The Real Deal

Remodeling instead of selling is an option

By Jean Newton

As the housing market changes, many people are deciding to stay put, and remodeling is one option that makes sense. No matter what type of remodeling project is selected, making certain the improvements increase the home's resale value as well as provide comfort and convenience is important.

It's not a good idea to assume that the money spent on sprucing up a home will automatically be recovered. To maximize the return on investment, it's necessary to consider how long a homeowner is likely to live in his or her home. If a move is planned within a year or two, it's wise to limit remodeling to relatively inexpensive touch-up projects that homeowners can do on their own. Cosmetic improvements give a home a fresh, clean look, add to its market value and create a favorable impression that will make a home easier to sell.

On the other hand, if a homeowner is certain he or she will stay in the home for a minimum of three years, a more extensive renovation can be considered. However, don't' overdo it--in other words, spend more than could possibly be recovered upon resale. The market value of a home is determined mainly by the value of the homes around it, regardless of renovations. Of course, if a homeowner knows he or she plans to stay in a home forever, recouping costs is not a factor. Imagination and budget are the only limitations.

Once a homeowner has decided what to accomplish, the next step is financing. There are several options available. For instance, the homeowner might consider refinancing the current mortgage to cover the home improvement costs. This may be the most practical way to borrow for the long term at market interest rates. If the outstanding balance is low on the current mortgage, refinancing could free up a considerable amount of cash.

Another option is a second mortgage. The interest rate typically is higher on a second mortgage than the first mortgage, and the term is shorter. For relatively minor home improvements (less than $10,000) a homeowner might consider an unsecured personal loan. The term generally is short, and the interest rate is higher than on a secured loan. In addition, check to see if the contractor offers an installment payment plan.

When choosing a contractor, it's important to do some homework. By following the tips below in selecting a contractor, the homeowner is more likely to control both cost and design while minimizing risks.

*Obtain at least three separate bids for all work needed and avoid firms that offer substantially lower prices than others. The quality of the work may be as low as their prices.

*Before signing a contract, obtain several references from the contractor, and check them carefully. In addition, contact the local office of the Better Business Bureau to check on the reputation and dependability of the company.

*Check to see if guarantees are offered. If so, find out if the guarantee covers all work, or is limited to certain materials.

*Obtain a written copy of the price quotations and the specific work to be done.

*Never pay a contractor in cash, particularly before the work is started.

*Obtain a certificate of the contractors' liability insurance coverage limits, policy and company.

Proper preparation is the key to smooth, successful home improvements, and once completed, the project can add to the value and enjoyment of your home.

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Information provided in this column is presented by the Realtor members of the Silicon Valley Association of Realtors. Send questions on any topic to: Real Deal, c/o SILVAR, ppompei@siliconvalley-realtors.org.

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