifestyle, and your future dreams and plans. I have offered commentary to the questions in order to further help you in making your decisions to renovate.
* How long do you anticipate living in your home?
Certainly, plans can change. Yet it is important that you realistically answer this question as best you can. If you decide to proceed with your renovation plans but you also intend to move in a few years, then I may advise you to do things differently than if you were planning on staying in your home for many years. Unless you are planning on living in this home for the rest of your life, it is necessary to give some consideration to resale. At some point, most of us will sell our homes. It should come as no surprise that the homes that take the longest to sell are those that are overpriced, overimproved, and far too personalized for the general public.
A prime example of this is the home across the street from me. Even I could not sell it, and I tried very hard. The problem is threefold. The foyer and dining room floors are black and white granite. Inlaid in the center of the foyer floor is an enormous black granite star. The living room and family room fireplace facades, which extend all the way to the ceiling line, are pink and white marble. The two columns in the family room are also the same pink and white marble. The kitchen countertop is yet another black-, gray-, and rust-colored granite. All of this marble was not only very expensive, but it is also completely out of character for the rest of the neighborhood. And maybe even the rest of the area. As a result, it has put the cost or value of the home far above the others when you consider in the balance the available amenities. Second, the marble touches are highly personalized and do not fit the tastes of many home buyers who have been looking in the neighborhood. Third, our neighborhood is new and still under construction. Which means you can still build the home of your dreams from scratch rather than purchase an existing home on our street. The family that built this marble interior home had planned to live there a very long time. Unfortunately circumstances changed suddenly, and they found themselves moving back to Italy. Their home has now been for sale (and vacant) for two years.
* How does your home compare in price to the rest of your neighborhood?
This is one of the most important questions you can ask yourself. If at all possible, you do not want to have the most expensive home on the block. The most expensive home is reduced in value by the average price of the others on the street. In the real estate market, only the last twelve-month sales numbers count. Most homes are valued by the CMA process -- comparative market analysis. This is an average of the price that homes of similar style, size, and location sold for in the past year. This information is public record at your local courthouse. It is also available through any real estate office.
* How does your home compare to the others in amenities?
In other words, how many bedrooms do most homes on your block have? Do they all have basements, attics, garages, large lots, and swimming pools? Or are you the only one considering adding an extra special amenity? Will you end up having the only home with a family room, but no garage or basement? If so, you may have trouble selling. My sister is currently finding it difficult to sell her home. She has one of the few homes in her neighborhood without a basement. It didn't matter to her when she purchased it. However, now that there are eleven homes for sale in her neighborhood, it seems to be a big deal to everyone else!
* Why have you decided to improve your existing home rather than move to a new home?
There are many valid reasons for staying and improving your home. As I said in the introduction, protecting your roots is a very good reason. Speaking of roots, yards are very high on the list of reasons to stay put. Our yards are the windows to the heart of our home. We take great pride in grooming and landscaping them. It's as if our yard is God's little acre to us, and we become very attached to them. Oftentimes, our reason for renovating may be to satisfy a desire for something different. One of my clients nearly doubled the size of their home, knowing full well that it would price them way out of the neighborhood average. But they loved their neighbors, and their children were extremely happy. So this renovation made sense for them. Even after a fire destroyed their home, they rebuilt. When making your own decision, be sure to weigh the pros and cons, based on your own desires and needs. I usually suggest to a client that they at least do a little house window-shopping before actually signing a contract to proceed with a major renovation. It just makes good sense to see what else is available. Most people also find it educational in terms of making good choices and decisions for their own home project.
* How much money will it cost and does it make sense?
Cost is certainly a valid consideration to renovating versus moving. Most people will spend 20 percent more than the value of their current home for a new house. Then you have to add another 20 percent for commissions, attorneys' fees, and moving costs. That doesn't take into consideration the money you'll also spend to prepare your old home for "sale," or the cost of getting the new home to meet your standards and requirements.
Remodeling is not necessarily less expensive, but you may be able to get more for your money than you would by moving. One reason is that the money you would spend on moving can just as easily be spent on improving your existing home. One consideration in remodeling that people forget about is how it will affect their property taxes. One of the reasons a building permit is required for home improvements is to keep track of them and assess them for taxes. As a result, you will have an appropriate rate of additional tax added to your yearly tally. Be sure to include this when calculating your budget for the project. And don't forget the aggravation of living through a renovation! One of my clients became crazed when she realized that we would have to turn the water off completely while renovating her kitchen. She was also surprised that even though we had used heavy plastic to shield the other rooms from the work, dust still accumulated throughout the house. On the other hand, another client took a total house renovation in stride -- and she had two teenage daughters living at home! They simply moved to the basement for six weeks. They prepared a minikitchen with living and sleeping quarters and decided to enjoy the ride. The difference was in their personalities. Knowing how you will deal with renovation aggravation is important to your decision.
A poll conducted by the National Association of Realtors in 1996 listed the following top ten reasons for moving:
1. 83 percent wanted a house they liked better within their price range
2. 79 percent wanted to live in a better neighborhood
3. 46 percent wanted more space
4. 41 percent wanted to live closer to their work
5. 38 percent wanted to send their children to better schools than were available in their neighborhood
6. 23 percent wanted to be closer to friends and family
7. 18 percent wanted to be closer to parks and recreational areas
8. 17 percent wanted shopping areas close by
9. 12 percent wanted to live in a planned community
10. 5 percent wanted better access to public transportation
Unfortunately, to really make an informed decision about whether to move or renovate, it will practically require going through the entire process of planning the renovation to properly make a choice. In a nutshell, you will need to talk to real estate agents, study property values, and talk with remodeling contractors. You will also need to make precise lists of all specifications and finish materials, including appliances and fixture choices. Finally, you will need to get a contractor to give you a rough estimate for your plan. Below is a table that will provide some insight to cost averages for the most common home-improvement projects. It also includes the added investment value used for selling a home and the percent of gain recovered. This can be helpful to making a decision to move or stay.
So Where Do You Begin?
Let's assume you are fairly certain you want to stay where you are and renovate. As I suggested earlier, do some house window-shopping first. Take several weekends to attend open houses in new developments. This will give you an opportunity to see what the newest trends in your community include. Home shows are another good resource for finding out about new products and contractors. It gives you an opportunity to interview several contractors face-to-face, to see how your personality and style fit with theirs.
By now you should be beginning to develop an idea of what you want. It's time to begin drafting your rough list of "wishes." Be as precise as you can. I usually suggest two lists. One that details all of your goals, and another to address specifics like size, location, etc.
An example of the "goal" list would be: a place for a computer, more storage, a music space, a home office, or more room for the children to play. The second list could include more specific things such as: a larger kitchen with an eat-in area, new cabinets and appliances, a larger master bath, or adding a garage or a screened-in porch. Sometimes we just know we need more space, but we are not sure exactly what kind of space would be most effective, or where to put it.
Whom Should You Consult?
The answer to this question will depend on whether you are a DIY (Do-It-Yourself) person or an HAP (Hire-A-Professional) person. If you are a qualified DIY person, then consider the size of the project and the amount of time involved to complete it. You may want to break the project down into bite-size pieces to determine exactly what you can or are willing to do yourself. Even the most qualified DIY person will need to work with good resource people. My mother has been in the kitchen and bath remodeling business for years. Her knowledge and instincts combined with her experience make her a very good choice as a resource. She works for a well-established shed company that supplies bathroom and kitchen fixtures (sinks, tubs, etc.) to both the retail and wholesale trade. In addition, they have cabinetry available for most areas of the home. The knowledge and information available from a company of this nature is invaluable for the DIY person. With hundreds of catalogs at their fingertips, they can supply information on such things as brand differences, sizes and specifications, installation instruction, and maintenance issues. If you are a DIY person, then a reputable firm of this nature can be a tremendous help.
If the scope of the renovation requires a project manager, and you are thinking about acting as the manager yourself, then considerable thought must be given to the realistic possibility of you being able to handle the project without it interfering with your normal workload. A general contractor can help work your own ideas into a practical plan for construction. Many contractors are quite capable at designing creative and economical ways of doing most anything. In most cases, they are willing to work with you in such a fashion as to allow for your own participation in some of the work. The contract would need to be written with specific language that spells out exactly who will be doing what. I'll go into further detail on choosing and working with contractors later in this chapter.
If you are not the DIY type, then the next step in the process should be to get a professional involved to help you. A professional can be one of several people: an architect, a designer, or a contractor. I prefer using a designer or an architect as my first reference point. These are what I consider the "idea" people. Because they will not profit from the actual construction, they can be more objective and attentive to your structural and financial needs. However, I know several contractors who either employ designers full-time or bring them in as consultants when needed. One of my favorite builders often hires me on a single-project basis. I have found working with his staff to be a good experience. Of course, I do have an advantage -- I am a designer. Which may make it easier for me to understand certain concepts and details than someone without the experience or visualization skills of a designer. Nonetheless, the builder's home designer has been very helpful and creative with design plans and solving problems. The job of a designer or architect is to help you determine and visualize how to meet your goals in the most effective way. They have the ability to give you options that will ultimately allow you to work with a couple of different budgets. Because they have enough knowledge about products and specifications, they can guide you to low-, mid-, and high-end ways of doing things.
How do you locate these people? I always suggest getting recommendations from friends, neighbors, and family. The Better Business Bureau can give you a list of local members, as can the Building Industry Association (BIA). Ultimately you should still interview and check references of anyone you are considering. One of the key points to consider is whether or not you are compatible personalities. No matter how accomplished a designer is, if you do not like her, she cannot please you! I recommend interviewing at least three people. At least one should be an architect. When first calling to set up an interview, ask how large or small a project do they usually consider. Also, be sure they specialize in residential construction and home improvement. You do not want someone whose area of expertise is in commercial construction who just happens to need some extra work!
Here is a list of some basic questions to ask:
1. How do you determine your fee schedule? Is it flexible?
2. Will you "manage" the project, and if so, how is this priced?
3. How long have you been involved in renovation? Do you have a portfolio?
4. Ask for a list of references and diligently follow up on several of them (see below).
5. Ask if they have ever had a client bring a suit against them. If so, why? How was it resolved?
6. Will you be involved in recommending and selecting materials, appliances, fixtures, and finishing products?
7. Will you provide a detailed schedule for completion, and drawings for the contractors to bid on?
Remember, you are in charge. You will ultimately determine how involved you want this person to be. You may want them to provide only ideas while you do all the legwork and manage the project. On the other hand, you may want to have them help with every aspect of the job. Make your desires clear right up front. Communication is the key to any good relationship. I have worked with clients on many different levels. Some only needed me to confirm their own ideas before proceeding with a contractor. Others have asked me to design, specify materials, recommend contractors, acquire bids, and manage the project completely. The choice is yours.
The next step should be to check references. Here is a guide to some questions to ask:
1. Was she easy to get along with? Was she comfortable working with both you and the rest of your family?
2. How big a job was it?
3. How was your working relationship? Do you feel she cooperated with you and your desires on the design plan?
4. Did she give ample attention to details such as needs, costs, and design decisions?
5. Did she use a contract? How did she determine the fee schedule?
6. How was her relationship with the contractor? Did the contractor have a lot of complaints with regard to the design and ease of implementation?
7. Have there been any unforeseen problems with the overall plan or design now that it's finished? Has she been willing to address them?
8. How accurate was she in terms of timing?
Once you have chosen a designer or architect here are some rules for you to follow:
Be honest about your needs and budgets. John Rusk, author of On Time and On Budget, recommends running numbers through your head to determine your own comfort level. Start with $10,000 and continue in increments of ten such as: $20,000, $30,000, $40,000, etc., until you reach a level where you are uncomfortable. This will give you a ballpark range for discussion. Knowing this number is critical to any discussion on home improvement. Using this number as a temporary budget when beginning your design plan can be the key to accomplishing your goals in a realistic manner. After all, it is possible to renovate a kitchen for $15,000 or $50,000. Knowing what you are willing to spend will make a huge difference in how a designer approaches the plan. Remember, this number needs to be acceptable in terms of how it affects the overall value of your home.
Don't pretend to be something you are not. Designers and architects are just like you. They have families, watch TV, their kids track mud through the house, and they leave their ironing board up in the living room. In other words, they live in the real world too. But if you suspect at all that the ideas and/or plans they are suggesting are not consistent with your lifestyle -- stop them! You do not want a room that looks like a magazine photo, you want something that will make your life easier and better! There are basically two types of designers: ABC designers (my terminology) and creative designers. The ABC designer basically prefers to work within only specific styles and/or price ranges. For example, I know a designer who specializes in eighteenth-century styling. Unless you and your home fit his plan, he can't help you. In contrast a creative designer's goal is to get to know you and your family and all of your needs and design accordingly. How do you know the difference? If they immediately start coming up with ideas before they have even interviewed you or taken the time to think about the project -- be careful -- they are probably an ABC designer!
The Contractor
There are probably more horror stories about contractors than about any other professional. We have all heard how "contractor impostors" prey on the elderly and take them for thousands of dollars for repairs that not only were not necessary but were then billed at ten times the real cost. The truth of the matter is that this is the easiest problem to avoid. Never, ever, sign a contract with someone who contacts you first. If you didn't call them and ask for their opinion or an estimate, then BEWARE!
The choice you make and why you make it often determines the kind of experience you will have. As always, you get what you pay for. As with the designer/architect, getting recommendations is always the best bet. If your home is less than ten years old and you are happy with the overall construction and quality, then I would consider the original builder, if he is still available. The reason is simple: he knows exactly what was done and where things are located. Otherwise, once construction begins, you may discover a few surprises, for example, finding a steel support column where you had hoped to put a doorway can throw a real monkey wrench into your plans.
Another way to find builders is through new home development projects in your community. Choose a home that you find attractive and simply interview that builder. Many times people forget about home builders and look only to renovating contractors. Builders are a wonderful resource for renovation. Because of the volume of work they do, they can often be very competitive in pricing, particularly on materials such as windows, doors, gas fireplaces, etc.
That old wives' tale, "Nobody builds a quality home any more," is just that -- an old wives' tale. Ultimately, you will need to determine how much you are willing to pay for style and quality. Some contractors/builders are able and willing to work within different levels of cost and quality. Others may not be willing to compromise their reputation and therefore won't be comfortable working below a certain level of established quality. As a result, the process of interviewing a prospective contractor should involve not only talking with him and examining his work in person, but also checking out his references. As mentioned earlier, it is essential to like the people you are working with. No matter how competent someone is, if you have a personality conflict with them then they will not be able to make you happy. Communication is the most important tool you have to create a successful project. Do not expect to get anything you have not discussed. Detail, detail, and more detail is the key to everyone being satisfied.
Once you have an established plan, you may have an opportunity to have contractors bid for the work on your home. I recommend getting at least three bids for every project. The most important aspect of getting comparable bids is being sure your specifications are complete before the bidding process begins. If you have worked with an architect or designer, then let them do the specification list for the bid.

CONSIDERATIONS AND QUESTIONS FOR THE CONTRACTOR
1. Do you use standard AIA (American Institute of Architects) forms? Form A 107, which is the Abbreviated Owner-Contractor Agreement and is used by small construction contractors, is endorsed by the Council of General Contractors as well as the AIA. This is an advantage, particularly if you are using both an architect and a contractor, because they will both be comfortable and familiar with the terminology and requirements of this contract. It can be obtained at website: www.buildersbook.com, for a fee of four dollars.
2. Do you provide detail specifications for quality control? In other words, get in writing details including brand specifications and model numbers of all products to be used.
3. Does your contract provide for conflict resolution? If so, how? Mediation is my first choice if you cannot work it out yourselves. (See Words of Wisdom, later in this chapter, for further information.) An example of such a situation is when I had my screened-in porch built last fall. The building inspector said the railing did not meet the building code standards.
For safety reasons, it should have been eight inches higher. Since the builder had drawn all the plans and obtained the necessary permits, I had not specified the measurement of the railing but simply chose from the samples the builder provided. I felt the error was not my responsibility but the builder's. It was an expensive mistake, and I was fortunate because my contractor readily admitted that it was his problem, not mine. The original railing had to be ripped out and replaced before I could use the porch. If the builder had not admitted to being responsible for this error, it could have been very difficult to resolve. Planning ahead and obligating both parties to a specific method of resolution can save not only money, but a lot of stress and arguing.
4. Will you contract a finish date? Usually you will not get a contractor to agree to a penalty for not meeting such a date. However, if you are willing to give a bonus for early completion, then most contractors will agree to a contracted completion date.
5. Discuss liability issues and ask for copies of their insurance coverage. Have it checked out by your attorney and abide by his suggestions.
6. Is the contractor a member of the BBB (Better Business Bureau) or BIA (Building Industry Association)? If not, why?
7. Obtain a payment schedule and have it reviewed by your attorney. This schedule should provide for reasonable holding of funds until completion of the project. That way you and the contractor will be obligated to this schedule. This eliminates inappropriate demands for money. Sometimes a contractor can get behind in his accounts payable. This can make it difficult to convince subcontractors who have not been paid to show up for work. This is not your problem but the contractor's.
8. Do you use subcontractors? If so, get their names and references. Oftentimes, the price and quality of your job is determined by the price and quality of the subcontractors employed.
9. Discuss job maintenance. Maintaining a clean, organized site is imperative to a well-executed job. Be specific about your desires and needs. If you have children in the home, you must be assured of their safety after the crew has left the site for the day.
10. Who will be responsible for obtaining necessary permits, inspections, filings, and engineering? Are the fees associated included in the contract? Since this can be a confusing aspect of the project for a novice, I prefer that the contractor/builder be responsible for acquiring necessary permits.
11. Discuss how timing and pricing will be affected in the event of any necessary changes after construction has already begun.
Basically, all of the above situations should also be included when you question references. How situations were resolved with previous customers will give great insight into what you can expect. In addition, the most important question to ask a reference is: Were your expectations met? The most dissatisfied customers either didn't plan well or didn't understand the plans. I cannot stress enough how important it is that you are crystal clear on every item and detail. It is your responsibility to know exactly what has been specified. And the only way to know this is to actually see it.
Here are some other areas that are the responsibility of the owner:
1. Daily, or at least weekly, inspect the job site. Be sure doors, walls, windows, switches, and lights are where you expected them to be.
2. Report any concerns and/or changes.
3. Read any change orders, including the fine print. Be sure a price has been included and that you exactly understand what it entails.
4. Ask questions -- even if you know the answer. It will keep the contractor on his toes if he knows you are watching.
5. Don't jump to conclusions. Some things will just not look right until they are completely finished.
Should I Borrow or Pay Cash?
Once you have established the parameters and basic budgets, you need to decide how to pay for this project. In many ways this will be determined not only by the amount of available cash you may have, but also by your personal viewpoint on borrowing, and how long you plan on staying in your home. Recognize first that a home equity loan's interest payments are tax deductible. If additional tax breaks are an advantage for your situation, then this may make the most sense. There are three different types of home-equity products available: a conventional loan -- also known as a second mortgage; a home-equity line of credit -- which is a revolving line of credit, which you can borrow from at your own discretion, and refinancing -- which replaces your existing mortgage. Regardless of the type of loan you choose, the amount you can borrow will be based on how much equity you have in your house. In most cases you can borrow up to 80 percent of the equity. There are some lending institutions that will allow you to borrow as much as 125 percent of the equity of your home. The problem with this is that it makes it virtually impossible to pay off. Besides, the higher the amount you borrow, the higher your interest rate will be.
If you have cash, you may be able to earn more investing the cash than it will cost you to borrow on interest, especially with the low rates that are available today. How? With interest rates as low as 7 percent for a home-equity loan, you can invest in a mutual fund that may earn twice as much. Compounded over the term of your loan, you can really accumulate a nice nest egg. In addition, you will save on your taxes by deducting the 7 percent interest you're paying on the loan. This is a great deal!
If you have not refinanced your home for some time, then this can be a real viable option because of the increased equity that may have accrued. Equity is the difference between the market value of your home and your existing mortgage debt. Of course, this too will be dependent on current interest rates compared to your existing mortgage loan rate. Often if the value of your home has risen, it may allow you to spend more than you thought while still keeping your mortgage payments at their current level. Obviously this can mean extending the mortgage term. But the benefit may be worth it. In my particular situation -- being in that "midlife" stage -- my accountant highly recommended that I invest any available cash into long-term retirement vehicles such as US Treasury strips, and stocks. This meant that I ended up with a higher mortgage than I had planned, but the deductible interest combined with the growth of the retirement investments more than make up for my desire for a smaller mortgage loan. There is also a new mortgage available called the HomeStyle mortgage from Fannie Mae. It is based on the home's appraised value after renovations -- not on its value at time of application. This allows you to borrow enough money to finance major repair work. For more information, call Fannie Mae, 800-732-6643.
If the thought of extending the term of your mortgage really bothers you, consider the fact that you can add extra payments toward your principal as often as you like. This will in effect reduce the term and overall interest of the loan without obliging you to a shorter term.
Words of Wisdom
Before construction begins, discuss and agree in writing to a plan for conflict resolution. Again, I suggest that mediation should be the first course of action. It does not require attorneys and is a fair solution for both parties. In the event this does not provide satisfaction for both parties, then arbitration should be the next step. This will require attorneys but not a judge or a hearing in court. If at all possible, arbitration should be binding. This means that you agree in advance to the decisions reached in arbitration without further recourse. AAA (American Arbitration Association) can be reached at 212-484-4000. BBB (Better Business Bureau) can be reached at 800-537-4600.
* In choosing designers, architects, and contractors, find people who are flexible and creative. If their pricing seems higher than it should be, then it in dealing with your desired style. They may not be as comfortable as they should be with plans, and therefore may add to the price to cover themselves.
* The best way to control the price is to control the amount of detail in the design. The more intricate the work, the more costly the job. Understanding this will go a long way in helping keep cost down to a reasonable number while still allowing reasonable quality.
* Understand that there are contractors, and then there are contractors. Some have offices and a staff, while others work out of the back of their trunk! Be careful.
* There is no such thing as "perfect." Be reasonable in your expectations.
* Tips for handling problems with the contractor's work:
1. Call first and explain the problem. Do not just complain to your family and friends. I have often told clients that I can't fix what I don't know!
2. Explain exactly how you want the problem resolved.
3. If you do not get a response after a reasonable period of time, call the Better Business Bureau.
4. If the BBB has not been able to get the problem resolved, then it is time to try mediation or arbitration.
5. If this has not been agreed to, then your only option is the courts. Call your attorney!
* Permits are issued on a first-come, first-served basis. As a result, it is not unusual to have to wait four to eight weeks for a permit. But you can begin some prework while waiting. For example you could remove old cabinets from your kitchen and begin prepping the walls. However, be aware that if you actually begin construction before receiving your permit, you will be fined as much as $500. Worse yet, they may make you rip it all out and start again!
* Any remodeling project will require some of the following permits: building permit, historic permit, zoning approvals, coastal and environmental permits, and septic system approval permit. Be sure you know what you need.
* As part of your resale-value checklist, take into consideration the placement and number of bedrooms that makes the most sense. According to Robert Irwin, author of Buy Right, Sell High, most people want three or four bedrooms. Master bedroom: facing the street is less desirable because of the noise. Best: master bedroom isolated from entertainment areas in home. Kitchen: should be large and well lit. Best: an island with counter space. Bathrooms: at least two, preferably three. Garage: most people prefer a two-car minimum. Heating systems: Economics is the biggest concern. Gas, oil, and high-tech furnaces are much less costly than electric heat.
* To obtain loan interest information, visit Web site www.bankrate.com. It compares loan rates for over 2,500 banks.
* If your home is listed on the preservation list as historic, you will need a special permit and will be required to work within the government guidelines for restoration. Start by contacting your state historic preservation officer (SHPO) to help you find preservationists and contractors who specialize in such work. The Advisory Council on Historic Preservation has a Web site you can consult: www.achp.gov/shpo-thpo.html. There are also architects who specialize in historic preservation. To get a list of members with this specialty contact the AIA at 202-626-7300, or visit their Web site: www.aiaonline.com.
* If you live near a body of water or wetlands, you may need a special permit. Check with local and federal regulators. I had an unfortunate experience with wetlands that had been filled without a permit many years before I owned the property. As a result, I spent a lot of money and wasted a lot of time trying to resolve this problem.

Copyright © 1999 by Starburst Publishers